Limitations of the IBC Amendment Bill, 2025: Speed at the cost of balance?

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 aims to increase efficiency, speed and transparency. On the surface, the move to speed up and increase certainty in India’s insolvency regime appears to be the change we have been asking for. Reducing delays, strict deadlines and empowering creditors are the goals.

However, if we look a little closer, we will see that the Bill is likely to disrupt the delicate balance between fairness and finality - which is at the heart of the Code - in its fervour to eliminate delays at the procedural level.

The IBC has always been about giving distressed businesses a fair opportunity to seek revival. Over the years, the judiciary has tried its utmost to honour this ethos in its decisions, ensuring that even as creditor rights are protected, the procedure is not weaponised against the corporate debtor. However, it seems that the 2025 Amendment disturbs that balance. It places an emphasis on efficiency that seems to neglect the important element of justice.

One of the most significant changes in Section 7, which concerns the procedure by which financial creditors can file for insolvency, relates to the specific requirements for the adjudicating authority to accept the application once there is a default. In this regard, the Bill appears superior to the Code; it makes things simpler.

It is precisely here that part of the problem arises: the rigid enforcement of the application with no consideration of the discretionary approach of judges. There are cases when the underlying debt is disputed (for example, litigation), or the creditor is negotiating a settlement, or the claim is barred - either time-based or by other limitations. If the National Company Law Tribunal (NCLT) is absolutely obligated to accept the application in each of these cases, it only succeeds in making the Code a collections mechanism for the creditors. The Code is not meant to punish its users; it is meant to facilitate resolution.

The new language in Section 12A is equally concerning, as it introduces unwarranted rigidity. It indicates that a case can be withdrawn only after the Committee of Creditors (CoC) has been formed and before the first call to develop resolution plans is made. Thus, the debtor and the creditor, regardless of their mutual desire to settle early, cannot reach a legally allowable early settlement unless the CoC is formed first. This hardly addresses the spirit of flexibility and early settlement as discussed in Swiss Ribbons by the Supreme Court. This change shuts that option down and requires the parties to unnecessarily run the gauntlet of insolvency when they could have settled before starting the process.

Next, we come to the new Section 28A, which allows creditors to assign or sell the assets of guarantors during the corporate insolvency process, so long as the CoC approves. The hope is to facilitate recovery, but the risks posed by this move are quite considerable. The CoC of the corporate debtor will have authority over assets belonging to a guarantor, who is an entirely different person or entity. All uncertainties about valuation, consent and how any surplus proceeds will be accounted for will have been lost. This also raises questions about the legal separation between debtor and guarantor.

Finally, the revision to sub-section (2) of Section 30, effective from December 1, adds yet another layer of ambiguity. It states that a dissenting financial creditor will receive not less than the lower of (i) recovery on liquidation or (ii) recovery under the waterfall prioritisation of Section 53. While this may appear to be a nuance, it has significant implications. It risks creating new inequalities between secured and unsecured creditors despite the aim of limiting litigation in the area of equity.

Given that the Bill does not define the phrase “fair and equitable” for the receiver, it could increase litigation rather than limiting it. The result here may be even greater scrutiny and challenges, thus reviving the arguments that cases like Essar Steel attempted to settle.

The primary change to the framework is found in Chapter IV-A, which sets up a creditor-driven insolvency resolution framework. As part of this framework, specific types of creditors can commence insolvency proceedings by essentially advertising the fact and avoiding the necessity of getting the NCLT to first admit the sitting. As a practical matter, the proceeding is treated as already being commenced. There will be a judicial review process only if the debtor objects. While this may appear to save time, it is really an attempt to short-circuit an important objecting function of the NCLT itself, which could lead to potential abuse. Large financial institutions could use this opportunity to coerce smaller borrowers into compliance.

Thus, absent some threshold evidence of an objection process (evidence that there were some restrictions on who can embark on the process or how the objection was to be reviewed), there is potential for abuse.

Moreover, the Bill enables the insolvency process to be resurrected after a liquidation order has been granted and allows a restructuring option for 120 days. While this may be described as a “second chance,” it also opens the door for limitless continuance. The debtor may unlawfully exploit this option to postpone liquidation indefinitely and creditors will be upset, while the ability for recovery will have devolved far beyond a reasonably feasible opportunity. Perhaps more concerning is the absence of a framework in Sections 38 through 42 of the Bill, all of which prescribed a very straightforward way to handle liquidation claims.

The removal of these formal sections leaves the issue entirely up to the liquidator “in such manner as may be specified.” Although it sounds harmless, this is an incredibly important procedural safeguard being removed.

The Bill repeatedly employs the phrase “as may be specified” throughout. It is obvious that many important details will be pushed off to rules or government announcements. The delegation of discretion extends too far, creates too much latitude and undermines the certainty that the Code was meant to provide.

Laws that seek to clarify insolvency should provide clarity, not flesh out evolving standards. The sole objective of the Amendment Bill is simply to rearrange and expedite the entire insolvency process. And let’s be honest, timely resolution is extremely important; uncertainty erodes value every day a delay occurs.

That said, we can’t sacrifice basic fairness at the altar of speedy implementation. The real issue with the existing Code is not simply the law itself, but the entire system around it. We are dealing with overwhelmed tribunals, a shortage of resolution professionals and a lack of institutional capacity. Unfortunately, the Bill ignores the key issues. Instead, it adds more complexity. Not only does it add burdensome obligations on creditors and regulators, but it also fails to establish accountability.

The IBC was once referred to as a milestone change in economic reform in India because it achieved a good balance between due process and commercial recovery. The 2025 Amendment seems likely to disrupt that balance. It regards insolvency as an administrative rather than judicial function that affects people's livelihoods, jobs and businesses. It is possible that this “speed-based” reform will do more harm than good unless we fill the gaps, especially ones that evade judicial review and undermine the requirement of procedural fairness.

Legislation will continue to move forward and reform is always on the horizon. We just have to remain focused on the original purpose. The purpose of the IBC was to save businesses wherever it was viable, not to quickly dispose of them. If things continue as they are, the Amendment Bill may speed up the process but not make it better.

Vandana Tiwari is a practising advocate.