IBC AT NINE: GROWING PAINS, NCLT BOTTLENECKS, AND THE 2025 PRESCRIPTION OF REFORMS

[Ayushman Shrivastava and Kartik Bhargava are third-year students at Hidayatullah National Law University, Raipur]

Introduction

The Insolvency and Bankruptcy Code, 2016 (IBC), introduced a time-bound insolvency resolution process, marking a significant milestone in India’s legal and economic framework. Some nine years of implementation have, however, exposed system-wide bottlenecks: overloaded tribunals, differential judicial interpretation, and long delays that often vitiated IBC’s prime promise of "maximisation of value" for creditors. Set against this, the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 (Amendment Bill/ Bill), was tabled in the Lok Sabha in August 2025, which aims to clarify and streamline the IBC through a raft of radical reforms.

The key objective of the Amendment Bill is to remove the judicial confusion surrounding the precedents, such as the Vidarbha Industries case. In this case, the National Company Law Tribunal’s (NCLT) discretion in admitting insolvency petitions raised uncertainty over creditors’ rights. The amendments have introduced strict time limits for admission, resolution, and liquidation, ensuring that insolvency proceedings are not derailed by protracted delays in procedure. Just as significant is the effort of the IBC Amendment Bill 2025 in reviving creditor confidence.

The Amendment Bill integrates new instruments like group insolvency and cross-border insolvency, much anticipated by stakeholders. Earlier, Sections 234 and 235 provided for bilateral agreements with other nations. This meant that India preferred case-to-case diplomatic arrangements instead of any universal framework. By falling into line for the UNCITRAL Model Law on Cross-Border Insolvency, India announces its intention of developing a more certain and investor-friendly regime.

This article discusses the key reforms in the Amendment Bill, such as the new Creditor-Initiated Insolvency Resolution Process (CIIRP), updates to the liquidation waterfall, and the imposition of penalties for frivolous filings, in addition tothe decriminalisation of trivial offences. Further, it discusses wider innovations such as group insolvency, cross-border insolvency consistent with UNCITRAL, and asset-segment resolution. Meanwhile, the article observes critical gaps like NCLT capacity constraints, pending issues of real estate insolvency, marginalization of operational creditors, and procedural lags.

A Closer Look: Creditor-Initiated Processes and Watershed Regulatory Tweaks

One of the banner reforms in the IBC Amendment Bill 2025 is the addition of CIIRP. It is essentially different from the current Corporate Insolvency Resolution Process (CIRP), which mandates admission by the NCLT under Section 7 of the IBC. In contrast, it establishes an out-of-court initiation process. A financial creditor who is part of a notified class may approach it if default has been made, subject to 51% concurrence of creditors of such a class. The debtor is thereafter provided a time of 30 days to respond before the creditors initiate the appointment of a resolution professional. To provide for control, the Amendment Bill grants powers to the NCLT to convert a CIIRP into a CIRP where the process is no longer a complaint in its very own nature.

The CIIRP can fill an essential gap in the insolvency framework of India by lowering excessive reliance on NCLTs and allowing creditors to move speedily before the erosion of value takes root. By institutionalizing an out-of-court framework, it bolsters creditor confidence, reduces procedural inertia, and prevents strategic blocking by debtors. Simultaneously, keeping NCLT's jurisdiction to convert a CIIRP to a CIRP ascertains necessary regulation and judicial enforceability. This equilibrium between effectiveness and accountability makes CIIRP a hybrid instrument that would be able to streamline settlements, facilitate tribunal workloads, and bring India closer to international best practices in insolvency regimes.

Another key area of reform is the liquidation waterfall under Section 53 of the IBC. The Amendment Bill makes clear that a creditor will be considered secured only up to the value of the security that is held, cutting out uncertainty introduced by earlier judicial interpretations. An illustration in Section 53(2) now acknowledges inter-se arrangements amongst creditors of the same priority class, settling disagreements that frequently occurred during distribution.

To deter abuse, the Amendment Bill provides for a new penalty clause with the authority of the NCLT to levy fines ranging from ₹1 lakh to ₹2 crore for vexatious or frivolous applications. Concurrently, the Amendment Bill also promotes decriminalisation of minor offences by moving them from criminal to civil sanctions under the regulatory control of the Insolvency and Bankruptcy Board of India.

Combined, these reforms increase creditor confidence, lower unnecessary litigation, and modernize the IBC system into an efficiency-oriented and creditor-centric regime.

