IBC (Amendment) Bill, 2025: Proposing Sweeping Changes In India's Insolvency Framework

In a continued effort to improve and restructure the insolvency framework, the Government of India introduced the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 ("IBC Bill") in Lok Sabha on 12th August 2025, to amend the Insolvency and Bankruptcy Code, 2016. Once passed, this landmark legislation aims to address the longstanding procedural challenges and critical loopholes.

The IBC Bill proposes several significant changes to streamline the overall insolvency process including enhancing creditor rights and harmonising judicial interpretations which often led to inconsistencies.

Key Reforms Proposed:

1. The Bill directly addresses the issue of judicial delays at the admission stage by making the process more mandatory and time bound. While the Code originally prescribed 14 days as the period for rejection/admission of a Corporate Insolvency Resolution Process ("CIRP") application, it was not strictly implemented. The amendment now mandates the National Company Law Tribunal ("NCLT") to admit or reject a CIRP application within 14 days and provide written reasons for any delay. Further, the present Code did not provide for a fixed, strict timeline for the completion of the liquidation process. However, now under the new Bill, a liquidation process must be completed within 180 days, extendable by up to 90 days. The Amendment has widened the look-back period for reviewing suspicious or fraudulent transactions, and will now be counted from the date of filing of the application for initiation of CIRP which was previously counted only from the date of admission of the insolvency process.
2. A notable procedural reform under the amendment, is the introduction of a Creditor-Initiated Insolvency Resolution Process (CIIRP) for specified classes of corporate debtors to allow creditors to initiate a resolution process through an out-of-court, time-bound (within 150 days of commencement) and more cost-effective framework distinct from the standard CIRP process.
3. The amendment proposes to codify the 'clean-slate principle' which has been discussed and established by several court rulings. The Supreme Court through its judgement in Essar Steel India Case¹ upheld the finality of the resolution process by reaffirming that claims of creditors or liabilities not part of the approved resolution plan cannot be enforced subsequently. The IBC Bill therefore, aims to formally incorporate the principle as a provision within the code to leave little room for any ambiguities that often undermine the resolution framework, post-plan approval.
4. The amendment expressly clarifies its position on treatment of Government dues by amending the definition of 'security interest'. The new provision states that a security interest shall exist only if it creates a right, title or interest or a claim to a property pursuant to an agreement or arrangement, by the act of two or more parties, and shall not include a security interest created merely by operation of any law for the time being in force. This essentially overrules the Supreme Court decision in Rainbow Papers Case², which had allowed statutory government dues to be treated on par with secured financial debts. The bill seeks to reinforce the waterfall mechanism by giving secured debts arising out of an agreement priority over government dues, such as taxes and penalties.
5. In the existing code, the role of the Committee of Creditors (CoC) was largely diminished after the company went into liquidation and was headed by a stakeholder committee. The proposed amendment however empowers the CoC to supervise liquidation, propose or replace the liquidator, and even restore CIRP with a majority vote of 66% of the CoC.
6. The IBC Amendment Bill, 2025 also proposes to bring in processes for simultaneous insolvency resolution for a group of companies under common management or ownership. This means the court could use a single bench to oversee the process, and a shared resolution professional could be appointed to coordinate the efforts across the entire group. This new approach provides for a more efficient and comprehensive insolvency process.
7. The Amendment further proposes to adopt UNCITRAL Model Law principles on cross-border insolvency . To facilitate this, the Government will now be empowered to make rules, designate special benches and adapt laws that would help establish a legal foundation for effective cooperation between Indian and foreign insolvency proceedings.

Conclusion

This IBC Bill represents a turning point in the direction of a more legislatively mature and sound insolvency eco-system. By addressing the challenges and judicial ambiguities that have surfaced over the past decade, the Bill aims to inject efficiency and fairness into the resolution process. The proposals under the amendment reflect a shift from a discretionary to a mandatory framework, with stricter timelines and procedural changes. It further upholds the creditors' rights and interests by reducing abuse of process.

This is a promising step that shows India's commitment towards building a transparent and investor-friendly insolvency regime which is not only aligned to the international principles but also equipped with laws to remediate complex corporate matters and thereby making India a more attractive destination for capital and investment.

Footnotes

1. CoC of Essar Steel India Ltd. v. Satish Kumar Gupta & Ors, (2019) 8 SCC 531

2. State Tax Officer v. Rainbow Papers Ltd., (2022) ibclaw.in 107 SC

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