In 2016, the Insolvency and Bankruptcy Code, 2026 (IBC) was introduced as a transformative piece of legislation aimed at resolving corporate distress in a time-bound and efficient manner. It was a bold and visionary move by the Narendra Modi government, with the late Arun Jaitley playing a pivotal role in its implementation. The IBC promised to consolidate fragmented insolvency laws, empower creditors and restore confidence in India’s financial system. Nearly a decade later, the IBC stands at a crossroads. The proposed Insolvency & Bankruptcy Code (Amendment) Bill, 2025 (IBC Amendment Bill 2025) seeks to refine the framework, but apparently, it may do more harm than good.
This article offers a comprehensive analysis of the IBC Amendment Bill 2025, examining its impact on the independence of insolvency professionals (IPs), the role of the regulator and the broader implications for India’s insolvency ecosystem.
Original Vision of IBC
The IBC was built on the principle of 'creditor in control', inspired by the UNCITRAL Legislative Guide on Insolvency Law. It introduced a framework where an independent IP would manage the resolution process, under supervision of quasi-judicial authority, namely, the national company law tribunal (NCLT) and insolvency and bankruptcy board of India (IBBI) being the regulator.
The bankruptcy law reforms committee report, 2015 envisioned IPs as impartial professionals acting independently, objectively and with integrity. The Supreme Court, in Swiss Ribbons Pvt Ltd, acknowledged the quasi-judicial role of IPs during liquidation, whereas it termed the role of IP during the corporate insolvency process (CIRP) as administrative. The aforesaid decision of the Supreme Court requires reconsideration, especially in view of the provisions of Section 21(3) and 24(7) of the IBC and the proposed explanation to Section 18(b) of the IBC Amendment Bill 2025.
The ground reality, however, is starkly different. The independence of IPs has been systematically eroded and the IBBI, meant to be a regulator, has been issuing regulations that often contradict the parent act. The replies under the Right to Information Act, 2025 reveal that IBBI regulations are neither vetted by the ministry of law & justice nor examined by (or laid before) parliamentary committees on subordinate legislation, as mandated by the manual of parliamentary procedures in the government of India – 2019 (manual of parliamentary procedures). This regulatory free-for-all has produced conflicting rules that changed the basic structure of the IBC.
IBC Amendment Bill 2025: Key Provisions & Concerns
The IBC Amendment Bill 2025 introduces several changes—some clarificatory, others controversial. Among the most significant are:
• Timeline mandates (Sections 7, 9, 10, 12A, 31, 33, 54): NCLT must pass orders within specified days or record reasons for the delays. The Supreme Court in Essar Steel already clarified such timelines are directory, not mandatory. With understaffed registries, infrastructure gaps, and benches populated by retirees nearing age limits, delays will persist regardless of legislative wishful thinking.
• Creditor control expansion [Sections 21(11), 35(2)]: These changes legitimise existing illegal provisions while removing the crucial proviso that ‘consultation shall not be binding on the liquidator’. The IBC Amendment Bill 2025 formally surrenders the liquidator’s independence to the creditors.
• Resolution plan approval [Section 31(1)(a)]: Requiring plan approval before distribution disclosure ignores banking reality. Lenders need distribution amount details to assess reasonableness and vote intelligently. This sequence will reduce plan quality and evaluation capability. Further, it will cause significant delays in handing over the company to the successful resolution applicants.
• Section 33(1)(iv): IBC Amendment Bill 2025 introduces a provision for declaring a moratorium during liquidation, aligning it with clauses (a) and (c) of Section 14(1) and Section 14(3) of the IBC. However, this addition does little to address a long-standing gap in the IBC (alignment with Section 271 of the Companies Act, 2013) which deal with the treatment of existing legal proceedings during winding up. Importantly, unless NCLT exercises its powers similar to the erstwhile company court, this provision will remain ineffective. Notably, under Section 424 of the Companies Act, 2013, NCLT is vested with the same powers as a civil court under the Code of Civil Procedure, 1908, and these powers extend to proceedings under the IBC as well.
• Liquidation timeline [Section 54(1)]: Mandating completion in 180+90 days without addressing capacity constraints or providing implementation roadmaps appears divorced from IBBI's own data and ground realities. The intent is to transfer the unresolved asset from one person to another is done only to show a better performance of the IBC. But what will happen to the recovery by the lenders because such a transfer per se will not result in recovery!
• Regulatory standards (Section 219): Replacing "reasonable cause to believe" with "prima facie" lowers evidentiary thresholds, effectively legitimising IBBI's existing practice of acting on preliminary assessments rather than thorough investigation.
• Appellate mechanism [Section 220(7)]: Introduces appellate oversight over IBBI’s disciplinary actions against IP via national company law appellate tribunal (NCLAT), a welcome step toward accountability of the officers of IBBI who are often involved in witch-hunting in violation of the principles of natural justice.
