The Insolvency and Bankruptcy Code (Amendment) Bill, 2025: Recasting the Architecture of the Insolvency Regime

The Insolvency and Bankruptcy Code, 2016 ("IBC") was enacted to create a time-bound, creditor-responsive, and value-maximising insolvency framework. In practice, however, the system has been burdened by admission-stage delays, prolonged approval proceedings, liquidation inefficiencies, disputes concerning government dues, and uncertainty generated by frequent judicial elaboration of the statute.

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025, Bill No. 107 of 2025, ("Bill") is directed at those structural concerns. It must therefore be read not as a set of isolated amendments but as an attempt to shift the Code from a tribunal-centred and litigation-prone model toward a more document-driven, creditor-supervised, and regulation-supported framework.

Overview

After being referred to the Lok Sabha Select Committee on 12.08.2025, the recommendations of which were presented on 17.12.2025, the Bill was passed by the Lok Sabha on 30.06.2025. This article examines the rationale of the Bill, its legislative status, and its principal amendments, and concludes with an assessment of the likely shape of the insolvency regime if the Bill is enacted in substantially its current form.

The Bill, aiming to streamline the insolvency regime in India basis almost a decade of practical experience since the introduction of the IBC addresses the principal issues of procedural delays and uncertainty in recovery outcomes. The Bill has apart from introducing a new Creditor-Initiated Insolvency Resolution Process ("CIIRP") with out-of-court commencement by notified creditor classes/thresholds, while broadly keeping the debtor in control under insolvency professional oversight, also aims to provide for stricter CIRP admission and plan approval timelines and restricts grounds for rejection once “default and completeness” are satisfied.

Further, it recasts the liquidation process governance by extending the Committee of Creditors ("CoC") into liquidation (including power to appoint/replace liquidator) and by removing specified quasi-judicial claim adjudication functions from the liquidator. The Bill also adds enabling frameworks for group insolvency and cross-border insolvency, while delegating significant detail to rules.

The policy logic of the Bill appears to rest on five principal objectives. First, it seeks to reduce the mismatch between the statutory timelines under the Code and actual tribunal practice, especially at the admission and plan-approval stages. Secondly, it seeks to improve certainty in distribution and recovery outcomes, particularly in liquidation, by clarifying the status of security interests, statutory dues, and secured creditor realisation. Thirdly, it attempts to preserve value by expanding commercially workable restructuring tools, including sale of individual assets, guarantor asset transfers, and a new creditor-initiated track. Fourthly, it strengthens the clean-slate position for successful resolution applicants by giving broader statutory form to claim extinguishment and continuity of licences and permits. Fifthly, it provides enabling frameworks for group insolvency and cross-border insolvency, reflecting the growing inadequacy of a single-entity domestic model for modern enterprise distress.

Analysis of Key Amendments

(1) Amendment to Section 3: Definition of ‘Security Interest’ and ‘Service Provider’

Clause 2 inserts an Explanation to Section 3(31), clarifying that a security interest exists only where it is created by agreement or arrangement between parties and does not include a security interest arising merely by operation of law. It also inserts the definition of service provider.

This is one of the most consequential amendments. It is designed to prevent statutory claims, especially tax or governmental claims backed by charge provisions, from being elevated into secured status merely because a statute declares a first charge. The advantage is increased certainty in the waterfall mechanism under the IBC. The likely drawback is a new round of litigation between the Code and special fiscal statutes asserting statutory priority.

The service provider definition also expands the regulatory perimeter of the IBBI. That improves coherence, but it also widens exposure to disciplinary action and regulation for actors connected with insolvency administration.

(2) Amendment to Section 5: New Definitions and Initiation Date

Clause 3 introduces definitions for avoidance transaction and fraudulent or wrongful trading, clarifies the initiation date where multiple applications are pending, expands the explanation to resolution plan to include sale of one or more assets, and refines the concept of voting share.

The inclusion of asset sales within the statutory conception of a resolution plan is commercially important. It reflects market reality and legitimises more granular restructuring outcomes. The clarification of the initiation date is also meant to rationalise look-back periods and procedural consequences.

