HARMONIZING INSOLVENCY AND CORPORATE GOVERNANCE: DECODING THE 2025 BILL

Author- Abhishek Nagar

Abstract

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 is a major step in the evolution of the insolvency architecture in India, which aims to balance the creditor-centric approach of insolvency law with the principles of corporate governance as codified in the Companies Act, 2013. The suggested changes rebalance the roles of creditors, management control, judicial oversight and corporate accountability and establish a more balanced and predictable insolvency landscape. The introduction of the Creditor-Initiated Insolvency Resolution Process (CIIRP) marks a move towards the debtors-in-possession regulated approach, where the creditors have the power to appoint the Resolution Professional and to supervise the process through the Committee of Creditors, while the manager continues to oversee the company's affairs. The Bill also increases the level of certainty in the process by reintroducing the mandatory admission on proof of default and restricts the discretion of the court in making admissions in insolvency.The concept of group insolvency and cross-border insolvency takes into account the economic realities of interconnected corporate entities and cross-border business operations and makes India's insolvency law compatible with international best practices as enshrined in the UNCITRAL Model Law.Additional changes in the liquidation supervision, moratorium and time-limited procedures aim to achieve maximum value realization and control over the proceedings. The amendments are a collective effort to balance the efficiency of insolvency with transparency, stewardship, and corporate continuity, to boost the resilience and credibility of the corporate governance and insolvency system in India.

INTRODUCTION

The Insolvency and Bankruptcy Code (“IBC”) (Amendment) Bill, 2025 (the “Bill”) represents a crossover point where the insolvency specialist regime has ceased to coexist with the general regime of the corporate law, and instead has become obliged to coexist with it, in a symbiotic relationship. The Companies Act, 2013 (“CA, 2013”) was based on the main principles of management stewardship, director accountability and inviolability of the corporate veil. This corporate structure was inherently upset by the IBC, 2016, with its creditor-in-control, time-limited design, which created tension per se. The Bill is an advanced effort to rationalise this dissonance, so that the velocity needed to make the said reconciliation does not fully undermine the major tenets of good corporate governance and legal certainty. It has a far reaching impact in the very mechanics of the operation of companies, in the way they are managed, financed and dissolved. The Bill aims at providing the principles of governance, continuity, and accountability with a legislative basis in the insolvency structure. The government is future-proofing Indian corporate law, not just by expressly overriding or interpreting questionable judicial precedents, but also by creating more complex company structures, such as group and cross-border insolvency. This attempt is meant to match the efficiency orientation of IBC with structural integrity demands of CA, 2013, to encourage a balance that enhances the rights of creditors as well as corporate autonomy.

RECALIBRATING MANAGEMENT STEWARDSHIP AND CONTROL

The conflict is between the gap in management caused when Creditor Initiated Resolution Process (“CIRP”) is initiated. Section 149 of the CA, 2013 of the Board of Directors (“BoD”) is based on the Separation of Management and Ownership doctrine. The classical CIRP, which simply suspends the BoD and hands over the power to the Resolution Professional (“RP”), in effect imposes on the Board the main stewardship functions, at the behest of the Committee of Creditors (“CoC”). The introduction of the Creditor-Initiated Insolvency Resolution Process (“CIIRP”) in Section 58A-58K in Chapter IV-A of the Bill is a subtle piece of legislation. CIIRP promotes the Debtor-in-Possession model, under which the team that managed the company before the default will have operational control, but will be tightly controlled by the RP with veto authority. This framework is a definite legislative wink to the managerial continuity of the CA, 2013, which acknowledges that the institutional knowledge of the management is likely the most valuable asset to save instant value. The Bill however overturns the right to an Interim Resolution Professional (IRP) of their own by the corporate debtor in a typical CIRP application.[1] Rather, the National Company Law Tribunal (“NCLT”) has to request the Insolvency and Bankruptcy Board of India (“IBBI”) to give a recommendation regarding the same. This is a direct improvement of the independence and transparency of the insolvency ecosystem and this prevents the directors from installing a preferred professional and relieves conflict of interests.

]The Bill reinstates the obligatory character of the admission on proven default, in line with the principle of debt and default observed in the case of Innoventive Industries Ltd. v. ICICI Bank, by reversing the discretionary power that the NCLT had in the case of Vidarbha Industries Power Ltd. v. Axis Bank Ltd., through a legislative overturn of the discretionary power granted to the NCLT. This changed role of the NCLT restricts its role of determining a fact as opposed to the judicial discretion which functions on other good grounds, thus guaranteeing predictability and timely commencement. The 14 days period which is compulsory to the NCLT decision and the writing of reasons to explain any extension strengthens the procedural rigour that is needed in Section 424 of the CA, 2013.[2] This is to make sure that once the corporate resolution process has been formally initiated, it is not used as a simple debt recovery instrument which can be arbitrarily settled outside of the legislative framework.

