The Insolvency and Bankruptcy Code (Amendment) Bill, 2025: Comprehensive Reforms Introduced to Expedite Resolution, Strengthen Governance, and Frame New Insolvency Mechanisms

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 (Bill), introduced in the Lok Sabha on August 12, 2025, proposes comprehensive changes to the Insolvency and Bankruptcy Code (IBC), aiming to expedite processes, maximize asset value, and introduce frameworks for novel concepts like creditor-initiated insolvency, group insolvency, and cross border insolvency.

Key Proposed Reforms in the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 include:

1. Clarification and Regulatory Scope

• • • Security Interest Origin: The Bill proposes the insertion of an Explanation into section 3(31) to clarify that a security interest will 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. This amendment aims to prevent statutory liens (such as tax dues) from claiming parity with secured financial creditors.

• • • ‘Service Provider’ Regime: The Bill proposes that the term “service provider” be defined to include an insolvency professional, insolvency professional agency, information utility, and any other category of persons notified by the Central Government, registered with the Board. This change aims to expand the regulatory reach of the Insolvency and Bankruptcy Board of India (IBBI).

• • • Clarity on Asset Sales: The Explanation to section 5(26) is proposed to be amended to clarify that resolution/restructuring may also incorporate the sale of one or more assets of the corporate debtor.

2. CIRP Initiation, Timelines, and Procedural Discipline

• • • Mandatory Admission: The Bill proposes to mandate the Adjudicating Authority (AA) to admit a financial creditor’s application under section 7 within fourteen days if specific requirements are met (default occurred, the application is complete, and no disciplinary proceeding is pending against the proposed resolution professional (RP)). An Explanation is proposed to be inserted, clarifying that no other ground should be considered to reject an application if these requirements are met. Delays beyond 14 days would require written reasons.

• • • Revocation of IRP Nomination Right: The Bill proposes the omission of Clause (b) of sub section (3) of section 10, thereby abrogating the corporate debtor’s right to propose an interim resolution professional (IRP) in a corporate applicant initiated Corporate Insolvency Resolution Process (CIRP). Instead, the AA would make a reference to the Board for recommendation of an insolvency professional.

• • • Stricter Withdrawal Conditions: The Bill stipulates that an application admitted under section 7, 9, or 10 may only be permitted to be withdrawn with the approval of ninety per cent voting share of the committee of creditors (CoC). Withdrawal is explicitly proposed to be prohibited before the CoC is constituted or after the first invitation for resolution plan submission. The AA would be required to dispose of the application within thirty days or record reasons for delay.

3. Moratorium Scope and Creditor Rights

• • • Moratorium and Surety Rights: An Explanation is proposed to be inserted into section 14, clarifying that the moratorium would apply where the surety seeks to initiate or continue any action or proceedings against the corporate debtor pursuant to a contract of guarantee.

• • • RP Determination of Claims: An Explanation is proposed to be inserted in section 18, which would clarify that the interim resolution professional, while collating and verifying the claims, shall also determine the value of such verified claims, if required.

• • • Transfer of Guarantor Assets: A new section 28A is proposed to be inserted to enable the transfer of assets of a personal or corporate guarantor of the corporate debtor. This transfer would be contingent on the creditor having taken possession of the asset and obtained the necessary approval from the corporate debtor’s CoC.

4. Resolution Plan Approval and Clean Slate Principle

• • • Minimum Payout for Dissenting Financial Creditors: Under the proposed amendment, a resolution plan would be required to provide for payment to dissenting financial creditors of an amount not less than the lower of two specified calculations.

• • • Two Stage Approval Mechanism: The Bill outlines a mechanism where the AA may be granted the power to first approve the implementation of the resolution plan (with 66% CoC approval), and thereafter, approve the manner of distribution within thirty days.

• • • Formalisation of Clean Slate Principle: New sub sections (5) and (6) are proposed to be inserted in section 31 to formalize and clarify the Clean Slate Principle. These subsections would establish that approved resolution plans extinguish all pre-approval claims against the corporate debtor and its assets (unless specified). Licenses, permits, or registrations associated with the approved plan shall not be suspended or terminated for pre-plan non-compliance, provided the corporate debtor complies with the remaining obligations.

• • • CCI Approval Deadline: The Bill proposes an extension of the deadline for obtaining prior approval of the Competition Commission of India (CCI) for a combination provision. This approval would now be required before the resolution plan is submitted to the Adjudicating Authority.

5. Liquidation Process Reforms

• • • Supervision by CoC in Liquidation: It is proposed that the CoC constituted during CIRP shall supervise the conduct of the liquidation process by the liquidator.

• • • Restoration of CIRP: New sub sections (1A) and (1B) are proposed to allow the AA to restore the CIRP (only once) upon request by the CoC (with sixty-six per cent voting share) if liquidation was initiated due to plan failure or rejection.

