Clipped from: https://www.thehindubusinessline.com/opinion/new-chapter-in-bankruptcy-law/article70062483.ece
IBC (Amendment) Bill corrects judicial deviations, restores creditor hierarchy and disciplines liquidation
If constitutional courts rule timelines to be directory, the original purpose of having a timeline is lost | Photo Credit: wichayada suwanachun
The Insolvency and Bankruptcy Code (Amendment) Bill, 2025, tabled in the Lok Sabha this monsoon session, represents the most far-reaching overhaul of the IBC since 2018. Spread across 68 clauses, the Bill touches every part of the Code — from definitions and admission procedures to liquidation, personal guarantors, group and cross-border insolvency, penalties, and regulatory powers.
At its core, the Bill is aimed at restoring order — order unsettled by judicial innovation, tactical misuse, or procedural drift. The 17 instances where the expression “clarified” has been used, signals the legislative determination to reassert original legislative design and to correct interpretive distortions that have crept in over time.
A fundamental clarification is made in the definition of “security interest”. An explanation to section 3(31) makes clear that such an interest exists only if created by agreement or arrangement between parties, and not merely by operation of law. This directly reverses the Supreme Court’s judgment in State Tax Officer v. Rainbow Papers (2022), which treated certain statutory dues as “secured” under the Gujarat VAT Act. That ruling disrupted the creditor hierarchy, elevating government dues above secured creditors and shaking market confidence. By restoring security interest to those derived by contract, the amendment re-anchors the waterfall of priorities, improves predictability for lenders, and restores investor confidence. It reaffirms that security must flow from contract, and not from legislative declaration.
Overturning Vidarbha
Section 7 is amended to make the admission process mechanical: where default exists, the Adjudicating Authority must admit the petition. This neutralises the Supreme Court’s decision in Vidarbha Industries v. Axis Bank (2022), which allowed discretion to decline admission even where default was proved. Although the Supreme Court in review described Vidarbha as confined to its facts, the amendment ensures that discretion is cut out once default is established. By closing the door on free-wheeling discretion at the admission stage, Parliament restores the rule first articulated in Innoventive Industries v. ICICI Bank (2017).
Admission trigger
A 14-day timeline is prescribed for admission or rejection, with reasons to be recorded if the deadline is missed. But here lies a deeper challenge. The original Code already carried a 14-day deadline. Courts and tribunals treated it as directory, not mandatory. If every statutory deadline is judicially downgraded to “directory”, deadlines are dead-letter. Statutory intent must be matched by adherence from adjudicating authorities, or the discipline of the Code will remain illusory.
The Bill fortifies two key principles that underpin resolution certainty.
Minimum payout for dissenting financial creditors (s.30): Dissenting financial creditors must receive not less than the lower of: (i) their liquidation entitlement, or (ii) their proportional share under the resolution plan — a calibrated protection for minorities.
Clean-slate principle (s.31): Once a plan is approved, all prior claims stand extinguished unless expressly preserved in the resolution plan, and existing licences and permits cannot be arbitrarily terminated.
These changes convert scattered regulatory and judicial rulings into clear statutory protections, giving both prospective investors and creditors predictability.
The Bill permits transfer of the assets of personal or corporate guarantors into the resolution estate if creditors have taken possession. If the guarantor is also undergoing CIRP, then such transfer requires the approval of at least two-thirds of the guarantor’s CoC. This prioritises collective resolution over fragmented recovery, and curbs unilateral races to guarantor assets.
Liquidation reforms
Several important changes reshape liquidation:
Timely election by secured creditors: Secured creditors must now inform the liquidator within 14 days whether they will stand outside liquidation to realise security. Failure to do so results in deemed relinquishment. This lifts the timeline from the regulations into the Code.
Collective enforcement: Where multiple creditors hold security over the same asset, enforcement requires consent from at least two-thirds by value, discouraging holdouts.
Time-bound liquidation: Section 54 now requires completion of liquidation and filing for dissolution within 180 days from the liquidation commencement date, extendable once by 90 days.
Assessment of chance of resolution: If the adjudicating authority believes resolution may be possible, it may permit the CoC to restore the CIRP with a two-thirds vote. However, such restored CIRP should be completed within 120 days, and such a chance shall be explored only once.
Liquidation or dissolution: The CoC may recommend liquidation or dissolution at any stage of the CIRP but before confirmation of the resolution plan. However, a recommendation for dissolution must comply with conditions that will be specified. Orders for liquidation shall be passed within 30 days.
These provisions reinforce the collective orientation of the Code and reduce tactical manoeuvres that delay distribution.
A new Chapter IV-A establishes a creditor-initiated insolvency resolution process (CIIRP) for classes of debtors and creditors to be notified by the Central Government. A financial creditor from a notified class may initiate the CIIRP, the CoC supervises the process. The Adjudicating Authority can convert a defective CIIRP into a regular CIRP. The timelines are compressed (150 days, extendable once by up to 45 days). A moratorium may only be ordered by the Adjudicating Authority.
This seeks to bypass tribunal congestion and give creditors a quicker, lower-cost route. But practical risks are real — duplication, information asymmetry, conversion into full CIRP and attendant litigation could defeat the purpose. Its success will turn on careful implementation and sufficient judicial restraint.
Two long awaited measures now appear.
Chapter V-A (Group Insolvency): provides for common Benches, transfer of related proceedings, appointment of a common insolvency professional and coordination between CoCs. Key terms such as “control”, ”group” and “significant ownership” are defined.
Cross-border insolvency: empowers the Government to prescribe the manner and conditions for conducting cross-border insolvencies for notified classes of debtors.
While both are welcome, much of the substance has been left to delegated legislation. Given the commercial and geopolitical stakes, the heavy-lifting deserved a place in the Code itself rather than being left to subordinate rules.
The Bill recognises and addresses the adversarial turn the IBC has taken. A new section 183A, authorises penalties ranging from ₹1 lakh to ₹2 crore for frivolous or vexatious proceedings. While financial deterrents of this order are necessary, a steep pre-application deposit with threat of forfeiture in case it was found frivolous, could have been considered.
The challenges
The Bill is comprehensive, but its effectiveness is certainly not guaranteed. Timelines will remain notional unless the courts hold them to be mandatory. If constitutional courts rule timelines to be directory, the original purpose of having a timeline is lost.
Similarly, leaving the technical architecture of group and cross-border insolvency to delegated rules risks weakening certainty. Structural reforms of this scale should be anchored in the statute itself.
The Amendment Bill, 2025, is well-crafted and thorough. It corrects judicial deviations, restores creditor hierarchy, codifies the clean slate, disciplines liquidation, and introduces measures for creditor-initiated, group, and cross-border insolvency.
But intent alone is insufficient. The law will work only if the stakeholders approach it with the discipline Parliament has prescribed. Deadlines that are treated as directory are no deadlines at all.
The writer is a lawyer and former Judicial Member of the National Company Law Tribunal
Published on September 18, 2025
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