HARMONISING GROUP INSOLVENCY WITH CORPORATE STRUCTURES

The CA, 2013 officially acknowledges the financial fact of corporate groups. It establishes Holding, Subsidiary and Associate Companies and provides consolidated financial statements and rigorous inspection of transactions of related parties under Section 188, all in a bid to provide true financial representation. However, the liquidation and the resolution mechanisms of the Act remains recalcitrantly single-entity centric that is a major structural flaw when addressing groups that are linked together by intricate cross-holdings and inter-corporate guarantees.[3] Section 59A introduces a formal group insolvency regime into the Bill which will address this systemic gap in governance. The Bill requires a joint solution comprising of such mechanisms as a common NCLT bench, a common RP and a common CoC. This mechanism compels the legal process to observe the economic fact of the corporate group, which is a precondition of maximum value of the whole enterprise and the reduction of the value destruction that is massive when related parties are subject to fragmented and chaotic proceedings.

It is also important that cross-border insolvency is implemented in accordance with the Section 240C Framework that is founded on the UNCITRAL Model Law.[4]In the case of multinational Indian companies, this is a critical instrument of the improvement of global corporate governance, introduced by the 2018 Insolvency Law Committee Report.[5]It offers a proper legal path to managing multi-jurisdictional resources and credits and thus enhances investor predictability and harmonises the legal framework in India with international best practice. The complexity of this harmonisation is highlighted by the granting of the Central Government to prescribe the detailed provisions under Section 240C which may imply the changes in the IBC or the CA, 2013. Although delegation may pose inconsistency, such a legislative move is essential in corporate entities that are involved in a connected international market, in this instance, legal mechanisms to recover assets abroad has to be crystal clear, a tenet that has been reinstated in cases such as Tata steel BSL Limited v. Venus Recruiter Private Limited.

UPHOLDING THE SANCTITY OF CORPORATE CONTRACT AND FINANCE

The amendments made to the Bill on liquidation waterfall are an effective reaffirmation of the principles of corporate finance and the sanctity of contract. The State Tax Officer v. Rainbow Papers Ltd.is the first step towards the right direction. By enabling a statutory lien on the property of a debtor to put government dues on the same level with other secured debt, this judgement in effect destabilised the secured credit market and invalidated the predictable functioning of the liquidation waterfall created in Section 53. The Bill does correct this distortion by making it clear that a security interest must be the result of mutual agreement or arrangement which clearly leaves out those that arise by mere operation of law. The amendment is essential in guaranteeing that the banks and financial institutions that depend on the certainty of their security interest can lend money to the corporations with a lot of assurance therefore safeguarding the integrity of the corporate finance system.[6] Section 53 is further supported by stating that a creditor only has the status of a secured claim to the extent of the value of its security interest and that any excess claim is treated as unsecured which is sufficient to categorise creditors and market trust.

Another amendment that is related is the proposed amendment on Competition Commission of India (“CCI”) approval time in resolution plans. The Bill will facilitate the process by permitting CCI approval with CoC sanction but NCLT approval.[7] This, however, poses a possible conflict in corporate law as once an approved plan has been made by CoC, it is deemed binding and unaltered, as it was established by the SC in Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd. When the CCI requires structural adjustments to the corporate structure after the CoC was approved, it will simply be a direct contradiction to the finality of the approved plan, which will create a legal deadlock and liquidation of the corporation as a result, which will be sabotaging the revival mandate that is the main focus of the IBC synergy with corporate continuity.

ENHANCING ACCOUNTABILITY AND THE CORPORATE VEIL

The Bill plays a huge role in narrowing the accountability loop often reaching into the judicial discussion of the corporate veil. The amendments regarding personal insolvency especially the abolishment of interim moratorium in Section 96 relating to personal guarantors directly affect the legal responsibility of directors and promoters. After the ruling of the SC in the case of Lalit Kumar Jain v. The union of India in support of the application of the IBC to personal guarantors to the Bill, relocation makes sure that the resolution of the corporate debtor is not ransomed by the protection given to the guarantor.

