Insolvency And Bankruptcy Code At A Crossroads After The Standing Committee Review

India's Insolvency and Bankruptcy Code 2016 was introduced as a flagship reform to move India away from fragmented, debtor controlled recovery regimes towards a creditor in control, time bound resolution framework. In its early years the Code did deliver faster resolutions and higher recoveries compared to earlier laws, but a decade of experience has also exposed structural stress points. Persistent delays beyond the 330 day outer limit, very low realisations in a large share of cases, and extensive litigation at every stage of the process.

The 28th Standing Committee on Finance's report on "Review of working of Insolvency and Bankruptcy Code and Emerging Issues" and the subsequent Insolvency and Bankruptcy Code (Amendment) Bill 2025 therefore come at a moment when Parliament is effectively asking whether the original IBC design needs a second generation reset. For lenders, resolution professionals, litigators and deal lawyers, the question is how far this "IBC 2.0" blueprint will change timelines, haircuts and the way cases are run and priced.

The Standing Committee's diagnosis is informed by data as well as by the lived experience of stakeholders who have taken large cases through the NCLT and the NCLAT. The Code has established improvements for India's credit culture because it gives creditors a legitimate threat of losing control, however, the system faces challenges which stem from tribunal capacity limitations tribunal capacity limits and strategic litigation from promoters and creditors and governmental debt handling and the unpredictable handling of government debts and group insolvency cases. The Amendment Bill 2025 borrows heavily from this diagnosis, proposing a suite of changes that seek to make the original promise of a time bound, value maximising regime more realistic in light of eight years of practice.

A. The Standing Committee's diagnosis of the IBC cycle

1. What the numbers say about timelines and haircuts

The Standing Committee anchors its analysis in data from the Insolvency and Bankruptcy Board of India and other official sources. It notes that while some large accounts were resolved within or close to the statutory timelines in the first wave, a significant proportion of corporate insolvency resolution processes have breached the 330 day outer limit once litigation and other delays are factored in. The report shows that most admitted cases result in liquidation instead of resolution because their value has decreased until they reach the point of liquidation. The report shows that most sectors, particularly operational creditors and unsecured lenders, achieve low average realisations which compare to their admitted claims.

For practitioners who have watched high profile resolutions unfold, these figures are recognisable. Complex infrastructure and steel assets have seen multiple rounds of bidding and re bidding, with resolution plans approved only after years of appeals and clarifications. Financial services entities have presented their own difficulties because of sectoral regulators and intertwined obligations to retail investors. Mid-market manufacturing cases have often attracted only a single serious bidder, resulting in deep haircuts and limited competition in the committee of creditors. The data allows the Committee to argue that these are not outliers but patterns that need to be addressed by design rather than left to incremental case law.

2. Litigation as a structural feature, not an aberration

A second strand of the Committee's diagnosis is that litigation has become a structural feature of the IBC ecosystem rather than an exceptional response in a few difficult cases. The report highlights repeated challenges to the initiation of corporate insolvency resolution processes, frequent disputes over the eligibility of resolution applicants under section 29A, and extensive post approval litigation by unsuccessful bidders, operational creditors and even government authorities contesting treatment of their claims.

The IBC framework has established novel litigation procedures according to the perspective of litigators. The process includes three stages which start with pre admission skirmishes where parties dispute debt obligations and default conditions, continue with mid process appeals that address either eligibility issues or fairness of the judicial process, and end with post approval challenges that question both the business decision and adherence to required legal standards and distribution guidelines. The Standing Committee effectively acknowledges that the original assumption that a strong non-interference doctrine around the commercial wisdom of the committee of creditors would keep litigation to a minimum has not fully held true in practice, especially in large cases with multiple stakeholders and high political or regulatory salience.

