Is the IBC 2025 Amendment Two Sides of the Same Coin?

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 (“IBC Amendment Bill, 2025”) was introduced in the Lok Sabha as an attempt to respond to the institutional and procedural concerns that have emerged since the enactment of the Insolvency and Bankruptcy Code, 2016 (“IBC”). The IBC was originally enacted to consolidate India’s fragmented insolvency regime into a single, comprehensive framework, replacing multiple sectoral statutes such as the Sick Industrial Companies Act, 1985. Its stated objectives included ensuring time-bound resolution, enhancing certainty of recovery, preserving enterprise value, and improving credit discipline, with the broader aim of fostering investor confidence and economic efficiency.

Within the original framework of the IBC, three distinct corporate resolution processes were envisaged: the Corporate Insolvency Resolution Process (“CIRP”), the Fast-Track CIRP, and the Pre-Packaged Insolvency Resolution Process (“Pre-packs”). The CIRP constituted the primary mechanism, marked by a creditor-in-control model wherein the management of the corporate debtor (“CD”) was displaced in favour of the Resolution Professional acting under the supervision of the Committee of Creditors (“CoC”). While the Fast-Track and Pre-packaged processes were introduced to address concerns of delay and complexity, particularly for simpler cases and MSMEs, they failed to significantly diverge from the CIRP in practice. Procedural delays continued to plague the system, diluting the promise of time-bound resolution.

Against this backdrop, the Expert Committee on the Creditor Led Resolution Approach, in its report of May 2023, recommended a shift towards a creditor-initiated resolution mechanism, resting on the assumption that greater creditor control at the threshold stage would enhance value maximisation. The IBC Amendment Bill, 2025 seeks to implement this recommendation through the introduction of the Creditor Initiated Insolvency Resolution Process (“CIIRP”). Simultaneously, the amendment improved on an earlier reform by strengthening the framework for asset-wise resolution under Regulation 36A(1A) which now permits an asset-wise insolvency resolution from the outset of the process.

This paper argues that these two reforms are opposite sides of the same coin. While the CIIRP, despite its nomenclature, introduces a creditor-debtor imbalance and compresses NCLT oversight, the expansion of asset-wise CIRP is a meaningful evolution that has learned from its past mistakes in 2023.  By enabling value-preserving resolution of viable assets and projects, asset-wise CIRP aligns more closely with the core objectives of the IBC. The paper therefore examines the IBC Amendment Bill, 2025 as a study in contrast.

 

1.     Creditor Initiated Insolvency Resolution Process (“CIIRP”) 

The Bill proposes to introduce a new Chapter IV-a to the IBC that sets out a detailed process of the CIIRP. To avoid any overlap with the existing CIRP process, the proposed Section 58A prohibits the initiation of a CIIRP where a CIRP is already underway. Similarly, there is a reciprocal bar under the amendment which prevents a CD from initiating a CIRP for twelve months after a resolution process has been approved under a CIIRP. Additionally, the CIIRP is to be made available to a class of corporate debtors as may be notified by the Central Government, having regard to (a) their assets and/or income; (b) their class of creditors or amount of debt; or (c) any other category of debts. This shows a phased approach, as recommended under the 2023 Report, which suggested opening the creditor-led resolution process first to scheduled commercial banks, because of the exposure they have to routine engagement when it comes to resolving stress. 

 

 

1.1.  Problems with the Process of CIIRP 

Under the proposed Section 58B of the IBC, there are a series of steps the financial creditor must follow to initiate the CIIRP. Briefly, this starts by gaining an approval of creditors holding at least 51% in value of the debt and notifying the CD of its intent of commencing CIIRP. This is followed by giving the CD an opportunity to present any representations, which the FC then considers, and if he decides to proceed thereafter, a fresh consent of 51% in value must be gained again. This proceeds by the appointment of an RP by the financial creditor, who then makes a public announcement of the initiation of the CIIRP. The catch here is the proposed resolution process limits the involvement of the NCLT at the initiation stage, making it an “out-of-court” process. This is problematic on two levels, both of which raise normative concerns. 