Group Insolvency, Cross-Border Reach, and Asset-Segment Flexibility

The Amendment Bill makes a bold leap ahead by acknowledging the realities of intricate corporate structures by introducing a Group Insolvency Framework. Added as Chapter VA, it facilitates the collective resolution of several companies that are part of the same corporate group, if insolvency proceedings are initiated against them. This reform borrows from judicial innovation in State Bank of India v. Videocon Industries Limited (VIL) and Ors. and the Srei case, where ad-hoc coordination among entities underscored the necessity of a statutory mandate.

Chapter VA mandates that detailed rules regarding how such group processes will be handled, ranging from a common bench to coordinated committees of creditors, and the appointment of a single resolution professional for more than one entity, will be formulated by the Central Government.

Equally important is the Amendment Bill's handling of cross-border insolvency. A new Section 240C authorizes the central government to make rules for the management of international insolvency cases. This involves the appointment of special NCLT benches to deal with cross-border cases and, importantly, indicates India's willingness to bring its framework in line with the UNCITRAL Model Law on Cross-Border Insolvency—something foreign investors and creditors have been eagerly expecting ever since, in order to ensure predictability in cross-border debt enforcement.

The Bill also brings a forward-looking notion of segmental or asset-based resolution. This enables resolution applicants to bid for part of the assets or business lines of a struggling company instead of being forced to buy the whole firm. In the case of diversified conglomerates or firms that have profitable and loss-making divisions, this innovation may unleash more bidder interest, save value in healthy business lines, and prevent the sale of otherwise healthy assets.

Between Promise and Practice: Unpacking Institutional Bottlenecks and Sectoral Silences

Although the Amendment Bill brings in far-reaching reforms, stakeholders warn that it still leaves certain institutional and sectoral gaps unsolved. The biggest worry is the NCLT's capacity. Even as it mandates hard timelines—14 days for admission, 30 days for approval of a resolution plan, and 180 days for liquidation—there is no provision for the creation of more benches, the introduction of a fast-track tribunal mechanism, or even automatic admission of cases. Experts caution that unless chronic understaffing is tackled, the more than 15,000 backlog cases of IBC and the Companies Act, 2013, cases might go on to hollow out the IBC’s very potential.

Sector-specific blind spots also persist. The real estate industry, responsible for a large number of IBC cases, remains uncertain. The Amendment Bill does not make provision for a project-by-project insolvency resolution procedure, an overdue reform sought by homebuyers and developers alike. Whole companies must still be pulled into CIRP, frequently freezing viable projects and leaving homebuyers in the lurch. Similarly, operational creditors remain marginalized, with the revised distribution framework still prioritising secured financial creditors.

In regulation, the Amendment Bill introduces some welcome reforms—such as mandating Competition Commission of India approval only if a resolution plan is approved by the Committee of Creditors. Such sequencing may accelerate deal clearances and lighten the compliance load on resolution applicants.

Conclusion: Global Alignment, Domestic Challenges, and the Next Phase of IBC

The Amendment Bill is one of the most significant makeovers of India's insolvency architecture since the IBC’s enactment in 2016. Through the incorporation of tools such as the CIIRP, reorganizing the waterfall under liquidation under Section 53, and enacting penalties for frivolous applications, the Bill represents a clear shift toward a creditor-focused and efficiency-oriented regime. These reforms seek to reduce delays, revive creditor confidence, and update the IBC for a more certain use.

Most noteworthy are the introduction of Chapter VA on Group Insolvency and Section 240C for cross-border insolvency. Combined, these bring India's insolvency legislation into harmony with international best practice, culminating in the UNCITRAL Model Law on Cross-Border Insolvency, which has been eagerly anticipated by foreign investors. Likewise, the breakthrough in asset-segment resolution allows restructurings to be more flexible in hard-core conglomerates, potentially avoiding the liquidation of sound businesses.

Nonetheless, the success of such reforms will be dependent on the institutional preparedness. Since NCLTs across the country already have thousands of pending cases and a weakness in bench strength, setting tight deadlines can be more of a dream than a reality. Simultaneously, the lack of specific reforms of real estate insolvencies and the further marginalization of operational creditors demonstrate the loopholes that may weaken the inclusivity and balancing of the promise of the Code.

However, as is the case with all legislative changes, the effect of the Bill will depend on its ability to be put into action. Ongoing chronic understaffing at NCLTs and over 15,000 cases pending are still jeopardizing the efficacy of the Code. Without new benches or a fast-track tribunal framework, stringent statutorily prescribed timelines could well be more desirable than attainable. Equally, the lack of reforms for real estate insolvencies and the ongoing marginalisation of operational creditors point to underlying sectoral disparities.

Finally, the Amendment 2025 is a balance: it fortifies the architecture with new instruments and international harmonization, but still manages to fail in addressing fundamental structural and sectoral issues. Its actual legacy will not just be a function of legislative design, but whether India can develop the institutional strength to keep up with the ambitions of the Code.