Moreover, the expansion of avoidance proceedings scrutiny under Section 49 to assets of related parties, to circumvent the exception of the ‘good faith’ exemption to transactions defrauding creditors, is a most essential governance initiative. This will help to forestall the asset stripping of the company by the promoters and the diversion of value by the related entities before the insolvency. This is a direct mechanism of remedy of the fiduciary obligations of the Board and promoters, andpenalises the misuse of corporate form and the liquidation money is recoverable as proceeds. The introduction of the codification of the principle developed by the decision of the SC in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta known as the so-called ‘clean slate’ enables the acquiring entity to enjoy corporate continuity by extinguishing all the claims except those clearly identified, and it is a way to promote the inflow of capital to the company. Section 28A strengthens the position of creditors by granting the assignment of the asset of a guarantor to the CIRP on the approval of CoC and personal guarantee becomes real and enforceable.

SUPERVISION, LIQUIDATION, AND PROCEDURAL RIGOUR

The changes by giving the CoC the power to supervise and replace the liquidator as per the suggested Section 34A is a root structural modification. It transfers the last stage of dissolution to the financial creditors, who are in the best position to know the financial position of the corporate debtor. This is similar to the last winding up processes in the CA, 2013, which provide that the body who bears the brunt of the loss will have the ultimate decision as to how the corporate entity will be disposed of in an orderly manner. Section 38 to 42 is also eliminated by the Bill to avoid duplication and make it simple.

The Bill provides that the secured creditors have a period of 14 days to make any decision to realise their security without going into liquidation, otherwise the security is relinquished to the liquidation property.[8] The coming of particular timelines of NCLT orders and the 180-day liquidation time with a potential extension of 90 days are steps to create rigour of process and to maximise value recovery, which is in the spirit of time-constrained resolution. Section 33(1A) and 66% CoC approval or early dissolution under Section 54(2A) has been put in place because it is acknowledged that the corporate objective of revival must be provided with all plausible opportunities, before the final dissolution is used. The fact that it brings in the Section 14 moratorium protections to liquidation proceedings further simplifies the process of it as there is a legal protection against individual creditor activities whilst the winding down is taking place. The absence of limit on reinstatement under Section 33(4) and the wide CoC discretion in Sections 54(1A) and 54(1B), however, necessitate clear principles to ensure the continuity and fairness of the corporate governance principles are idealised in balance with the principles of continuity and fairness in the corporate governance rules.

CONCLUSION

The Bill is a work of exquisite legislation. It recognises the legal and structural issues presented by the IBC to the pillars of the CA, 2013 and provides detailed and sophisticated solutions. The Bill is a sure step towards bringing India to a fully-fledged legal system by adopt the Debtor-in-Possession model via CIIRP and reiterating the sanctity of contract over statutory liens, developing specific governance structures over corporate groups, and greatly enhancing the accountability of the management through personal and avoidance actions. It is a guarantee that, although the IBC offers the tool of the proper resolution, the fundamental principles of corporate governance, transparency, and legal certainty do not only survive but are in fact strengthened, establishing an even more resilient and trustful corporate ecosystem in the future. The Bill contemplates a balance between corporate liberty and creditorright, which is a vital precedent to legislative foresight in the law-making in the complex world of economics.

[1]Taxmann, “[Opinion] IBC Amendment Bill 2025 Proposes Key Insolvency Reforms”, available at: Taxmann Article (Last Modified Sept. 20, 2025).

[2]S.S. Rana & Co., “Withdrawal of CIRP before Constitution of CoC”, available at: SS Rana Article (Visited on May 8, 2026)

[3]Insolvency and Bankruptcy Board of India, Discussion Paper on Amendments to the Insolvency and Bankruptcy Code, available at: IBBI Discussion Paper PDF (Visited on May 7, 2026).

[4]Cyril Amarchand Mangaldas, “Client Alert: The Insolvency and Bankruptcy Code (Amendment) Bill, 2025”, available at: CAM Client Alert PDF (Visited on May 8, 2026).

[5]Insolvency Law Reforms Committee, Report of the Insolvency Law Reforms Committee (March, 2018), available at: ILR Committee Report PDF (Visited on May 13, 2026).

[6]Hammurabi & Solomon Partners, “Decoding the IBC Amendment Bill, 2025: Key Reforms and Implications for Stakeholders”, available at: Hammurabi & Solomon Article (Visited on May 8, 2026).

[7]The Insolvency and Bankruptcy Code (Amendment) Bill, 2025, available at: PRS India PDF (Visited on May 8, 2026).

[8]The Insolvency and Bankruptcy Code (Amendment) Bill, 2025, available at: PRS India Bill PDF (Visited on May 8, 2026).

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