By Zeeshan Khan
The Insolvency and Bankruptcy Code (Amendment) Bill 2025 (the Bill) proposes to amend the Insolvency and Bankruptcy Code, 2016 (IBC) significantly, in order to facilitate the speedy resolution of stressed debt while also ensuring value maximisation for secured creditors. The sweeping changes proposed in the Bill are designed not only to resolve the existing bottlenecks in the insolvency resolution regime but also to pave the path for more complex insolvency resolutions as the market becomes more sophisticated over the years.
Some of the wide-ranging changes involve refining existing provisions, while others introduce new provisions based on practical insights gained over the past nine years. These new provisions include the introduction of creditor-initiated insolvencies, provisions for group insolvencies, clarification on the initiation date when multiple applications are filed, the inclusion of a definition for avoidance transactions, and allowance for withdrawal from the voluntary liquidation process. The refinement of existing provisions also addresses a variety of issues, such as expanding the scope of resolution plans, payments to dissenting creditors, and a 14-day time limit for informing about security realisation outside the liquidation process. These updates are essential for streamlining the process and enhancing resolution efficiency.
The Bill additionally aims to give statutory legitimacy to the clean slate doctrine and to abolish some existing provisions, such as the fast-track insolvency resolution process, which has yet to see a successfully concluded resolution under its provisions, based on practical insights.
Retaining a bit of flexibility would help
However, there are some problem areas as well. The 14-day time limit for admission may align with the original intent of the IBC -- to resolve stressed debt in a time-bound manner -- but implementation of the same will be a challenge, given past experience, where the average time taken for admission of an insolvency petition has been 434 days. Although the discretionary power of the National Company Law Tribunal (NCLT) is proposed to be removed—making admission of insolvency applications mandatory once the existence of default has been established—the timeline for admission should be suggestive and not set in stone, in order to retain flexibility for cases involving complex insolvency situations.
The 14-day limit and mandatory admission also apply to applications by operational creditors, which could open a Pandora’s box of troubles for corporates in India. However, as a respite, operational creditors will be required to update all relevant details with an information utility before filing any application under the IBC.
The timeline for completion of the liquidation process is also proposed to be reduced to 180 days, from the current limit of one year. While the intention may be to provide quicker resolutions to creditors, this will be difficult to implement and may curtail options for maximising the liquidation value.
Boosting institutional infrastructure is necessary to reap benefits
It is most pertinent to note that implementation of time-bound processes under the IBC will remain a challenge until the bench strength of the NCLT is increased. The IBC already contains various prescribed timelines; however, in many cases, delays have occurred due to administrative reasons or a lack of understanding of IBC-related provisions by governmental bodies. Amendments to the IBC alone will not resolve the issue at hand. A significant number of positions in the NCLT remain vacant, and this has been a consistent issue. Some of the changes proposed to be introduced through the Bill will remain only on paper if the strength of NCLT benches is not increased.
Thus, while the intention of the Bill—to make resolution more efficient and secured creditor-friendly—has generally been much appreciated in financial markets, a lot will depend on external factors that also need to be addressed. The Government must urgently fill the lacunae in the NCLT’s bandwidth with subject-matter specialists in order to optimise the effect of the changes proposed in the Bill and make the insolvency resolution process truly efficient.
(Zeeshan Khan - Partner at Krishnamurthy &Co {Klaw}).
Views are personal and do not represent the stand of this publication.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
