[Saksham Agrawal is a third-year B.A., LL.B. (Hons.) student at National Law School of India University, Bangalore]
The Insolvency and Bankruptcy Code 2016 (“the Code”) was enacted to consolidate India’s fragmented insolvency framework and shift the philosophy of insolvency from litigation and recovery to collective resolution and value maximisation. Since its enactment, the Code has been continually reshaped by both legislative and judicial interventions.
The Insolvency and Bankruptcy Code (Amendment) Bill 2025 (“Amendment Bill”) represents arguably the Parliament’s most assertive step. While previous amendments, notably those in 2019 and 2021, were piecemeal interventions designed to resolve specific controversies, the Amendment Bill is notable for the breadth of its engagement.
This post examines the Amendment Bill’s introduction of a creditor-initiated insolvency resolution process (“CIIRP”). It situates this in the broader trajectory of the Code and argues that while the Amendment Bill enhances creditor confidence and doctrinal clarity, the CIIRP risks shifting the insolvency regime further towards a creditor-enforcement model at the expense of distributive balance.
The CIIRP in the Amendment Bill
The Amendment Bill arrives against the backdrop of persistent concerns regarding delays in insolvency proceedings, judicial expansions that unsettled the Code’s architecture, and a mounting need to reinforce creditor confidence. It touches upon not only the core distributional provisions of the Code but also its procedural machinery and the very initiation of insolvency itself.
Along with its direct reversal of the judgment of the Supreme Court in State Tax Officer v. Rainbow Papers Limited, one of the biggest changes of the Amendment Bill is the introduction of the new CIIRP through a separate Chapter IV-A, which allows certain notified financial creditors to trigger resolution processes without approaching the National Company Law Tribunal (“NCLT”) in the first instance.
The provision authorises ‘specified’ categories of financial creditors to initiate resolution proceedings without first approaching the NCLT. The process is designed to run on a compressed timeline of 150 days, with a single permissible extension of 45 days before the matter is brought under the supervision of the NCLT if necessary. It represents an experiment in shifting some insolvency decision-making away from the already overburdened tribunals, with the intention of creating a more streamlined pathway to resolution.
The reform is motivated by two structural problems that have plagued the Code since inception: chronic delay in the admission of applications and the mounting backlog of cases before the NCLTs. The Code envisioned that applications under sections 7, 9, and 10 would be admitted or rejected within fourteen days, but in practice, this period is rarely honoured. Matters often languish for months, undermining the objective of preserving enterprise value. By allowing certain financial creditors to initiate a process without the bottleneck of judicial admission, the Amendment Bill seeksto provide speed and certainty, thereby strengthening creditor confidence in the efficacy of the regime.
Normative Concerns
This apparent efficiency gain conceals deeper normative concerns. First, the reform significantly tilts the balance of power between creditors and debtors. Under the existing structure, judicial admission serves not only as a procedural gateway but also as a safeguard against precipitous action. The NCLT, in admitting an application, must be satisfied that a default has occurred, that the claim is maintainable, and that the applicant has locus standi. Removing or compressing this judicial filter raises the risk that creditors, especially large financial institutions, will use the mechanism strategically to pressure debtors into settlements or disrupt ongoing negotiations. The debtor’s ability to contest the claim at an early stage is curtailed, potentially upsetting the Code’s ethos of resolution over liquidation. Thus, there is legitimate concern that as India’s insolvency regime is still nascent and reliant upon judicial oversight, it may not possess the institutional maturity to manage such a change without major risks.
Comparative models suggest that creditor-driven procedures without judicial oversight can be problematic. In the United States, while creditors may file an involuntary petition under section 303 of the US Bankruptcy Code, stringent thresholds and penalties for bad-faith filings operate as safeguards. In the United Kingdom, creditors may petition for compulsory liquidation, but only the court may make the order. It is to be noted that a qualifying floating charge holder can appoint an administrator without any court intervention. However, even here a safeguard exists that is absent in the CIIRP. Section 18(2)(b) of the Insolvency Act, 1986 requires that the relevant floating charge must be enforceable, i.e., there can be no dispute over the charge’s existence. The Indian experiment lacks a comparable protection that would prevent contested claims from triggering the CIIRP and by contrast, appears to combine wide creditor discretion with limited ex ante checks, a combination that may invite opportunistic behaviour.
