The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 represents the most substantive legislative recalibration of India’s insolvency framework since the Code’s enactment in 2016. Borne out of nearly a decade of operational experience, stakeholder consultations and an evolving judicial landscape, the Bill is an attempt to address procedural bottlenecks, resolve contentious legal interpretations and introduce mechanisms for complex insolvencies.
While its objectives—to expedite resolutions, enhance creditor confidence and maximise asset value—are laudable, a critical analysis of its provisions reveals a complex interplay of welcome clarifications and experimental frameworks that warrant careful scrutiny by the select committee to which it has been referred.
A primary strength of the 2025 Bill lies in its decisive intervention to resolve ambiguities created by conflicting judicial interpretations. The proposed amendment to mandate the admission of insolvency applications under Section 7 is a direct legislative response to the Supreme Court’s ruling in Vidarbha Industries Power (2022), which had introduced an element of judicial discretion at the admission stage. Removing the discretion is crucial for curbing dilatory tactics and shortening the adjudicatory process.
The Bill introduces a strict 14-day timeline for the adjudicating authority to admit or reject the application. Should the authority fail to issue an order within this period, it must detail written reasons for the delay.
But perhaps the most significant clarification is the Bill’s decisive reversal of the law laid down in Rainbow Papers (2021). In that case, the Supreme Court equated statutory dues with secured debt, disrupting the well-settled priority of claims, known as the ‘waterfall mechanism’ under Section 53 of the Code. This created immense uncertainty for creditors.
The Bill provides a direct legislative counter to the Rainbow Papers effect. It introduces an amendment to Section 3(31) that narrowly defines “security interest” to encompass only consensually created securities. This ensures that government dues, unless backed by a mutually agreed, properly registered security interest, revert to their intended lower ranking in the waterfall. Significantly, this amendment is worded to be clarificatory and retrospective in nature.
The amendments also focus on enhancing the mechanism for investigating and reversing dubious transactions. The original law stipulated that the ‘relevant time’ (look-back period) for scrutinising such transactions was counted from the date the application was admitted. But delays in admission often led to promoters using the backlog as a shield to strip assets.
The Bill pragmatically shifts the start of the look-back period to the date of application filing, thereby extending the investigative reach of the resolution process. Further increasing accountability, the Bill codifies precise definitions of ‘avoidance transaction’ and ‘fraudulent or wrongful trading’.
It ventures into new territory by proposing frameworks for complex situations that the original Code did not contemplate, signalling a maturation of India’s insolvency regime. The introduction of a creditor-initiated insolvency resolution process (CIIRP) offers a promising out-of-court alternative to the full process. This will allow specified financial creditors to initiate a resolution while the debtor’s management remains in control under supervision. It will be a faster and more cost-effective solution for early-stage distress.
The introduction of Chapter VA, titled ‘Group Insolvency’, empowers the central government to prescribe rules for the coordination of insolvency proceedings involving multiple corporate debtors within a group. This provision is a long-overdue reform that acknowledges the economic reality of interconnected corporate structures. This framework can prevent the value erosion that often results from fragmented insolvency proceedings.
Despite these significant changes, the Bill’s focus on procedural fixes overlooks several fundamental challenges. While addressing the symptoms of delay, it fails to cure the underlying disease: the chronic lack of institutional capacity at the National Company Law Tribunal (NCLT). If the NCLT remains overburdened, these legislative mandates may prove aspirational at best. An architectural design that demands speed without reinforcing the foundations is inherently fragile.
The new CIIRP framework is experimental. Its success will depend heavily on the substance of the rules framed by the government to prevent its misuse as a coercive tool by creditors. The new chapter on group insolvency introduces a much-anticipated framework for handling the insolvency of interconnected companies. But as the select committee report clarifies, this is not a move towards automatic substantive consolidation.
Instead, the Bill provides for a voluntary, procedural coordination mechanism. It empowers the Centre to frame rules for measures like a common NCLT bench, a group coordinator, and a group committee of creditors. However, a truly comprehensive group insolvency framework must go beyond procedural coordination and substantive consolidation to address perverse behaviours that are common within complex corporate structures.
Future amendments should introduce provisions for ‘contribution orders’, similar to the regime in Australia, where a parent company can be held liable for the debts of an insolvent subsidiary if it was aware, or should have been aware, that the subsidiary was trading while insolvent.
To create a robust, fair and effective regime that reflects the economic realities of modern commerce, the legislature must build upon the foundation. A legislative framework that ignores systemic capacity issues and elevates procedural efficiency above substantive justice risks becoming a cure worse than the disease.
Anirudh Krishnan & Saai Sudharsan Sathiyamoorthy | Advocates, Madras High Court
(Views are personal)