(3) Amendments to Sections 7, 9 and 10: Admission Discipline

These clauses overhaul the admission framework. For Section 7, the Adjudicating Authority must admit the application if default is established, the application is complete, and no disciplinary proceeding is pending against the proposed professional. A record of default with an information utility is treated as sufficient to ascertain default. Similar timeline discipline, with written reasons for delay, is inserted in sections 9 and 10.

This is a strong attempt to restore the Code’s original architecture, under which admission is not supposed to become a trial on merits. The advantage is quicker commencement of the process and reduced adjudicatory drift. The corresponding risk is that disputes may migrate into narrower but still delay-generating objections concerning completeness, service, and the integrity of IU records.

(4) Amendment to Section 11: Eligibility Bar Extended

Clause 7 extends disqualification rationale under section 11 to the new Chapter IV-A.

This amendment ensures that the new creditor initiated regime is not used to bypass eligibility limitations applicable elsewhere.

(5) Substitution of Section 12A : Withdrawal of Admitted Applications

Clause 8 substitutes section 12A and provides that an admitted application cannot be withdrawn before constitution of the CoC and cannot be withdrawn after the first invitation for submission of resolution plans. Withdrawal remains subject to 90% CoC approval.

The policy concern here is evident as the insolvency process should not be used as a coercive debt collection device only to be privately settled after the machinery is triggered. Yet the amendment may also prevent economically efficient settlements at a stage where parties are ready to resolve their dispute.

(6) Amendment to Section 14: Scope of Moratorium

Clause 9 clarifies that the moratorium also applies where a surety seeks to initiate or continue proceedings against the corporate debtor pursuant to a contract of guarantee.

This reduces the possibility of indirect circumvention of the moratorium. The advantage is doctrinal clarity. The likely dispute will concern the exact reach of the phrase action or proceedings, especially in mixed contractual and statutory contexts.

(7) Sections 16, 18 and 19: IRP Appointment, Verification of Claims, Cooperation Duty

Clauses 10 to 12 refine the appointment mechanism for the IRP, clarify that claim collation includes verification and possible valuation, and broaden the duty of cooperation beyond personnel to a wider set of persons connected with the corporate debtor.

These are process-strengthening amendments. They improve access to information and increase the likelihood that the CoC is correctly constituted on accurate claims. The concern is overbreadth and proportionality, particularly where former personnel or external service relationships are involved.

The Recasting of Liquidation: CoC Supervision, Liquidator Appointment and Replacement

Clauses 13, 21, 22 and 23 collectively transform liquidation. The CoC will supervise liquidation, propose the liquidator, and may replace the liquidator through the newly inserted section 34A.

This is a major conceptual shift. Under the present Code, liquidation is structurally distinct from CIRP and is more liquidator centric. The Bill moves toward a creditor-governed liquidation model. The benefit is commercial accountability and perhaps higher recoveries. The counterpoint is that liquidation affects operational creditors, workmen, governments, and residual interests; stronger CoC control may increase efficiency, but it also risks deepening creditor dominance in a phase where distributive fairness is critical.

(8) Amendment to Section 22: Deemed Appointment of RP

Clause 14 deems the selected professional appointed as RP from the date of the CoC resolution itself.

This reduces process gaps and improves continuity. The principal issue will be how actions taken during that deemed period are treated if the appointment later becomes contentious.

(9) Amendments to provisions concerning Avoidance Transactions and Fraudulent or Wrongful Trading

Clauses 15, 16, 24, 28, 29 and 30 strengthen the avoidance architecture by requiring reporting and permitting creditors, members, or partners to move the Adjudicating Authority where the professional has not done so. They also make clear that avoidance and wrongful trading proceedings survive completion of CIRP or liquidation.

The benefit is obvious: suspect transactions can no longer escape scrutiny simply because the main process has ended. The concern is the creation of a long-tail litigation environment, particularly after dissolution.

(10) New Section 28A: Transfer of Guarantor Assets

Clause 17 inserts section 28A and allows, subject to approvals, the transfer of assets of a personal guarantor or corporate guarantor as part of the corporate debtor’s insolvency resolution.