• • • Moratorium Extended: Section 33 is proposed to be amended to declare a moratorium for specific purposes during liquidation.

• • • CoC Power for Direct Dissolution: Section 33 is proposed to be amended to allow the CoC to resolve to dissolve the corporate debtor (instead of liquidating) at any time during CIRP, before plan confirmation.

• • • Fixed Liquidation Timelines: The Bill seeks to establish fixed liquidation completion timelines. The liquidator must completely liquidate assets and make an application for dissolution within one hundred and eighty days, extendable once by ninety days.

6. Secured Creditor Action and Government Dues

• • • Secured Creditor Realisation Decision: Secured creditors would be required to inform the liquidator of their intent to realise security interest outside liquidation within fourteen days. Failing this, the security interest is proposed to be deemed relinquished to the liquidation estate. If multiple secured creditors hold security over the asset, the realisation must be agreed upon by not less than sixty-six per cent of the value of all secured claims.

• • • Government Dues Priority: An Explanation is proposed, which would clarify that amounts due to the Central and State Government for the two years preceding liquidation shall be distributed under section 53(1)(e)(i), regardless of whether a security interest was created.

7. Investigation of Avoidance Transactions

• • • Expansion of Look back Period: The Bill proposes an expansion of the avoidance transaction look back period for preferential, undervalued, and extortionate credit transactions. The period is proposed to be amended to start from the initiation date (date of application filing), instead of the insolvency commencement date.

• • • Empowerment of Creditors: Section 47 is proposed to be substituted to allow a creditor, member, or partner to apply to the AA for avoidance of transactions if the liquidator or RP fails to report it.

• • • Liquidator Permitted to Initiate Fraudulent Actions: Section 66 is proposed to be amended to clarify that the liquidator shall also be permitted to file applications related to fraudulent or wrongful trading during the liquidation process.

8. New Insolvency Frameworks

• • • Creditor Initiated Insolvency Resolution Process (CIIRP): A new Chapter IV A (sections 58A to 58K) is proposed for insertion, establishing an out of court mechanism for CIIRP. Initiation would require 51% approval of the debt value due to notified financial creditors. The process must be completed within one hundred and fifty days, extendable once by a period not exceeding forty-five days.

• • • Group and Cross Border Insolvency: New provisions (Chapter VA and section 240C) are proposed for insertion, empowering the Central Government to prescribe rules for conducting Group Insolvency and Cross Border Insolvency proceedings. Rules may provide for a common Bench, coordination between proceedings and CoCs, and appointment of a common insolvency professional.

9. Personal Guarantor and Regulatory Oversight

• • • Exclusion of Interim Moratorium: New sub sections (4) are proposed to be inserted into section 96 and section 124, stating that the interim moratorium benefits will not apply where an application is filed for initiating an insolvency resolution process or bankruptcy process in respect of a personal guarantor to a corporate debtor.

• • • Frivolous Proceedings: New sections 64A and 183A are proposed for insertion, allowing the AA to impose a penalty of up to two crore rupees upon any person initiating a frivolous or vexatious proceeding.

• • • IBBI Power to Regulate CoC Conduct: Section 196 is proposed to be amended to empower the Board to specify regulations for the standards of conduct of the committee of creditors and its members while acting under Part II and Part III of the Code.

• • • Disciplinary Process: Under the proposed changes, the Board would be able to constitute one or more disciplinary committees. The maximum penalty the committee may impose is proposed to be increased from one crore rupees to two crore rupees. Aggrieved persons may prefer an appeal to the National Company Law Appellate Tribunal (NCLAT) against disciplinary committee orders.

• • • Provision for Electronic Portal: A new section 240B is proposed to be inserted, empowering the Central Government to provide, by way of notification, an electronic portal and the procedures related to the insolvency and bankruptcy processes under the Code.

• • • Mandatory Filing of Information to IU by Operational Creditors: The proposed amendments stipulate that operational creditors would be required to submit financial information to an Information Utility (IU) before they file an application under section 9 of the Code. Furthermore, if the corporate debtor/debtor fails to respond to the information submitted to the IU, the Bill proposes that such information shall be deemed to be authenticated.

• • • Mandatory Creditor Meeting for Personal Guarantor Repayment Plan: The Bill proposes to mandate that where the repayment plan concerns a debtor who is a personal guarantor to a corporate debtor, the resolution professional would be required to summon the meeting of the creditors.

The comprehensive reforms detailed within the Bill are primarily aimed at improving the effectiveness of India’s insolvency framework. Through innovations like the creditor-initiated process and frameworks for group and cross-border insolvency, the amendments aim to align the IBC with global best practices while addressing operational challenges identified through implementation experience.