Insolvency and Bankruptcy Code (Amendment) Bill, 2025

Overview

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 aims to address structural challenges affecting the timeliness and effectiveness of the insolvency resolution process in India. The proposed amendments seek to restore clarity on issues shaped by judicial interpretation, address admission delays, and introduce new provisions to simplify the process and reduce delays.

Key Provisions

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• Clarification on "Security Interest": The amendments provide that a security interest must arise from a consensual arrangement and not merely by operation of law, addressing the implications of the Supreme Court's decision in State Tax Officer v. Rainbow Papers Ltd.
• Default-Based Framework: The amendments reinforce a default-based framework under section 7, allowing asset-wise resolution plans to maximise value in complex cases.
• Creditor-Initiated Insolvency Resolution Process: The Bill introduces a faster creditor-driven mechanism, allowing creditors to initiate the insolvency resolution process.
• Liquidation Reforms: The amendments propose shorter timelines, continued CoC oversight, stronger avoidance provisions, clarification of secured creditor rights and waterfall distribution, statutory recognition of the clean-slate principle, and phased approval of resolution plans.
• Group and Cross-Border Insolvency Frameworks: The Bill introduces group and cross-border insolvency frameworks, enabling the resolution of complex cases involving multiple entities.

Challenges and Concerns

• Practical Effectiveness: The proposed Creditor-Initiated Insolvency Resolution Process may introduce multiple stages and objections, generating litigation and diluting the objective of a faster creditor-driven mechanism.
• Legal Concerns: The proposed Section 28A, which allows transfer of assets of personal or corporate guarantors, may conflict with established principles of property law and the Transfer of Property Act.
• Creditor-Centric Approach: The Code's implementation has largely evolved from a creditor-centric perspective, overlooking business cycles and economic disruptions, and pushing viable businesses into insolvency proceedings.

Implementation and Impact

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The real test of the proposed changes will be whether they simplify the process and reduce delays rather than add procedural layers. The Code continues to face difficulties in sectors such as services and real estate, requiring more tailored resolution mechanisms.