This is a commercially innovative amendment. Many distressed structures in India involve promoter guarantees and collateral outside the debtor itself. The provision seeks to unlock value by bringing such assets into the resolution matrix. Its weakness lies in complexity: inter-estate priorities, guarantor-side proceedings, and consent thresholds may generate substantial litigation unless regulations are careful and clear.

(11) Amendments to Sections 30 and 31: Dissenting Financial Creditors, Plan Approval, Licence Continuity, Clean Slate

Clauses 18 and 19 recast the treatment of dissenting financial creditors, permit staged approval of implementation and distribution, protect licences and permits associated with the plan, and provide that pre-approval claims against the corporate debtor and its assets stand extinguished unless otherwise provided in the plan.

This is the statutory entrenchment of the clean-slate principle. It will be welcomed by bidders and distressed asset investors. The difficulty is that the breadth of extinguishment may provoke challenges from authorities asserting public law claims or continuing statutory jurisdiction.

(12) Amendment to Section 33: Restoration Before Liquidation

Clause 20 gives the Adjudicating Authority a mechanism, on a 66% CoC application, to restore CIRP before liquidation in specified circumstances.

This reflects a value-preservation objective. Rather than liquidating by default at the first procedural dead-end, the law allows one more structured attempt at resolution. The concern is tactical delay. Restoration can preserve value, but it can also be used to postpone liquidation without realistic prospects of success.

(13) Omission of Sections 38 to 42: Claims in Liquidation

Clause 25 omits sections 38, 39, 40, 41 and 42, which presently govern submission, verification, admission, rejection and appeal of claims in liquidation.

This is among the most controversial changes in the Bill. It may accelerate liquidation, but only if the replacement architecture is sufficiently robust. Otherwise, it may create more litigation, not less.

(14) Look-Back Period Recalibration

Clauses 26, 27 and 30 recalibrate look-back periods in sections 43, 46 and 50 by linking them to the initiation date and insolvency commencement date more precisely.

These amendments are technical but important. They seek to reduce gaming and ambiguity where multiple proceedings overlap.

(15) Amendments to Sections 52 and 53: Secured Creditor Realisation and Waterfall Clarifications

Clause 31 tightens the secured creditor’s election and realisation procedure. Clause 32 clarifies partial-security treatment and clarifies the position of government dues even where a security interest is said to exist.

These amendments enhance predictability and collective integrity in liquidation. They are likely to be strongly contested by both secured creditors and government authorities because they limit unilateral enforcement advantages.

(16) Section 54: Liquidation Completion and Dissolution

Clause 33 substitutes section 54, provides a 180-day period for liquidation with a possible extension up to 90 days, allows the CoC to determine how pending avoidance proceedings or distributive suits are to be pursued, and ensures that dissolution does not terminate those proceedings. The thrust is speed. The challenge is feasibility. Unless tribunal capacity improves significantly, statutory compression alone may not produce real compliance.

(17) Pre-Packaged Insolvency Alignment

Clauses 34 to 38 align the PPIRP framework with the revised structure of plan approval, cooperation duties, and technical cross-references. They are largely harmonising amendments, but they indicate a broader legislative effort to ensure that all restructuring tracks operate with comparable procedural discipline.

(18) Omission of Fast-Track CIRP

Clause 39 omits Chapter IV of Part II, thereby removing the fast-track CIRP regime.

This suggests legislative recognition that fast-track CIRP has not developed into an effective separate mechanism. The space vacated by it appears intended to be occupied, at least partly, by the new creditor-initiated process.

(19) New Chapter IV-A : Creditor-Initiated Insolvency Resolution Process

Clause 40 inserts sections 58A to 58K and creates the creditor-initiated insolvency resolution process. Certain notified financial creditors, with support from financial creditors representing at least 51% in value of the relevant debt, may initiate the process by appointing an insolvency professional and making a public announcement. The debtor remains in management, subject to oversight by the professional, unless and until the process is converted into an ordinary CIRP. This is the most structurally innovative feature of the Bill. It creates a quasi out-of-court insolvency initiation route while retaining tribunal supervision as a corrective mechanism. The advantages are reduced admission-stage burden and earlier restructuring. The concerns are equally serious: selective creditor eligibility, due process for the debtor, and heavy dependence on future notifications and regulations.