B. The Amendment Bill 2025 and the Standing Committee blueprint

1. A Committee guided blueprint for IBC 2.0

The Insolvency and Bankruptcy Code (Amendment) Bill 2025 is Parliament's attempt to respond to these systemic issues without discarding the Code's core architecture. Drawing significantly on the Standing Committee's recommendations and on earlier expert proposals, the Bill seeks to tighten timelines, introduce new procedures for pre CIRP resolution, clarify the status of certain claims and expand the toolkit for dealing with complex corporate groups and cross border situations. It should therefore be read less as a discrete set of technical amendments and more as an attempt to usher in an "IBC 2.0" that reflects hard lessons from the first decade of implementation.

2. Out of court creditor initiated insolvency resolution processes

One of the most notable innovations discussed in policy commentary around the Bill is the idea of "out of court" creditor initiated insolvency resolution processes, often described in shorthand as "creditor initiated insolvency resolution processes" or CIIRPs. The basic concept is to create a structured framework which enables financial creditors to negotiate and execute resolution plans outside the formal CIRP process while maintaining limited tribunal involvement and operating under the Code's disciplinary framework. In practical terms, such a framework is intended to address two linked concerns that the Standing Committee highlights the overload on NCLTs and the value destruction that can result when every case must enter the full CIRP funnel.

A creditor initiated process, if properly designed, could allow banks and other financial creditors to coordinate early around a pre-packaged plan, give time bound opportunities for dissenting creditors to object, and then either implement the plan consensually or take the debtor into formal CIRP if negotiations fail. The presence of a reliable main bidder in major cases with few creditors will decrease their motivation to make strategic bankruptcy filings while maintaining the protective function of an official CIRP procedure which operates in the background. In many ways, the proposal generalises ideas that were previously explored only for MSME pre packs, by creating space for negotiated, creditor driven plans that do not automatically consume NCLT bandwidth.

3. Group insolvency, cross-border coordination and government dues

Another cluster of changes that can be traced back to the Standing Committee's "emerging issues" section relates to group insolvency, cross border cases and the treatment of government and regulatory dues. Many large Indian business groups have complex holding structures, cross guarantees and shared security pools, and the absence of a statutory framework for group insolvency has meant that resolution often proceeds entity by entity, with inconsistent outcomes and limited ability to maximise value at the group level.

The Committee identifies three outcomes which resulted from this situation. The first outcome involves situations where marketable assets of a group became unsellable as a complete set. The second outcome involves disputes which arose between different lenders who provided funds to multiple parties because they wanted to enforce their security rights. The third outcome involves promoters who used existing structural deficiencies to create obstacles for the resolution process. The Amendment Bill's group insolvency provisions enable related entities to conduct their processes under controlled conditions which will significantly impact both corporate groups and their lenders.

On government dues, the Standing Committee grapples with the difficult question of how to treat tax and other sovereign claims in a regime that prioritises resolution and revival. It notes the uncertainties and litigation that have arisen when tax authorities or other government bodies have challenged resolution plans or liquidation distributions that significantly write down their claims, and it stresses the need for clarity on the priority and finality of such treatment. The case involves large steel and infrastructure projects which experienced significant reductions in their legal obligations that were then challenged through both parallel writ and appellate court proceedings.

The Bill's approach to statutory dues, read alongside recent Supreme Court decisions that have emphasised the primacy of approved resolution plans, signals an attempt to balance fiscal interests with the Code's objective of giving a clean slate to successful resolution applicants.

C. Implications for litigators, committees of creditors and resolution professionals

1. Rethinking litigation strategy under tighter timelines

If the Amendment Bill's timelines and process tweaks are enacted, litigation strategy in IBC matters will need to adjust. The capacity of creditors and resolution professionals to use appeals for negotiation purposes will be reduced when tribunals receive strengthened legal authority to establish case boundaries and to punish parties who bring unmerited or excessive court challenges. Within CoCs, this is likely to shift negotiation dynamics away from using tactical appeals as leverage and towards building more defensible voting records and reasoned minutes at the first instance. Litigators representing financial and operational creditors may need to be more selective about the issues they take up to NCLAT and the Supreme Court, focusing on genuinely jurisdictional or statutory compliance questions rather than seeking to reopen commercial decisions cloaked as legal arguments.

