The Insolvency and Bankruptcy Code (Amendment) Act, 2025, aimed at overhauling India’s insolvency framework through mandated timelines, out-of-court mechanisms, evolved practices such as creditor-in-control with debtor-in-possession, and enhanced regulatory powers, has sparked an intense debate within the legal and policy community.
Zafar Khurshid, Senior Partner and Co-Founder of TKC Partners, said the amendment represents one of the most substantive changes to the Insolvency and Bankruptcy Code (IBC) since its introduction in 2016, but questioned whether the changes would translate into real-world improvements.
“Another attempt at tweaking and improving one of the most amended laws/codes on the Indian statute books – the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 (now Act) represents one of the substantive amendments to the IBC scheme since its inception in 2016. However, the question may remain whether all the introduced changes will bring welcome, and much-needed, improvements to the code,” he said.
Khurshid said the core problem with the IBC lies not in the law itself, but in the weak institutional ecosystem supporting it. According to him, the Code’s promise of time-bound resolution has repeatedly faltered due to inadequate tribunal capacity, a shortage of skilled professionals, and limited administrative infrastructure.
“The existing infrastructure and support system have proven lacking in delivery of the promises of the Code, particularly those concerning timely resolutions. While the Amendment brings in expansive changes, one is apprehensive about how these changes on paper will put further pressure on the systems on the ground,” he highlighted
He warned that without substantial investment in physical infrastructure and trained manpower, the new reforms could prove counterproductive.
“In order to achieve the lofty purposes introduced by the Amendment, we will need to see significant infrastructural investment – both in terms of brick and mortar, and skilled manpower. I would fear that, without proper dedication of resources, these reforms will cause more problems and increase than they resolve. Strict timelines on paper have little use if the infrastructure does not exist to support them,” he suggests.
Among the various changes, Khurshid identified the introduction of an out-of-court insolvency process based on the “debtor-in-possession and creditor-in-control” model as one of the more promising reforms, particularly in cases where prolonged Corporate Insolvency Resolution Processes (CIRP) erode asset value.
He also flagged concerns over the wide rule-making powers granted to the Central Government under the amendments, noting that the effectiveness of the reforms would ultimately depend on how these subordinate legislations are framed and implemented.
“Many of the Amendments have empowered the Central Government to prescribe rules or formulate frameworks to bring the reforms into play. These Rules will have to be carefully crafted to ensure that the reforms live up to their promised benefits,” he argued.
Khurshid further cautioned against an excessive reliance on international insolvency models without sufficient adaptation to Indian realities. “India’s focus on incorporating ‘global best practices’, while laudable, is often counter-productive. Reforms must focus on indigenous practicalities and be solution-oriented, rather than merely goal-oriented,” he said.
Khurshid concluded that the IBC has, so far, fallen short of its original objectives. “One is not overwhelmingly optimistic about the impact these changes will have, without real, on-ground, infrastructural overhauling of the system behind its implementation.”
Similar concerns were echoed by MP Varsha Gaikwad, who spoke to ETLegalWorld and launched a scathing critique of the amendments, particularly the newly introduced Creditor-Initiated Insolvency Resolution Process (CIIRP).
“The CIIRP (Creditor-Initiated Insolvency Resolution Process) is a new out-of-court system that clearly favors large banks and big corporations. The ‘Debtor-in-Possession’ model means that the same management whose mistakes ruined the company will stay in control during the process. I believe this is a deliberate plan to protect big defaulters through a ‘backdoor’ entry,” MP Varsha said.
Gaikwad said the new framework sidelines MSMEs, small suppliers, and employees, despite data showing that they are the worst affected under the existing IBC regime.
“MSMEs are already suffering the most under the current IBC laws. Data shows that while small creditors started 47% of cases, they recovered only 6% of their money, while big banks recovered 31%,” she added.
She also dismissed the amendment’s requirement that insolvency admission applications be decided within 14 days as largely symbolic, pointing to deep-rooted capacity constraints at the National Company Law Tribunal.
“This sounds good on paper, but is far from reality. It is not a real ‘mandate,’ just a symbolic accountability. Currently, there are over 20,484 pending cases,” she noted.
Gaikwad highlighted that out of 63 approved NCLT benches, only 30 are operational, with many functioning for limited hours, leading to chronic delays. “This 14-day rule will only increase administrative pressure on judges without clearing the 10-year backlog. While the law says the process should take 330 days, it actually takes an average of 713 days,” she added.
She further criticised the amendment for granting the Central Government sweeping powers over cross-border and group insolvency through delegated legislation, without laying down guiding principles in the statute.
“The Central Government has taken the full authority to make ‘rules’ for these matters itself. The government should have brought a transparent law [referring to the UNCITRAL model] to parliament, but instead, they want to make rules behind closed doors,” MP Varsha highlighted.
On the proposal to impose penalties of up to ₹2 crore for frivolous insolvency petitions, MP Varsha argued that the measure could deter genuine claims by small businesses rather than curb misuse by large defaulters.
“I fear these heavy fines will not be used against big industrialists, but against small MSMEs and creditors who go to court just to get their hard-earned money back,” she argued.
Citing nine years of IBC data, she said the law has failed to deliver meaningful recoveries, with lenders losing significant value and liquidation increasingly becoming the default outcome.
“Today, lenders are losing about ₹68 out of every ₹100. In liquidation cases, the recovery rate is a tiny 4%,” Gaikwad notes that the IBC has drifted far from its original intent of providing a second chance to distressed businesses.
“This law has failed its original goal of giving debtors a ‘second chance.’ Instead, it has become a tool for big capitalists to grab assets at cheap prices. Until the government improves recovery for small creditors and expands court infrastructure, the future of IBC remains dark for the common man and small businesses,” MP Varsha concluded.
Together, the views underscore a growing consensus that while the IBC Amendment Act, 2025, introduces ambitious reforms on paper, its success will ultimately hinge on sustained investment in tribunals, regulatory capacity, and safeguards for smaller stakeholders within India’s insolvency ecosystem.
