Insolvency Amendment Bill Misses Key Areas, Feel Creditors

The proposed amendment Bill seeks to carve out a creditor-led resolution process (CLRP) framework, which would allow out-of-court settlement, a move that will particularly benefit large companies. 

The IBC Code

The IBC was introduced in 2016 to facilitate exits with efficient handling of insolvency related to individuals as well as companies. The Code has merged all other previous provisions such as Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Securities and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Companies Act, 2013.

Operational Creditors Ask For More

However, the proposed amendments are not enough, according to operational creditors. A financial creditor is primarily responsible for financial assistance through loans and advances, an operational creditor is one who supplies goods and services.   

“In sum, the government’s move is both welcome and necessary. But for India's insolvency architecture to be truly future-ready, this amendment must be seen as part of a broader, ongoing reform process, not its culmination,” Shweta Bharti, legal expert and managing director, Hammurabi and Solomon told The Secretariat.

Shortcomings Of The Proposed Bill

Bharti added that though the step is much required and will be a boost for the corporate world “there's an urgent need to address critical, systemic challenges — such as delays in resolution, lack of operational creditor protection, opaque valuation practices, and limited enforcement of personal insolvency laws”, among others.

While the government’s move is part of an ongoing process of reforming the existing code, the consultative approach to the IBC Amendment Bill 2025 that the Ministry of Corporate Affairs undertook, by engaging stakeholders including industry bodies and legal experts, is a welcome move.

According to Bharti, the amendment does not propose strict enforcement mechanisms, including penalties for delays or mandatory fast-track benches to hold stakeholders accountable.

The RBI report, published in December 2024 noted that the IBC has emerged as the dominant recovery route, accounting for 48 per cent of all recoveries made by banks.  

The implementation of the IBC Code has helped PSU lenders to clean up their non-performing assets (NPA). “Stringent laws should be enacted for the recovery and resolution of bad loans through the IBC, which currently suits only the corporates,” C H Venkatachalam, All India Bank Employees Association (AIBEA) said.

The AIBEA added that banks should not be made to write-off corporate bad loans in the name of “haircuts”, and that the Reserve Bank of India (RBI) should publish the list of willful defaulters periodically, once in every half-year with updates.

Bharti echoed the same sentiment, saying that this is an area which needs further deliberation. 

“The Amendment Bill does not seem to strengthen or streamline the investigation, nor does it provide clearer tools to disqualify and penalise errant promoters attempting to regain control through proxies,” she said, adding that though the current IBC framework has provisions under Sections 66 and 29A on wilful defaulters, these are rarely enforced in an effective way.