The Insolvency and Bankruptcy Code (Amendment) Bill, 2025, introduced in the Lok Sabha earlier in August has proposed to take the corporate insolvency regime forward, but experts told Moneycontrol that key issues such as real estate insolvency, capacity constraints at NCLTs and low recovery for operations creditors have still not been addressed.
The Amendment Bill has sought to address the challenge of timely admission of insolvency cases by modifying section 7, stating that an application for initiating the corporate insolvency resolution process (CIRP) by the financial creditors (FCs) shall be admitted if a default exists, and no other grounds shall be considered for deciding such an application. At present, the NCLT often questions the evidence presented by the creditors, leading to delays in admission.
The IBC has struggled with timely admission of insolvency cases and their resolution, and even through there is a 14-day limit for admitting petitions, in practice, the National Company Law Tribunals (NCLTs) often exceeded the timeline - taking on an average 434 days - leading to delayed proceedings and value erosion for creditors.
Experts, however, say that practical enforcement of the proposed changes may be challenging, due to operational issues. “There is still no deemed admission system to automatically admit cases upon proof of default, and no penalties for parties who stall proceedings. Without stronger enforcement tools or fast-track NCLT benches, tighter timelines on paper may not fully translate into faster resolutions,” Vijay K Singh, Senior Partner at S&A Law Offices said.
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Singh said that a fundamental issue unaddressed by the new amendment is the limited capacity of insolvency tribunals. “The NCLT and its Appellate body (NCLAT) face heavy backlogs and understaffing, yet the 2025 reforms do not include any plan for expanding judicial capacity or restructuring the process.”
At present, there are 63 NCLTs, which stakeholders feel is inadequate to complete the CIRP within the 330-day stipulated period. Finance Minister Nirmala Sitharaman in 2024 had announced during the Union Budget that the strength of NCLTs will be increased, but so far there has been no progress on that front, sources have told Moneycontrol.
Kalpit Khandelwal, Partner, Aekom Legal said high liquidation rates and low recoveries for creditors still continue at 33 percent of admitted claims, as there is no push even in the new Bill for viable resolution plans. "Delays may persist given the NCLT’s capacity constraints, despite mandated timelines," Khandelwal added.
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Real Estate Insolvencies Unaddressed
Experts have pointed out that the IBC Amendment Bill doesn’t address the issues plaguing real estate insolvency in India. For instance, the new Bill doesn’t propose a framework for a project-wise real estate insolvency regime, a key demand of the industry.
At present, the IBC allows an ‘entity wise’ insolvency, implying that even if one project of a real estate company becomes bankrupt, the entire company is dragged into insolvency. This imposes a blanket moratorium on the entire company, disrupting even the viable projects.
While this concept has been touched upon by the NCLAT in the matter of Umang Realtech and the Supreme Court too - in a case involving Indiabulls Asset Reconstruction Company - has recognised the practicality of adopting a project-wise approach for real estate insolvency, yet the new Bill doesn’t have any such provision.
“Project-wise insolvency needs to be codified to ensure a consistent practice is followed in real estate insolvency. Currently either the entire company goes into insolvency dragging even the completed projects housed in the company or the NCLT in its wisdom allows reverse insolvency on case-to-case basis. There is no uniform approach for such cases, and it makes resolutions uncertain,” said Siddharth Srivastava, Partner at Khaitan & Co.
Codifying project-specific insolvencies can ensure there is no ambiguity. Experts have called for detailed rules and regulations which not only legislate the initiation of project-specific insolvency but also provide for mechanism for pay-outs to operational creditors, dissenting financial creditors, while calling for project-specific Committee of Creditors (CoC).
One expert, on condition of anonymity said the solution for real estate issues lies with Real Estate (Regulation and Development) Act, 2016, and not IBC. “The complex structure of real estate firms makes it difficult to have a one size fits all approach. At the core of IBC is a company, and it will need to restructure an entire company as a going concern. It doesn't resolve asset by asset,” said the expert.
“If this is considered, then such a demand (project-wise insolvency) may arise for other infra sectors…mining next, or power companies. This will make the law and its intrinsic strength, namely resolution of a company, untenable,” the expert added.
The Section 8 of RERA Act, 2016 allows the Real Estate Regulatory Authority to come up with a plan, in consultation with government, to complete the remainder of the construction and development work of a stalled real estate project. In August 2022, UP RERA reported the completion of Jaypee Greens Kalypso Court, making it India’s first successful project under Section 8.
Low Recoveries for OCs
Despite the IBC being in place for over nine years, operational creditors (OCs) continue to feel sidelined, and reforms did little to improve their position in recoveries, said Vijay K Singh, Senior Partner at S&A Law Offices.
Financial creditors (FCs) are those who lend money to a company, whereas OCs are those who provide the goods and services to a company. Under the IBC, enacted in 2016, FCs have a primary claim on the assets during distribution while OCs have a secondary claim, considered by experts as a key reason for the latter’s low recoveries.
As per latest data sourced from the Insolvency and Bankruptcy Board of India (IBBI), the amount distributed to OCs under liquidation stands at less than one percent of the total amount dispersed. The figure is likely not very different in cases of resolution (cases that haven’t slipped into liquidation), according to industry sources.
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To quote a few cases, during the resolution of SREI Group of companies, financial creditors (FCs) recovered 45 percent of their claims while OCs received zero value. OCs, in this case are small enterprises and suppliers of goods, had raised a claim of Rs 150 crore. Similarly, in the Indu Projects case, trade creditors realised only 2.8 percent of their outstanding claims of over Rs 178 crore, whereas FCs recovered a far higher share.
Experts say that an amendment to the IBC is hence required to protect the financial rights of OCs, which could involve setting up a minimum threshold for recoveries.
“A minimum threshold may be carved out to address the peculiarities of this prejudiced situation and the same may be done probably in terms of asset value of the corporate debtor or definite percentage of outstanding claims of OCs," said Anjali Jain, Partner, Areness.
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