The rules about section 29A eligibility challenges and admission challenges which promoters and former managements can use will provide them with less time to make their legal claims. The practitioners need to change their approach because they now need to focus on specific legal challenges which they should select based on the new statutory rules. The 330 day period which currently serves as an aspirational limit will become a binding maximum which permits less chances to revisit decided matters throughout the process.

2. Case study lessons from high profile resolutions

The Standing Committee's narrative can be read against the backdrop of several archetypal IBC cases. The first archetype represents large steel infrastructure solutions because their process developed through multiple competing solutions which created eligibility conflicts and resulted in procedural appeals that spanned several years from project beginning until its final execution. The second archetype emerges from a financial sector case which involved different sector regulators and retail investors and public interest requirements that affected operational schedules while creating regulatory challenges for Code implementation alongside existing specialized frameworks. A third is the mid-market manufacturing or services case with a single serious bidder, where the committee of creditors faced the unpalatable choice between a deep haircut or a slide into liquidation.

Viewed through this lens, the Committee's recommendations and the Amendment Bill can be seen as an attempt to make such trajectories less likely or less painful. The new bidding rules together with improved systems for managing related party operations and dedicated areas for pre-packaged and out of court procedures should decrease the amount of time spent on eligibility disputes and last minute plan disputes. The practical lesson for litigators and resolution experts shows that upcoming cases will provide less opportunity for unscripted performance while they must establish documented findings which will endure examination based on the updated legal framework.

D. Implications for transaction structuring and creditor behaviour

1. How lenders and investors may price IBC risk differently

A more predictable, Committee informed IBC framework is also likely to influence how lenders and investors price IBC risk and choose enforcement routes. The combination of successful out of court creditor processes together with effective group insolvency mechanisms will lead banks and financial institutions to treat formal corporate insolvency resolution process as one among several options for managing their distressed assets. Distressed asset investors and asset reconstruction companies may refine their models to account for shorter expected timelines in some cases and clearer rules around statutory dues and group level restructuring in others.

At the same time, greater clarity on the treatment of different creditor classes and on the boundaries of commercial wisdom could dampen some of the more speculative strategies seen in the first wave of IBC transactions. For example, bidders may be less willing to rely on aggressive plan structures if they anticipate that tribunals will have stronger guidance on what cannot be compromised or delayed, particularly in relation to regulatory approvals and public dues.

2. What in house and deal lawyers should change now

For in house counsel and deal lawyers, the Standing Committee review and the Amendment Bill should trigger a re-examination of IBC related provisions in financing, security and M&A documentation. Inter creditor agreements and security sharing arrangements may need to be updated to reflect the possibility of group insolvency proceedings and to clarify how creditors will vote, share information and allocate recoveries in coordinated processes. Covenants and events of default may also need to be recalibrated in light of new out of court resolution tools and the changing relative attractiveness of IBC versus other enforcement mechanisms.

The corporate departments of large organizations need to examine their existing methods of establishing leverage and guarantees and cross default agreements across their subsidiary companies which they currently use to protect their operations during statutory group insolvency proceedings. At board level, directors will need to be more attuned to early signs of stress and to the interplay between IBC obligations and duties under company law, securities law and sectoral regulations.

Handled thoughtfully, the Standing Committee's review and the Amendment Bill can be seen as an opportunity to move from a reactive, case by case evolution of IBC towards a more deliberate second generation regime. For practitioners who work at the intersection of litigation, restructuring and transactions, the challenge now is to internalise these shifts into advice, documentation and strategy so that the next decade of IBC practice looks less like an extended stress test and more like a mature, predictable insolvency system. For market participants, the choice is between adjusting now to this more demanding baseline or continuing to litigate in a framework that is clearly being redesigned around them.

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