Firstly, under the original process the NCLT had the power in admitting the application, upon satisfaction that the claim of an insolvency is maintainable and that a default has occurred. The amendment compresses this oversight filter of the NCLT which risks especially large creditors like financial institutions to use the CIIRP strategically to pressure debtors into a settlement or to disrupt ongoing negotiations. At the same time, reduces the ability of the debtor to contest the claim of the resolution process at an early stage, potentially upsetting the IBC’s ethos of resolution over liquidation. Balancing these two aspects, was the primary role that the NCLT was tasked with. Removing this power, tilts the balance unfairly in favour of the creditors. Borrowing from the lessons of the comparative models, shows the problems with such creditor-led procedures without an overlooking regulatory authority. The US Bankruptcy Code, for example under Section 303 stipulates stringent thresholds and penalties for bad-faith filings. Similarly, in the UK, creditors can petition for a liquidation, but the ultimate power vests with the court to make the order. Notably, a quantifying floating charge holder can appoint an administrator without any court intervention, but even then, a safeguard exists under Section 18(2)(b) of the Insolvency Act, 1986 which requires that for a floating charge to be enforceable, the charge itself must be undisputable. These readings show that at every step there exist an ex-ante check by the Court.  The Indian experiment under the 2025 amendment lacks such a comparable protection. 

The malafide nature of claims brought by creditors is not not unknown to courts across India. To point to a few, in Shobhnath v. Prism Industrial Complex Ltd^[1] the NCLAT recognized the intention of creditors to fraudulently file insolvency applications with malicious intent. In such a case, courts retain the power to dismiss such petitions. The Supreme Court too in Embassy Property Developments has held that questions of fraud in IBC proceedings arise for consideration, and the NCLT/NCLAT is tasked with inquiring into such allegations. These cases demonstrate how fraudulent initiations by creditors are a real and recurring concern. The 2025 amendment however while on the one hand deepens creditor control, on the other hand fails to provide any ex-ante mechanism to screen such claims. I do not wish to over-simplify my argument by saying that the NCLT never gets to exercise such control. Rather what I mean to say is that, by the time the matter reaches the Tribunal under the amended sections, the insolvency proceedings are already in motion, with an overwhelming majority class of creditors already approving it, an RP also being appointed, a moratorium already being in force, and the CD compelled to incur defense costs. The nature of judicial intervention becomes remedial here, rather than preventive as it is under the earlier framework. All by the time the case reaches the NCLT here, more than 30 out of the 330 days (under Section 12) days have already lapsed. Hence, while the aim might be to eliminate the procedural delays caused, the amendment ingrains it, just in a different form. 

Secondly, the amendment introduces a new layer of complexity, while largely leaving the question it raises unanswered; which creditors will be notified as eligible to use the procedure? This introduces uncertainty at the threshold stage itself. Additionally, we know that they are financial creditors that belong to a class of financial institutions that the Central Government notifies. The first layer of complexity lies in the definition of financial creditor itself, which has been narrowed in judgments (insert judgments). If within these narrowed definitions, a further narrowed class of creditors is brought about, it may give rise to an asymmetry of power between large lenders and smaller creditors. Research on differential treatment between creditors during an insolvency highlighted that the vesting of near-complete control of the process in financial creditors leads to a situation where similarly situated creditors are treated unequally, without any legal principle. In the IBC context, if a dominant set of financial creditors exercise control almost entirely on things like RP appointment, plan approval, the result would be a value allocation decision that disproportionately favors their interests. The amendment entrenches this further by bringing an uncertainty in who the financial creditors would be. Next, what would the contemplated safeguards be that will prevent abuse of power, and how can the IBC’s amendment version have the foresight for this without even knowing who the financial creditors are? 

 

1.2. An attempt to revive pre-packaged insolvency?

 

Coming back to the primary motivation for introducing CIIRP, is to address the process of admission. Under CIIRP, the creditors can initiate the resolution which allows the resolution process to start almost immediately.  However, their role pretty much ends there. Despite its nomenclature, CIIRP is not led by the creditor at all, rather only initiated by the creditor whose role is significantly circumscribed after. Once initiated, CIIRP works on a “debtor-in-possession” model, since the management and control of the ‘defaulting’ entity continues to lie with the debtor itself, notwithstanding the fact of financial distress and creditor distrust. The creditors lack any ability to displace the management and supervise the day-today affairs. In contrast with the CIRP, where the RP assumed control and acted under the supervision of the CoC, the CIIRP isolates creditors entirely. For example, the operation of Section 28 under a CIRP required a 66% approval from the CoC for important actions such as selling assets, changing management, entering related-party transactions, etc. However, because of the debtor-in-possession model is underway in a CIIRP, the existing management continues to remain in control, and creditor approval is no longer required for even decisions that materially impact the company’s value. This model was absent from the original CIRP framework and was instead introduced in pre-packs to avoid reputational damage and to prevent operational disruption arising from a change in control. The 2023 Committee introduced this provision exactly for this; to prevent and reduce reputational damage and reduce friction that a change of control may create. However, this rational becomes questionable once the company has defaulted and entered a formal insolvency resolution process. If the existing management was unable to rectify the company’s financial distress, prior to insolvency, it is a stretch to expect the same management to restore the company to its value-maximizing state. In such a case, a change in management may be exactly what is needed. While it may be argued that retaining the management may mitigate friction, this is only true in theory because as soon as a CIIRP is triggered, the debtor becomes subject to the scrutiny of the resolution professional, who can reject any resolution that is passed in the board meetings.^[2] Additionally, on the aspect of reputational damage, merely retaining management wouldn’t prevent reputational damage. Real reputational damage typically arises once insolvency proceedings are initiated. By the time the CIIRP is triggered, the market is already aware of the corporate debtor’s financial distress. Continuation of the same management would arguably do little to alter the perception of the creditors, investors and even stakeholders’ perceptions. 

