Introduction
The Insolvency and Bankruptcy Code, 2016 (IBC) is India’s primary legislation for resolving insolvency of companies, partnership firms, and individuals in a time-bound manner. Since its enactment, the IBC has undergone multiple amendments to address procedural bottlenecks, strengthen creditor rights, and improve resolution outcomes. The latest IBC Amendment Bill, 2025 continues this reform trajectory, introducing changes aimed at expediting processes, broadening the scope of pre-packaged insolvency, improving cross-border cooperation, and refining distribution priorities.
This article outlines the legislative background, key changes under the new Bill, and their practical implications, supported by relevant judicial precedents.
Legislative Background
The IBC came into force in December 2016, consolidating laws relating to reorganisation and insolvency resolution. Early judicial scrutiny, particularly in Swiss Ribbons Pvt. Ltd. v. Union of India (2019), upheld its constitutional validity and reinforced the Code’s objective of maximising value while balancing interests of all stakeholders.
Over the years, amendments in 2018, 2019, and 2021 addressed issues such as homebuyers’ rights, voting thresholds for the committee of creditors (CoC), and the introduction of pre-packaged insolvency resolution for micro, small, and medium enterprises (MSMEs) under Section 54A. The Supreme Court in Essar Steel India Ltd. v. Satish Kumar Gupta (2019) clarified the primacy of the CoC’s commercial wisdom, while Lalit Kumar Jain v. Union of India (2021) upheld the application of IBC provisions to personal guarantors to corporate debtors.
The 2025 Amendment Bill builds on this framework, responding to challenges flagged by the Insolvency Law Committee and stakeholders in recent years.
Key Changes Introduced in the IBC Amendment Bill, 2025
1. Extension of Pre-Packaged Insolvency Resolution to Large Corporates
Previously restricted to MSMEs, the pre-packaged insolvency resolution process (PPIRP) will now be available to larger corporate debtors meeting prescribed eligibility criteria, including a minimum threshold of default and creditor consent. This change aims to enable debtors and creditors to negotiate a resolution plan before formal commencement of insolvency proceedings, thus reducing time and cost.
The pre-pack model, with its 120-day timeline, is expected to significantly reduce the burden on the National Company Law Tribunal (NCLT) while preserving business continuity. However, safeguards are included to prevent its misuse as a delaying tactic.
2. Revised Thresholds for Initiating CIRP
The Bill proposes recalibrated thresholds for initiating the corporate insolvency resolution process (CIRP) by operational and financial creditors. For operational creditors, the minimum default limit has been increased to discourage frivolous filings and allow the system to focus on significant defaults. For certain classes of financial creditors, especially those with multiple small-value exposures, thresholds have been lowered to allow timely intervention.
This amendment is in line with judicial observations in K. Kishan v. Vijay Nirman Company Pvt. Ltd. (2018), which highlighted the need to prevent abuse of insolvency proceedings as a substitute for debt recovery.
3. Statutory Timelines for Admission of Applications
The Bill mandates that the NCLT must admit or reject an insolvency application within a fixed time frame from the date of filing, reinforcing earlier judicial directions. In Surendra Trading Co. v. Juggilal Kamalapat Jute Mills Co. (2017), the Supreme Court had emphasised adherence to timelines under the IBC, though it held them to be directory rather than mandatory. The legislative change now gives timelines statutory force, aiming to curb delays at the admission stage.
4. Cross-Border Insolvency Framework
A significant inclusion is the adoption of principles aligned with the UNCITRAL Model Law on Cross-Border Insolvency, providing a legal framework for recognition of foreign insolvency proceedings and cooperation between Indian and foreign courts.
This development follows the Jet Airways (India) Ltd. (2019) case, where the NCLT coordinated with a Dutch administrator to run parallel proceedings in India and the Netherlands. The new framework formalises such cooperation, enhancing certainty for multinational creditors and debtors with assets across jurisdictions.
5. Changes to the Distribution Waterfall under Section 53
The Bill modifies the priority of payments in liquidation. Certain unsecured financial creditors of MSMEs will now receive higher priority than before, placing them above some operational creditors in the distribution hierarchy. This aims to provide relief to vulnerable creditor classes but may slightly dilute recoveries for secured creditors.
The Supreme Court in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta upheld the CoC’s discretion in distributing resolution proceeds, but the legislative adjustment ensures statutory protection for specific creditor categories.
6. Strengthening Provisions on Personal Guarantors
Building upon the decision in Lalit Kumar Jain, the Amendment Bill clarifies procedural aspects for initiating insolvency against personal guarantors in parallel with corporate debtor proceedings. It also empowers resolution professionals to coordinate more effectively between the two processes, reducing conflicting outcomes and forum shopping.
7. Facilitating Out-of-Court Settlements
The Bill introduces statutory recognition for settlements reached between creditors and debtors before admission of insolvency proceedings. Such settlements, once filed with the NCLT, will lead to withdrawal of the application without the need for protracted hearings.
This codifies practices already recognised in Lokhandwala Kataria Construction Pvt. Ltd. v. Nisus Finance and Investment Managers LLP (2017), where the Supreme Court used its powers under Article 142 to allow withdrawal post-admission.
Implications for Stakeholders
For Creditors – The reforms offer more certainty in admission timelines, better coordination in cross-border cases, and improved recovery prospects in liquidation for certain classes of creditors. Large creditors can also benefit from the pre-pack route for quicker resolutions.
For Debtors – Access to pre-packaged insolvency provides an opportunity to negotiate and secure creditor approval without the reputational and operational disruption of a full CIRP. Settlement provisions also offer an early exit from proceedings.
For Adjudicating Authorities – Mandatory timelines and pre-pack availability are expected to reduce NCLT backlog. However, capacity constraints could still pose a challenge, requiring administrative reforms alongside legislative change.
Challenges and Concerns
- Misuse of Pre-Packs – Without strict eligibility checks, debtors may attempt to use the process to shield assets from creditors temporarily.
- Cross-Border Enforcement – Recognition of foreign proceedings may face practical hurdles, including conflict of laws and enforcement of foreign judgments.
- Implementation Bottlenecks – The effectiveness of statutory timelines will depend on the NCLT’s ability to manage workload and avoid adjournment delays.
Conclusion
The IBC Amendment Bill, 2025 is a targeted legislative effort to improve resolution efficiency, expand debtor-creditor negotiation options, and align India’s insolvency regime with international best practices. While its success will depend on effective implementation and stakeholder cooperation, the changes address several persistent challenges in the insolvency framework. Legal practitioners, creditors, and corporate debtors alike must prepare for the operational adjustments these provisions will necessitate.
References
- Insolvency and Bankruptcy Code, 2016 (as amended).
- Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17.
- Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531.
- Lalit Kumar Jain v. Union of India, (2021) 9 SCC 321.
- Jet Airways (India) Ltd. v. State Bank of India & Anr., Company Appeal (AT) (Insolvency) No. 707 of 2019.
- Surendra Trading Co. v. Juggilal Kamalapat Jute Mills Co. Ltd., (2017) 16 SCC 143.
- K. Kishan v. Vijay Nirman Company Pvt. Ltd., (2018) 17 SCC 662.
- Press Information Bureau, Government of India – Press release on the IBC Amendment Bill, 2025.
