IBC Rewired: Practical fixes for a complex economy

The Central Government to establish rules for cross-border insolvency proceedings under the IBC for specified debtor classes, overriding conflicting laws.

By Saurabh Sharma, Jinal Shah and Palak Nenwani 

India’s fast-paced economy demands speedy insolvency resolutions and the IBC Amendment Bill, 2025 (Bill) aims at both faster resolutions and fairer procedures making the insolvency regime in India more effective. The Bill aims to course-correct challenges and introduce significant amendments to the Insolvency and Bankruptcy Code, 2016 (IBC/Code) while proposing an out-of-court mechanism.

Clearing the fog on Rainbow: Bill settles the controversy arising from State Tax Officer v. Rainbow Papers, where the Supreme Court treated government dues as 'secured' if backed by a statutory charge.

The Bill clarifies that: (i) A statutory charge does not, by itself, constitute a security interest under IBC. (ii) Government dues will fall under Section 53(1)(e) if they pertain to the two years preceding the liquidation commencement date, and under clause (f) for any remaining amounts.

Vidarbha’s vice: In Vidarbha Industries v. Axis Bank, the Supreme Court allowed judicial discretion to deny CIRP despite established debt and default. The Bill removes scope for any such discretion and provided for ‘Mandatory’ admission of CIRP if the default is proved.

From Plan to Payout, Approvals Made Clear and Separate: An application may be filed with the consent of majority of Committee of Creditors (COC) to first approve the implementation of the resolution plan and thereafter approve the manner of distribution separately.

Faster, Creditor-Controlled Liquidation: Liquidation has often been the Achilles' heel of IBC - slow, stakeholder-conflicted, and prone to litigation. The Bill proposes: (i) A 180-day outer limit (extendable by 90 days) for completing liquidation (ii) Empowering the CoC to bypass liquidation and opt for direct dissolution, if revival is impossible. (iii) Replacing the current multi-stakeholder consultation process with COC supervision. (iv) Preventing resolution professionals who failed to deliver a compliant plan from becoming liquidators.

Stronger controls, second chances, enhancing CIRP rigour: Several proposed amendments improve procedural rigour in CIRP: (i) Withdrawal of CIRP after admission is strictly limited, requiring 90% approval from the COC and prohibited once the resolution plan is invited. (ii) If a resolution plan is violated, affected parties may apply to reinstate the CIRP, providing an additional remedy for stakeholders. (iii) Even when the corporate debtor is ready for liquidation, a supermajority (66%) of financial creditors can vote to revive the CIRP within 120 days.

A unified framework for corporate clusters: The Bill establishes a legal framework for group insolvency, defining “group” to include holding, subsidiary, and associate companies. It enables joint benches for group cases, appointment of common resolution professionals, and coordination among CoCs.

First charge, First right: (i) A creditor is “secured” only up to the value of their security. (ii) Inter-se priorities among secured creditors must be honoured, e.g., first-charge holders get preference.

Bridging debts: Section 28A allows creditors to include assets of personal or corporate guarantors in the corporate debtor’s insolvency resolution, with approval from the relevant COC. If the guarantor is also under insolvency or bankruptcy, specific voting thresholds apply for asset transfer. Proceeds are used to adjust the guarantor’s debt, with any surplus returned to the guarantor.

Avoidance transactions: For preferential and undervalued transactions, the look-back period now begins from the date of filing the CIRP application and includes the interval up to its admission.

Faster CIRP, stricter penalties, and global reach: The Bill introduces a ₹5 crore penalty for frivolous proceedings to ease NCLT workload and focus on genuine cases. It also proposes a creditor-initiated insolvency process requiring 51% debt consent, without Adjudicating Authority involvement or automatic moratorium, raising asset-stripping concerns.

Operational Creditors must file default records with the Information Utility before Section 9 CIRP initiation. The Bill also fast-tracks CIRP closure by deleting Chapter IV. Additionally, Section 240C(1) empowers the Central Government to establish rules for cross-border insolvency proceedings under the IBC for specified debtor classes, overriding conflicting laws.

Turning the Tide: A progressive path for insolvency?

The Bill, seeks to resolve key jurisprudential conflicts, streamline procedures, and empower creditors all while maintaining the Code’s core focus: value maximisation, time-bound resolution, and fair treatment of stakeholders.  If implemented well, these changes could mark a new era of clarity, efficiency, and economic relevance in India's insolvency landscape.

(Saurabh Sharma is Partner, Jinal Shah is Associate Partner and Palak Nenwani is Principal Associate at Juris Corp)

Views are personal and do not represent the stand of this publication.