(20) Voluntary Liquidation

Clause 41 introduces stronger discipline in voluntary liquidation, including a one-year completion framework and provisions for termination of the process in specified circumstances. This reflects a general legislative shift toward hard timelines across insolvency and winding-up processes.

(21) New Chapter VA : Group Insolvency

Clause 42 inserts section 59A and authorises the Central Government to prescribe rules for insolvency proceedings involving two or more corporate debtors forming part of a group.

This reform is overdue. Modern enterprise distress often spans multiple entities, and India’s current single-entity model is often inadequate. Yet the Bill does not itself establish a full code of group insolvency. It merely enables one.

(22) Abuse Deterrence and Fraud Provisions

Clauses 43 to 46 introduce penalties for frivolous or vexatious proceedings, extend malicious initiation and fraud-related provisions to the new CIIRP framework, and clarify that liquidators may invoke wrongful and fraudulent trading provisions.

The overall legislative intent is to discourage tactical use of the insolvency process and strengthen accountability of management and participants.

(23) Personal Guarantor and Individual Insolvency Changes

Clauses 47 to 54 carve out the interim moratorium for personal guarantors in certain contexts, extend timelines under section 99, introduce termination where no repayment plan is filed, create a new provision against transactions defrauding creditors in the individual context, and insert penalties for frivolous or vexatious proceedings under Part III.

These amendments reflect a creditor-oriented tightening of the personal guarantor regime. They are likely to reduce tactical delay, but they also diminish interim protective space for guarantors.

(24) Regulation, Discipline and Penalties

Clauses 55 to 64 broaden IBBI’s powers, introduce standards of conduct for CoCs and their members, widen the regulatory concept of service provider, revise the disciplinary structure, expand use of the Insolvency and Bankruptcy Fund, and substitute section 235A with a stronger penalty regime. This confirms that the Bill is not merely about adjudicatory process; it is equally about regulatory governance of the insolvency ecosystem.

(25) Rule-Making, Regulation-Making, Electronic Portal, Cross-Border Insolvency and Removal of Difficulties

Clauses 65 to 68 expand the rule-making and regulation-making powers, introduce an electronic portal mechanism, insert section 240C enabling cross-border insolvency rules, and adjust the removal-of-difficulties power. The cross-border provision is important, but it is also the most delegation-heavy part of the Bill. The practical content of the reform will depend on future rules and regulatory design.

The Likely Insolvency Regime After Enactment

If enacted in substantially its present form, the amended regime will have several defining features. Admission into insolvency will become more rule-bound, more dependent on information utility records, and less open to broad judicial discretion at the threshold.

Successful resolution applicants will receive a stronger statutory clean slate, with greater assurance that legacy claims against the corporate debtor itself will not continue after plan approval. Liquidation will cease to be merely a liquidator-led terminal phase and will instead become a CoC-supervised process, with corresponding implications for creditor control, claim administration, and recovery priorities.

Government dues will be more clearly subordinated to the waterfall logic of the Code and will not be elevated into secured claims simply through statutory charge provisions. A new creditor-initiated restructuring route will exist outside the traditional tribunal admission model, though it will remain dependent on executive notification and procedural rules. The system will acquire enabling, though not yet fully elaborated, frameworks for group and cross-border insolvency.

Conclusion

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 represents a structural redrafting of Indian insolvency law. It pushes the system toward speed, documentary certainty, creditor supervision, and regulatory control. Its most attractive features are its effort to restore discipline in admissions, its stronger finality for resolution applicants, and its introduction of new institutional tools such as creditor-initiated insolvency, group insolvency, and cross-border insolvency. Its greatest weaknesses lie in two areas. First, several of the most ambitious reforms depend heavily on subordinate legislation. Secondly, some changes, especially in liquidation claims and broad claim extinguishment, may generate constitutional, statutory, and procedural challenges before the tribunals and appellate courts. The Bill is not yet an enacted amendment.

Disclaimer

The note is prepared for knowledge dissemination and does not constitute legal, financial or commercial advice. AK & Partners or its associates are not responsible for any action taken based on its contents.

For further queries or details, you may contact:

Mr. Sahil Chandra

Associate Partner - Dispute Resolution

AK & Partners

info@akandpartners.in