 

 

2.     Asset-Wise CIRP- A Step in the Right Direction.

One of the more laudable amendments proposed is the introduction of an asset-wise CIRP via Regulation 36A(1A) that allows for the RP to launch a dual-track bidding from the outset of corporate resolution. A similar amendment was brought about in 2023 as well. The reason the 2025 Amendment differs from the framework under the 2023 IBC is because under the former, Regulation 36B(6A) allowed for asset-wise CIRP only as a fallback option. The inception asset-wise resolution dates to 2023, where the framework allowed for invitation of bids for individual projects or units within the same insolvency proceeding. In 2021, the Parliament pointed out to the need for flexibility, the spirit of which got articulated in Section 196(1)(t) which empowers the IBBI to frame regulations for the “time bound disposal of assets” during an insolvency. To exercise this mandate, the IBBI amended the CIRP Regulations to authorize and implement asset-wise plans. The advantage of such a provision is that it allows the adjudicating authority to consider and remove the financially sound projects that are generating value, from the other projects that fail to generate returns.  Not just that, but there might be a situation where the creditors of a CD are interested only in a few and specific assets of the Debtor. The 2025 amendment aims to expand the powers of the RP in this regard to an even greater extent. The problem with the 2023 Amendment was that the actual implementation of an asset-wise sale rested on the fulcrum of the CoC’s consent of 66%. The activist Indian courts have piggybacked off this to judicially explain the need for project-wise or asset-wise insolvency, at the very onset and not as an alternative. The NCLAT and later the Supreme Court in the case of IndiaBulls Asset Reconstruction Company Limited v. Ram Kishore Arora & Ors laid their stance that it is of prime importance to allow the sale of an individual project of the debtor. 

Additionally, the change of allowing for an asset-wise resolution disrupts the traditional thought that corporate insolvency should treat the debtor as a single indivisible entity wherein all assets and liabilities can be clubbed and sold together. Corporate groups comprise of unrelated and heterogenous projects, and buyers may not be interested in all sectors at once. The ultimate objective of the IBC and all these amendments is to provide for the revival of the CD and continuation of operations. This exactly is also where the problem lies. The basic idea behind Regulations 36A(1A) and its predecessor Regulation 36B(6A) is that whether the entire company is sold or only some of its assets are sold, they should continue as a going concern and not be shut down or dismissed. Statutorily, any resolution plan should provide for the insolvency resolution as a going concern. A notice by the Ministry of Corporate Affairs on 18 January 2023, commented on Regulation 36B(6A) by clarifying that at least one resolution plan should provide for insolvency resolution of the CD as a going concern. This logic would then also extend to Regulation 36A(1A). And this is the genesis of the problem. The IBC doesn’t provide a criterion for what would qualify as a going concern. The Insolvency Law Committee has interpreted it to mean that the CD should remain operational in a manner akin to its state prior to the commencement of the resolution proceedings. Resolving a company as a going concern usually means transferring what is needed to run the business, such as important assets, liabilities, employees, and infrastructure, so that the business can continue to operate. Courts have also said that the company’s basic structure and workforce should be preserved. However, these ideas are subjective, especially when only some assets of the company are being resolved instead of the whole business. Since there are no clear and objective standards to check whether a resolution plan truly maintains a going concern, this creates a loophole that may harm employees and operational creditors.
Moreover, there is also the question of what happens if there are multiple resolution plans for different sets of assets? Under Regulation 36A(1A), the RP can decide to club assets together if the CoC blesses the RP’s decision. But there is no guideline, as to how the assets can be clubbed together to ensure that they are maintained as a going concern. This is especially relevant when the functionality of two assets is co-dependent. What if such assets have a different functionality or organization structure? The new amendment is silent on this.  
However, these are academic questions that I raise and hope the law can answer via notification or future amendments. Even so, the amendment to Regulation 36A(1A) is a strong example of how reform doesn’t have to always be brought about my introduction of new processes plagued with the same issues, but rather that reform comes from changing the working of an already established process.