Insolvency and Bankruptcy Code (Amendment) Bill, 2025 | 04 Apr 2026

Source: TH 

Why in News? 

The Lok Sabha has passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2025, introducing 12 key amendments to Insolvency and Bankruptcy Code, 2016 (IBC) aimed at maximizing stakeholder value, enforcing strict resolution timelines, and aligning Indian law with global best practices like cross-border insolvency. 

What are the Key Provisions of the IBC (Amendment) Bill, 2025? 

• New Resolution Models: The Bill replaces the fast-track process with a creditor-initiated insolvency framework featuring an out-of-court settlement option and a "debtor-in-possession, creditor-in-control" model to maintain business continuity. 
• Strict Timelines: It sets a timeline of 180 days for completion of liquidation, extendable up to 90 days. Admissions of insolvency applications must occur within 14 days once a default is established.  
  • The Adjudicating Authority must approve or reject resolution plans within 30 days, and National Company Law Appellate Tribunal (NCLAT) appeals must be decided within 3 months. 
• Compressed Process: The new out-of-court initiation mechanism has a compressed 150-day timeline to expedite the recovery process. 
• Cross-Border and Group Insolvency: The Bill provides an enabling framework for cross-border insolvency and group insolvency, crucial for promoting international investor confidence and handling complex corporate structures. 
• Deterrents for Litigation: To curb delays caused by extensive litigation, penalties ranging from Rs 1 lakh to Rs 2 crore will be imposed on individuals initiating frivolous or vexatious proceedings. 
• Protection of Workmen: Under the IBC hierarchy, workmen's dues are given high priority, placed on par with secured creditors and ranked above unsecured financial creditors and government dues. 
• Post-Resolution Success: Market capitalization of resolved firms reportedly grew from Rs 2.8 lakh crore to Rs 9 lakh crore within 5 years, demonstrating the long-term efficacy of the framework. 

What is the Insolvency and Bankruptcy Code (IBC), 2016? 

• About: IBC, 2016 is a landmark Indian law designed to consolidate and simplify the legal framework for resolving insolvency and bankruptcy for companies, partnership firms, and individuals. 
  • Prior to 2016, the process was fragmented across multiple laws (like the SARFAESI Act, 2002 and the Companies Act, 2013), leading to long delays and low recovery rates for creditors. 
• Core Objectives: To complete the insolvency process within a strict timeframe (180 days as per 2025 amendment bill).  
  • To preserve the value of the debtor's assets by ensuring the business continues as a "going concern" rather than immediate liquidation. 
  • To provide a "clean exit" for failed businesses, thereby encouraging entrepreneurship and credit availability. 
  • As per the existing mechanism, the Corporate Insolvency Resolution Process (CIRP) is legally mandated to conclude within a maximum of 330 days, inclusive of any litigation time. Standard proceedings are designed to be completed within 180 days, though an extension of up to 90 days. 
• Institutional Framework: The IBC operates through 4 pillars to ensure smooth implementation: 
  • Insolvency Professionals (IPs): Licensed experts who take over the management of the debtor during the resolution process. 
  • Insolvency Professional Agencies (IPAs): Regulatory bodies that enroll and govern the conduct of IPs. 
  • Information Utilities (IUs): Centralized databases that store authenticated financial information of debtors to establish "default" quickly. 
  • Adjudicating Authorities: NCLT handles corporate cases, while the Debt Recovery Tribunal (DRT) handles individual and partnership cases. 
• Resolution Process: When a default occurs, either the creditor (financial or operational) or the debtor can trigger the Corporate Insolvency Resolution Process (CIRP). 
  • Once the NCLT admits the plea, a moratorium is declared, preventing any lawsuits or asset seizures against the company. 
  • A Committee of Creditors (CoC) is formed, which decides whether to restructure the debt through a "Resolution Plan" or to liquidate the company if no viable plan is found. 
• Key Achievements: By late 2025, it facilitated the recovery of Rs 4.1 lakh crore for creditors and successfully rescued over 1,300 companies.  
  • Its greatest impact is a behavioral shift as over 30,310 cases involving Rs 13.78 lakh crore were settled before admission, as promoters feared losing control.  
  • High recovery efficiency—averaging 170% of liquidation value—has helped drive bank Gross NPAs to a record low of 2.3%, strengthening the overall economy. 
• Banking Health and Recovery: The IBC is a primary driver for improving the banking sector's health, accounting for 52.3% of total recoveries by Scheduled Commercial Banks (SCBs), contributing Rs 54,528 crore of the total Rs 1.04 lakh crore recovered. 

What are the Critical Challenges Facing the IBC Framework? 

• Prolonged Resolution Delays: While the IBC mandates completion of the CIRP within 330 days, the actual average is exceeding 700 days due to overburdened NCLT benches, high vacancies, and excessive litigation. 
• Erosion of Asset Value: Extended timelines lead to suboptimal recovery rates (averaging 32–36% of admitted claims), resulting in "high haircuts" (the percentage of debt waived) for creditors that sometimes reach 80–95%. 
• Judicial and Infrastructure Constraints: Frequent and frivolous litigation by erstwhile promoters often interferes with the "commercial wisdom" of the Committee of Creditors (CoC), while a shortage of technical members at the NCLT delays case admissions. 
• Underutilization of Specialized Schemes: The Pre-packaged Insolvency Resolution Process (PIRP) for MSMEs remains largely ineffective. As a result, many distressed MSMEs continue to rely on the more time-consuming and costly CIRP or face premature liquidation. 
• Liquidation over Resolution: Contrary to the goal of keeping companies as a "going concern," a high percentage of cases end in liquidation rather than a successful resolution plan, often because the assets are already too degraded by the time they reach the IBC. 
• Inter-Creditor Disputes: Conflicts between financial creditors and operational creditors, or between secured and unsecured creditors, often lead to prolonged litigation, delaying the distribution of proceeds under the waterfall mechanism. 
  • The Waterfall Mechanism dictates the specific order of priority in which the proceeds from the sale of a liquidated company’s assets are distributed to various stakeholders. The "waterfall" logic ensures that the money flows from the top tier of creditors to the bottom. 

What Steps are Needed to Strengthen the IBC Framework? 

• Implementation of Strict Timelines: Strictly adhere to the statutory 14-day period for NCLT to admit insolvency applications once a default is established. Implement a recommended three-month timeline for the NCLAT to dispose of appeals, preventing the "litigation trap" that currently stalls resolutions. 
• Establish Specialized NCLT Benches: Expedite the appointment of additional judicial and technical members to clear the backlog of nearly 30,000 cases and ensure specialized handling of complex financial matters. 
• Operationalize the iPIE Platform: Launch the Integrated Technology Platform (iPIE) for real-time case tracking, digital filing, and automated verification of claims through Information Utilities (IUs). 
• Adopt the UNCITRAL Model Law: Enact a comprehensive Cross-Border Insolvency framework based on global standards to manage interconnected corporate assets and foreign creditor claims effectively. 
• Simplify PIRP for MSMEs: Enhance the Pre-Packaged Insolvency Resolution Process (PIRP) by lowering voting thresholds and simplifying compliance to make it a viable "debtor-in-possession" model for smaller enterprises.

Conclusion 

The 2025 amendments transform the IBC from a recovery tool into a value-maximization engine. By addressing cross-border complexities and enforcing punitive deterrents against litigation delays, the Bill ensures that failed businesses achieve a "clean exit" or a "viable rebirth," ultimately safeguarding the stability of India’s banking sector and investor confidence.