New Delhi: Nine years after the introduction of the Insolvency and Bankruptcy Code (IBC), 2016, the government has unveiled a new bill proposing major reforms that seek to fix delays, streamline implementation and bring India’s insolvency system in line with global standards.
The Insolvency and Bankruptcy Code (Amendment) Bill, 2025—introduced in the Lok Sabha on 12 August by Finance Minister Nirmala Sitharaman, and currently before a Joint Parliamentary Committee—introduces seven major changes, from creditor-led pre-insolvency resolution, to cross-border and group insolvency frameworks.
The amendments seek to address concerns about the original IBC 2016, which has suffered from several problems, such as procedural delays and patchy implementation.
When first enacted, the IBC promised to transform India’s approach to insolvency, aiming to rescue distressed companies through a time-bound process rather than forcing them to shut down. It improved accountability and credit discipline among debtors, but over time, delays and uneven implementation undermined its efficiency, often leaving creditors waiting years for recoveries.
Although the code did deliver some high-profile resolutions, such as the Essar Steel case, it became equally known for its persistent flaws, including huge case backlogs, as well as protracted admission and resolution timelines.
The absence of frameworks for cross-border and group insolvencies, as well as uncertainties created by rulings like the Rainbow Papers, compounded the challenges.
In recent years, banks, investors and regulators repeatedly flagged these gaps, pressing for a redesign of the framework. The 2025 Bill responds to these concerns by introducing reforms that seek to restore efficiency and align India’s insolvency processes in line with global best practices.
The changes are also designed to both safeguard financial institutions and protect troubled companies that are still in a position to be revived.
“One of the government’s biggest concerns has been the underperformance of the National Company Law Tribunal (NCLT), which has caused repeated delays. The new provisions are expected to address these frustrations,” insolvency lawyer and expert Sumant Batra told ThePrint, adding that the new bill was “revolutionary”.
The 2025 Bill draws heavily from a report by the 2023 Expert Committee constituted by the Insolvency and Bankruptcy Board of India (IBBI), which had already examined the potential use of mediation under the IBC.
The report, submitted in January 2024, proposed a framework for mediation as a complementary tool to resolve disputes during insolvency, bankruptcy and liquidation processes. The 2025 Bill has adopted its recommendation to add structured pre-insolvency and dispute resolution mechanisms.
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Pre-insolvency framework
One of the key features of the 2025 Bill is a new creditor-initiated pre-insolvency process, which will open a narrow window for genuine promoters to retain control of their companies.
The new model is expected to slightly relax an existing IBC provision barring defaulting promoters from participating in the insolvency process.
It is more flexible and allows creditors to inform the NCLT by filing an application in cases where lenders still have confidence in a promoter. The NCLT’s role will be limited to approving the final resolution plan, and the process will be carried out in a time-bound manner.
Debtors will continue to run companies while lenders appoint an insolvency professional to supervise. Promoters will be given the first chance to present a resolution plan.
“This approach minimises disruption to management and prevents value erosion. Globally, many jurisdictions adopted similar practices after COVID-19,” said Batra.
The government will notify the categories of companies and creditors to which this process will apply. Unlike the Pre-Packaged Insolvency Resolution Process (PIRP) for MSMEs—which allowed a debtor-in-possession model but was limited to small enterprises with defaults up to Rs 1 crore—this new framework applies to a wider category of companies.
Cross-border insolvency
Another key amendment introduces a long-pending cross-border insolvency framework, which will give the Centre the power to frame rules that, in turn, will allow the NCLT to deal with cases in multiple countries.
Under the IBC amendment bill, India will adopt the United Nations Commission on International Trade Law (UNCITRAL) Model Law, already in force in nearly 50 countries. This will allow Indian insolvency professionals to seek recognition in foreign courts where debtor assets are located, similar to Chapter 15 of the US Bankruptcy Code.
“This move positions India as a globally ready economy and is expected to boost international investor confidence,” said Batra.
Group insolvency
The bill also introduces, for the first time, a framework for procedural consolidation of group companies’ insolvencies. While practised informally in jurisdictions such as the US and UK, India will now formally allow group insolvency proceedings.
This means that if a subsidiary faces insolvency, group entities can be handled collectively. Although the Committee of Creditors (CoC) will remain distinct, a single insolvency professional will coordinate the process, and a consolidated plan can be prepared.
“This is expected to significantly improve efficiency and reduce costs,” said Batra.
Faster implementation of plans
The new bill also aims to speed up resolution plans that often get stuck in the NCLT due to disputes among creditors despite CoC approval, by separating such distribution disputes from plan approval.
Once the CoC approves a legally compliant plan, the NCLT will clear it without waiting for disputes over how proceeds should be shared among creditors to be resolved. Such distribution issues can be litigated later, allowing the resolution applicant to take charge immediately. The move is aimed at getting companies back on track immediately after the approval of the resolution plan.
The NCLT will be required to decide approval applications within 30 days, with reasons recorded for any delay. If flaws are identified, “the NCLT can remand the plan back to the CoC instead of rejecting it outright”, Batra said.
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Undoing the Rainbow Papers judgment
The bill also aims to reverse the 2022 Rainbow Papers case ruling, where the Supreme Court held that dues owed to state governments under Value Added Tax (VAT) laws could be treated as secured debts under the IBC. This gave state tax authorities priority in liquidation, effectively recognising them as “secured creditors”.
The amendment narrows the definition of “security interest” to only contractual security (like mortgages or pledges) created through agreements between debtor and lender.
Statutory claims – like unpaid VAT, GST or excise – will no longer count as secured debts. In simple terms, banks and financial creditors will get priority over government tax claims, restoring the original design of the IBC where state dues rank below secured financial creditors.
Liquidation reforms
In the liquidation stage, the role of the CoC will continue. Creditors will retain the right to appoint or remove liquidators, addressing concerns that liquidation processes were falling through the cracks.
The existing Stakeholders Consultation Committee mechanism will be replaced with CoC oversight, increasing accountability.
Timelining avoidance applications
The 2025 amendment Bill introduces timelines for various aspects of the insolvency resolution process, including the filing of avoidance applications. Under the IBC, an avoidance application is used to challenge and reverse certain transactions by a company before it enters insolvency.
The new provision mandates a 14-day timeline for the Adjudicating Authority (NCLT) to decide on the admission or rejection of an application. Delays beyond this period require the NCLT to record reasons in writing.
Stricter withdrawal norms
Finally, the bill makes withdrawal of insolvency applications more stringent. Once the CoC is constituted within 30 days of admission, cases cannot be withdrawn on the basis of a settlement with a single creditor. After the issue of Form G inviting resolution applicants, withdrawal will not be permitted at all.
“A short window of 15–20 days will be available after the CoC constitution, ensuring that insolvency proceedings are not derailed midway,” Batra explained.
(Edited by Sugita Katyal)
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