• Section 235A: Allows civil proceedings by IBBI/MCA against the officials of a corporate debtor. While aimed at enhancing enforcement, it will lead to multiple litigation because of lack of willingness on the part of the regulator.
The Biggest Miss: Third-party Liability Gap
The Supreme Court in Glukrich Capital held that Sections 66/67 of the IBC don't cover third parties. This is the most used loophole in the IBC starting from the inception of the IBC and created problems in Essar Steel too. Section 66 of the IBC lacks fraud punishment provisions similar to Section 447 of the Companies Act, 2013 which covers third parties as well. This massive deterrence and recovery gap remains unaddressed, 'the elephant in the drawing room' that the IBC Amendment Bill 2025 ignores entirely.
Death of Professional Independence of IP
The Supreme Court in Swiss Ribbons held that IPs function as quasi-judicial authorities during liquidation (Cections 38-42). The IBC Amendment Bill 2025’s proposal to delete these sections appears designed to facilitate regulatory witch-hunts rather than improve efficiency. Even post the IBC Amendment Bill 2025, IPs will retain quasi-judicial functions due to existing Sections 21, 24(7) of the IBC, and the proposed explanation to Section 18(b) of the IBC Amendment Bill 2025 - making this deletion both contradictory and counterproductive.
IBBI's regulations have created an impossible situation for IPs. Regulation 31A of CIRP Regulations mandates CoC approval for all CIRP costs, while imposing duties on IPs to maintain going concerns, preserve assets, examine avoidance transactions and appoint advisers. The result: professionals with board-level responsibilities but no spending authority - not even for a single rupee without creditor approval. This makes IPs vulnerable to coercion and conflict of interest. In this scenario, projecting IP as an independent person is a sham.
The practical consequences are severe. In the Hindustan Natural Glass case, the police authorities summoned CoC members for violations during CIRP. The Delhi High Court in Kunwer Sachdev vs IDBI Bank recognised CoC's fiduciary duties and directed IBBI to frame conduct codes but any binding and reasonable code of conduct has yet to come into place. When supervisors and supervised merge roles, accountability vanishes.
IPEs and the Business of Insolvency
IBC originally envisioned only individuals as IPs, preserving professional integrity. IBBI regulations later introduced IP entities (IPEs) with up to 49% ownership by any person other than IPs, including foreigners. Without amending the IBC, IBBI allowed IPEs to act as IPs based on practices in countries like "Austria, Czech Republic, Hungary, Slovakia, Spain, Lithuania, Romania, and Switzerland".
This regulatory sleight-of-hand has perverse consequences. Large firms avoid direct IP roles due to regulatory risks, pushing third parties to front processes while they advise from the shadows. Duties remain with individual IPs; IPEs bear no liability unless they act as IP themselves. Extended timelines mean higher fees and creating incentives for delay rather than efficiency.
The rise of IPEs marks a shift from profession to business. This dual structure creates a discriminatory environment whereas as IP working with IPE can act independently even without his own IPE. Individual IPs face penalties and scrutiny, while IPEs escape liability. Cases like Lavasa, Byju’s, Gensol, etc. highlight the conflicts and lack of accountability. IBBI has failed to apply the rules in a fair and transparent manner for IP and IPE further skewing the ecosystem of IBC.
Interestingly, delays in CIRP benefit IP/IPEs financially, as extended tenures mean higher fees and CIRP is treated as an asset management business. This creates a perverse incentive structure that undermines the goal of timely resolution under IBC.
Funding Crisis & Avoidance Transactions
One of the most pressing issues is the lack of funding of the CIRP cost. IPs are expected to perform a range of duties from preserving assets to investigating avoidance transactions under without guaranteed funding. The Delhi High Court, in Kunwer Sachdev vs IDBI Bank, held that CoC has fiduciary duties and directed IBBI to create a code of conduct. Yet, IBBI has failed to implement binding guidelines, allowing CoC members to operate without accountability.
IBBI’s own data shows that over Rs3.76 lakh crore is tied up in unresolved avoidance transaction applications. This is based on avoidance applications filed by IPs. There are many cases where IPs did not file avoidance applications due to lack of funds to do any transaction audit. Without financial autonomy, IPs are unable to pursue these cases effectively, turning IBC into a tool for sanitising white-collar crimes.
Regulatory Overreach & Lack of Accountability
The IBC Amendment Bill 2025 misses opportunities to address systemic governance failures. Complaints of corruption and wrongdoing among some IPs and within IBBI /NCLT are acknowledged but inadequately addressed. While Section 233 provides similar protection levels for IPs and IBBI officials, procedural safeguards differ dramatically. IPs lack basic due process rights like cross-examination of complainants and witnesses - tools available to IBBI employees.
