Lok Sabha Passes Insolvency and Bankruptcy Code (Amendment) Bill, 2025: A Step Towards a Robust Economic Framework

The Lok Sabha has recently passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2025. This Bill is being regarded as a significant initiative aimed at making India's insolvency resolution mechanism more effective, transparent, and time-bound. Through this amendment, the government aims to expedite processes, empower the role of creditors, and evolve the framework in alignment with global best practices.

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¨     The Bill was introduced on August 12, 2025, and later referred to a Select Committee, which submitted its report in December 2025.

¨     The government accepted all 11 recommendations of the Committee and added one additional provision, making a total of 12 amendments.

¨     The IBC has significantly improved banking sector health, with ₹1,04,099 crore recovered overall, including ₹54,528 crore (52.3%) through IBC, and 1,376 companies resolved with recoveries of about ₹4.11 lakh crore.

¨     The finance minister emphasised that the IBC is not merely a debt recovery tool but a resolution mechanism aimed at rescuing viable businesses, preserving value, and protecting jobs.

Insolvency and Bankruptcy Code, 2016

¨     It is an Act to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner.

¨     T.K. Viswanathan Committee, 2014 provided the draft Insolvency and Bankruptcy Code.

Objectives

¨     To consolidate and replace fragmented insolvency laws with a unified framework.

¨     To ensure time-bound resolution of insolvency, preventing erosion of asset value.

¨     To maximise the value of assets of corporate persons.

¨     To balance the interests of all stakeholders, especially creditors.

¨     To promote credit discipline and entrepreneurship by providing a predictable exit mechanism.

¨     To improve the ease of doing business by ensuring swift closure of unviable firms.

¨     To enhance credit availability by improving recovery prospects for lenders.

¨     To establish a robust institutional ecosystem, including the Insolvency and Bankruptcy Board of India (IBBI).

Key Institutions

¨     Insolvency and Bankruptcy Board of India (IBBI): Statutory regulator under the IBC that regulates and oversees Insolvency Professionals (IPs), Insolvency Professional Agencies (IPAs), Information Utilities (IUs) and frames regulations for insolvency processes.

¨     Insolvency Professionals (IPs): Licensed professionals who manage the Corporate Insolvency Resolution Process (CIRP) and liquidation and manage debtors’ affairs during insolvency.

¨     Information Utilities (IUs): Centralised electronic repositories for financial debt records and Credit information.

¨     Adjudicating Authorities: The National Company Law Tribunal (NCLT) is the adjudicating authority for corporate persons, while the Debt Recovery Tribunal (DRT) handles insolvency of individuals and partnership firms.Appeals lie to NCLAT (corporate) and DRT Appellate Tribunal (individuals).

¨     Committee of Creditors (CoC): Comprises financial creditors of the corporate debtor and acts as the key decision-making body in approving resolution plans.

Key Amendments in IBC (Amendment) Bill, 2025

¨     Creditor-Initiated Insolvency Framework (CIIRP): The Bill replaces the underutilised fast-track CIRP with a creditor-initiated framework allowing out-of-court initiation. It introduces a debtor-in-possession, creditor-in-control model where management remains with the existing board under safeguards and is applicable to specified financial institutions.

¨     Strict Timelines for Faster Resolution: The amendments prescribe time-bound processes, including admission of cases within 14 days, approval of resolution plans within 30 days, and disposal of appeals within 3 months. The CIIRP must be completed within 150 days (extendable by 45 days), while liquidation timelines are fixed at 180 days (extendable by 90 days), with voluntary liquidation to be completed within one year.

¨     Group and Cross-Border Insolvency: The Bill introduces enabling provisions for group insolvency and cross-border insolvency to address cases involving multiple entities and jurisdictions. This is aimed at improving coordination and enhancing investor confidence.

¨     Strengthening Role of Committee of Creditors (CoC): The CoC is empowered to appoint or remove the liquidator and supervise the liquidation process. It is also mandated to record reasons for its decisions, thereby improving transparency and accountability.

¨     Changes in Liquidation Process: The amendments remove the quasi-judicial powers of the liquidator and place the liquidation process under the supervision of the CoC. This strengthens creditor control and reduces discretionary decision-making.

¨     Measures to Reduce Delays and Litigation: To address delays caused by litigation, the Bill mandates admission of cases once default is established and requires written reasons for delays beyond 14 days. It also decriminalises minor offences and replaces them with civil penalties to improve efficiency.

¨     Penalties to Prevent Misuse: The Bill introduces penalties ranging from ₹1 lakh to ₹2 crore for filing frivolous or vexatious applications. This aims to curb misuse of the insolvency process and reduce unnecessary delays.

¨     Safeguards and Governance Reforms: The amendments address conflicts of interest among resolution professionals, strengthen oversight by the Insolvency and Bankruptcy Board of India, and enhance transparency in CoC functioning. They also introduce procedural clarity and lower thresholds to speed up resolution.

¨     Retention and Refinement of Existing Mechanisms: While removing the fast-track insolvency process, the Bill retains and strengthens the pre-packaged insolvency resolution process for MSMEs. This ensures continuity while improving the efficiency of the framework.