Introduction — The Amendment Bill and CIIRP
On August 12, the Finance Minister of India, Nirmala Sitharaman, introduced the Insolvency and Bankruptcy Code Amendment Bill, 2025 (“the Amendment Bill or the Bill”). Among its key proposals is the introduction of the Creditor-Initiated Insolvency Resolution Process (“CIIRP”), envisaged as a faster and more cost-effective resolution process to minimize business disruptions. The stated objective is to facilitate an out-of-court restructuring of distressed Corporate Debtors (“CD”) with “genuine business failures”.
Under the bill, a Financial Creditor against whom a default has occurred may, with the approval of 51% of the financial creditors, initiate CIIRP by appointing a Resolution Professional (“RP”). During the CIIRP proceedings, the Board of Directors (“BoD”) will retain the management and control of the CD- i.e Debtor in Control- while the Committee of Creditors (“CoC”) supervises, with the authority to convert the process to a full-fledged Corporate Insolvency Resolution Process (“CIRP”) at any stage. In effect, CIIRP presents itself as a Creditor-driven alternative to the Pre-Packaged Insolvency Resolution Process (“PPIRP”).
Yet, beneath these glittering promises, the proposal raises serious questions. India’s insolvency regime, still in its formative stage and heavily dependent on judicial supervision, lacks the institutional maturity to absorb the changes without significant risks.
India’s Insolvency Regime: Still in Transition
The Insolvency and Bankruptcy Code, 2016 (“IBC or Code”) was enacted with the aim of consolidating the laws relating to the restructuring and insolvency resolution of the distressed companies, Limited Liability Partnerships (“LLPs”), partnership firms and individuals. So far, however, its provisions have been enforced only with respect to the Companies, LLPs and the Personal Guarantors. Both the Financial Creditors and the Operational Creditors may initiate the CIRP in cases of default as defined under the Code, while the CDs themselves are also permitted to file voluntarily.
The Code was envisioned as a framework to maximize the asset value in an expedient and cost-effective manner. Yet, in practice, its functioning mirrors the chronic delays of the Indian civil justice system. Although Section 12 mandates the completion of CIRP within 180 days, extendable by a further 90 days- a total ceiling of 270 days-the actual average duration stands at 713 days, with almost five out of five proceedings breaching the statutory timeline. This defats the very purpose of time-bound resolution and often results in value erosion.
Recovery rates also remain dismal. While the Code promised better outcomes for creditors, the aggregate recovery is roughly 30%, leaving the creditors to absorb a haircut of 70%.
The PPIRP, introduced in 2021 amid high expectations, has similarly failed to take off. As of 31 March 2025, only 14 PPIRP proceedings have been admitted, with 8 culminating in approved resolution plans. The lack of uptake underscores India’s entrenched reliance on judicially monitored processes and its limited confidence in out-of-court restructuring.
Adding to these difficulties is the judiciary’s tendency to intervene in insolvency proceedings, often at the expense of commercial wisdom. Decisions such as Bhushan Steel and Byju’s insolvency illustrate how courts and tribunals have stepped into the sphere best left to creditors, thereby unsettling the predictability and efficiency of the process.
Taken together, these realities reveal that IBC remains in a transitional stage- burdened by delays, weak recoveries, and an overdependence on adjudication. With the PPIRP struggling for relevance, the proposed CIIRP risks becoming yet another underperforming experiment, introduced without first addressing the systematic shortcomings of the regime.
CIIRP and Premature Adoption: Comparative Lessons
India’s insolvency regime remains a work in progress, with several structural gaps still hampering its effective and full-fledged implementation. This raises a pertinent question of whether the system is ready to accommodate the proposed CIIRP. Experiences from other jurisdictions show that the creditor-driven insolvency resolution mechanisms were only introduced once the insolvency regimes in those countries had reached a certain level of institutional stability and maturity.
A comparative analysis of global insolvency practices reveals a gradual transition from creditor-centric laws to a debtor-friendly framework, often accompanied by reduced judicial involvement. However, India, however, continues to emphasize the creditor interests, even while appearing to move towards a debtor-in-possession model. The provisions empowering the CoC to terminate CIIRP and convert it to a full-fledged CIRP, along with the absence of a mandatory moratorium during CIIRP, illustrate this imbalance.
The cautious stance stems from the fear that excessive debtor protection may deter foreign investment and destabilize economic confidence. Yet, in practice, it is the overreliance on judicial supervision and procedural rigidity that always generates these very concerns. Courts are often blamed for delays and inefficiencies, but the deeper issue lies in the underdevelopment of commercial wisdom and creditor discipline, which compels the judiciary to maintain a close watch.
Further, unlike other mature systems, India lacks the safeguards that support the debtor-in-possession model elsewhere. For instance, the United States provides Debtor-in-Possession (“DIP”) financing, incentivizing the creditors through priority claims and security interests to support distressed companies. In contrast, Indian law still imposes disincentives such as mandatory public announcements, even under CIIRP.
Taken together, these factors demonstrate that India has not yet built the institutional foundation necessary for CIIRP. Importing advanced insolvency models without first strengthening the domestic ecosystem risks premature experimentation, with limited prospects of success.
The Risks of Premature Introduction
The Premature introduction of the CIIRP poses a significant risk. That could erode the emerging confidence in the IBC, reducing it to an experimental piece of legislation rather than a reliable one. The foremost concern lies in the lack of structural capacity. RPs who already face challenges under the existing framework are insufficiently trained to handle the complexities of a hybrid resolution process. Compounding this is the limited commercial sophistication within the system, which makes stakeholders wary of proceedings that operate without judicial oversight. As a result, even competent RPs struggle to administer the process effectively.
Ironically, while CIIRP aims to minimize judicial involvement and promote debtor-in-possession restructuring, the current proposal allows for a degree of judicial intervention that undermines this very objective. In the absence of adequate funding mechanisms, such as debtor-in-possession financing, many CIIRP cases are likely to collapse into formal CIRP, discouraging creditors from committing resources to distressed firms. This uncertainty not only diminishes prospects of revival but also risks chilling the broader investment climate, deterring foreign investment inflows at a time when India needs them most.
In effect, the amendment may yield counterproductive outcomes. Rather than experimenting with premature reforms, efforts should be directed to consolidating and strengthening the existing regime before embarking on advanced models such as CIIRP.
Conclusion — Not a Rejection, but a Deferral
The amendment aspires to place India’s insolvency framework on par with its global counterparts, laying the groundwork for a cross-border insolvency regime. The introduction of out-of-court mechanisms, including PPIRP and CIIRP, reflects this ambition. But piecemeal amendments undertaken without a comprehensive structural overhaul aligned with global standards are unlikely to deliver suitable results.
The path ahead lies in prioritizing quality over quantity. Structural deficiencies must be addressed before layering an advanced mechanism onto an already strained system. Timely adjudication by the NCLTs and NCLAT must be ensured to restore faith in the Code. RPs require enhanced training to effectively manage hybrid processes. While policy reforms should foster commercial sophistication, creditor discipline, and pragmatic business judgement. Above all, insolvency reforms must progress sequentially, building a solid foundation before attempting simultaneous innovations.
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