Second, the provision introduces a new layer of complexity in insolvency governance. The Amendment Bill leaves crucial questions unanswered. First, which creditors will be notified as eligible to use the procedure?
The creditors eligible to initiate CIIRP are financial creditors belonging to the class of financial institutions notified by the Central Government. Only these ‘notified’ financial creditors shall have the right to initiate the process. The definition of ‘financial creditor’ is already limited (see here, here, and here) but even within that class, there may exist an asymmetry of power between large institutional lenders and other lenders. But what will this class of financial institutions consist of? If, as seems likely, only creditors from specific financial institutions are notified as eligible under Chapter IV-A, the mechanism risks entrenching this imbalance by arming the most powerful lenders with a quasi-administrative power to push firms into resolution before judicial scrutiny.
Next, what are the safeguards and will they prevent abuse? There are certain proposed safeguards, such as an approval requirement from other creditors and notice to the corporate debtor. However, pre-existing safeguards must be met first. These were conceived for a system in which the NCLT acts as the procedural gatekeeper. In the court-initiated process, admission under sections 7 or 9 of the Code ensures a prior judicial screening of both the default and the maintainability of the application. This prevents the coercive invocation of insolvency without due verification.
The Amendment Bill removes that safeguard in respect of the CIIRP. As per section 58B(4) of the Amendment Bill, the process commences the moment the resolution professional makes a public announcement, before any tribunal has examined whether any default exists. The debtor’s right to contest arises only after this public announcement through section 58C, which permits an objection within thirty days of the same.
A simple solution may be to allow the debtor to file an objection not within 30 days of the date of the commencement of the CIIRP under section 58C(1), but 30 days from when they are informed of the financial creditor’s intention to initiate the CIIRP under section 58B(2)(b). However, this may itself defeat the purpose of the CIIRP by introducing the NCLT immediately into the insolvency process.
One important aspect to examine is that unlike the regular corporate insolvency resolution process (“CIRP”), the CIIRP follows a debtor-in-possession model that allows the existing management to continue under the supervision of the resolution professional, who is appointed at the outset. Since the management is not displaced at the threshold, it could be argued that the initiation of the CIIRP no longer carries the same coercive consequences as an NCLT-admitted CIRP. The reputational and operational harms associated with the immediate loss of control are, at least in theory, mitigated.
However, although the CIIRP allows the existing management to remain in office, once the process is triggered, the debtor becomes subject to the scrutiny of the resolution professional, who has the right to reject any resolution passed in board meetings (section 58F(2) of the Amendment Bill). Further, the mere retention of formal management does not neutralise the coercive force of insolvency proceedings, as the reputational damage, contractual cross-defaults, and loss of business confidence are immediate and often irreversible. In practice, therefore, the retention of management does not operate as an adequate safeguard.
Another issue is that the shift of initiation powers away from the NCLT arguably undermines the principle that insolvency proceedings are judicial in character, involving determination of default and balancing of competing rights. By vesting initiation powers directly in creditors, the Amendment Bill risks creating a quasi-private insolvency regime, where powerful lenders can dictate entry into resolution. This raises questions about due process for debtors, particularly small and medium enterprises that may lack the bargaining power to resist early initiation.
Finally, from a policy perspective, the introduction of this CIIRP may result in insolvency law being used as a mechanism for debt enforcement rather than collective business rescue. A process that can be triggered unilaterally and resolved within 150 days tilts strongly towards debt enforcement. While this may enhance creditor recoveries, it risks truncating the opportunities for restructuring that the Code was meant to foster. If the goal is to create a genuine alternative to the lengthy NCLT proceedings, safeguards must be incorporated to ensure that viable firms are not prematurely pushed into insolvency.
Concluding Remarks
The CIIRP represents arguably the boldest experiment of the Amendment Bill. It promises speed and efficiency, but it does so by redistributing powers decisively towards financial creditors and away from both the debtors and the NCLTs. This risks reducing insolvency to a creditor enforcement mechanism, undermining the Code’s ethos of resolution over liquidation. It also reflects a broader trend of privileging creditor autonomy over judicial oversight, moving India closer to regimes where insolvency is viewed primarily as a tool of debt collection rather than corporate rescue. Whether this redistribution enhances the Code’s functioning or destabilises its foundational balance will depend on how the provision is implemented in practice, the scope of creditors notified under section 58B, how they exercise their powers under the Code, and the willingness of courts to police abuses.
– Saksham Agrawal