The Bombay High Court's order in Poonam Basak vs Union of India didn't prevent the IBBI chairperson from acting as a disciplinary committee member, exemplifying the "judge in own cause" problem. Without independent oversight of regulatory wrongdoing, a governing board dominated by retired bureaucrats defaults to institutional self-protection.
IBBI's regulation-making follows no apparent legislative oversight. The flip-flop on Regulation 35A of CIRP Regulation and shifting positions on going-concern sales during liquidation exemplify mindless rule-making without parliamentary scrutiny as required by the manual for parliamentary procedures.
Way Forward: Real reform vs Cosmetic Changes
Genuine reform would require acknowledging fundamental design flaws and addressing them systematically:
• Restore IP independence through clear funding mechanisms and freedom from IBBI/ creditor micro-management. Alternatively, if IP independence cannot be protected, the system should honestly embrace alternative models, i.e., regulator-appointed professionals or creditor officers supported by specialised advisers, as used in NBFC resolutions like Dewan Housing Finance Limited.
• Subject IBBI regulations to mandatory parliamentary committee review and vetting by ministry of law as per the parliamentary procedure manual.
• Close third-party liability gaps in Sections 66/67 of the IBC with fraud punishment provisions in IBC, like Section 447 of the Companies Act, 2013
• Create independent oversight for regulatory wrongdoing rather than self-policing by IBBI.
• Build NCLT capacity before mandating unrealistic timelines for passing orders under IBC. This requires regular training and bringing the judicial members (who were earlier civil judges) out of civil court mindset.
• Establish proportionate disciplinary frameworks with proper due process safeguards for IP.
• Extend the availability of government law officers to IP in a rational manner to avoid the cost and show support of the government for faster results in IBC.
Conclusion: Parliament's Moment of Truth
The IBC remains India's most consequential economic legislation in decades, directly recovering over Rs3.65 lakh crore and fundamentally altering credit discipline. But the IBC Amendment Bill 2025 represents retreat rather than reform— codifying creditor dominance, legitimising regulatory overreach, and betting on timeline mandates without building implementation capacity.
Parliament now faces a critical choice: restore the IBC's original balance of independence and accountability, or acquiesce to an executive-driven redesign that prioritises quick disposals over value maximisation and due process. The decision will determine whether India's insolvency framework evolves into a world-class resolution mechanism or devolves into a creditor-controlled liquidation mill with no accountability.
The stakes couldn't be higher. Nine years after revolutionising India's approach to corporate distress, the IBC stands at a crossroads. Parliament must choose between the original vision of professional independence and judicial oversight, or the current drift toward regulatory capture and creditor control. The choice will define not just the future of insolvency resolution, but India's broader commitment to the rule of law in economic governance.
The absence of a visionary leader like the late Mr Jaitley is palpable. His ability to balance legal integrity with economic pragmatism is sorely missed. Today, the IBC risks becoming a bureaucratic tool used not to resolve insolvency, but to control narratives and sanitise financial misconduct wherein avoidance transaction of lakhs of crores remain pending for years. This undermines the very purpose of the IBC, which was to create a transparent, efficient and fair insolvency framework.
Parliament must rise to the occasion. It must scrutinise the IBC Amendment Bill 2025 by checking the intent of the executive and not just for its legal validity, but for its economic impact and ethical implications on the ecosystem of IBC. If Parliament fails to do so, the IBC will become a cautionary tale, i.e., a law that promised transformation but delivered bureaucracy.
The need of the hour is not just legislative change, but institutional reforms. IBC must be rescued from the clutches of bureaucratic overreach and restored to its original vision, i.e., a fair, efficient and independent insolvency framework that serves the interests of all stakeholders.
The ball is now in Parliament's court. Will it break fresh ground or fall into the executive trap?
(Jitender Kumar Jain is a Mumbai-based advocate with over two decades of practice in corporate and commercial laws, including insolvency law.)
One Important Regulation need to be made to protect the CIRP cots and fees of the Replaced IPs and/or their Service Providers, which must be compulsory paid before such IPs are Replaced as held by the Hon'ble NCLT, Hyderabad in the Case No. CP (IB) No.651/7/HDB/2018.
I hope that the legacy left by Late Sh.Jateley by enacting IBC, 2016 and spearheading the Company Tribunals from the HCs, appointing key and tested Persons in Tribunals and the Ministry, may be restored as a tribute to him.
I hope the MCA and Ministry of Finance will take a cue from this masterly piece, revisit the proposed amendment bill and revise it for ushering in a truly effective Code which will meet the lofty objectives enshrined in IBC's preamble, of maximization of value and timely disposal etc.
This article complements and supplements the article written on this subject by CA Devang Sampat and I, highlighting the practical inadequacies of the current bill.
Together these articles can for enhance and maximize the legal, regulatory and practical efficacy of the IBC.
I am sure the government will welcome this constructive criticism which goes an extra mile to suggest feasible and effective solutions.