Creditor-Initiated Insolvency in India: Promise and Pitfalls of the 2025 Amendment

[Neeraj is a student at Gujarat National Law University.]

The Insolvency and Bankruptcy Code 2016 (IBC) revolutionized India’s insolvency framework by introducing a consolidated, time-bound process for resolving stressed assets. Over its first decade, the IBC delivered numerous successful rescues, but also exposed shortcomings. Court records show that the National Company Law Tribunal (NCLT) has been swamped – nearly 15,000 corporate insolvency cases were pending as of March 2025 – and many cases routinely exceed the 330-day limit mandated by law. Recently, the IBC Amendment Bill 2025, proposes a new creditor-initiated insolvency resolution process (CIIRP) to bolster creditor-driven, out-of-court workouts and expedite resolutions. The central question is whether CIIRP indeed strengthens creditor rights without unduly harming debtor protections. In this article, the author gives an introduction, then the existing framework, decodes the proposed amendment and key practical challenges, and lastly provides a way forward with a conclusion. 

The Existing Framework (Status Quo)

Under the existing IBC framework, the corporate insolvency resolution process (CIRP) can be triggered by any of the 3 parties: a financial creditor (Section 7), an operational creditor (Section 9), or the company itself (Section 10). Once a petition is admitted, Section 17 shifts management control to an interim resolution professional (IRP) – effectively suspending the board of directors – who then reports to a committee of creditors (CoC). The CoC, composed mainly of secured financial creditors, nominates a resolution professional (RP) to run the business as a going concern. Crucially, Section 14 imposes an automatic moratorium on all suits, claims, or enforcement actions against the debtor, giving breathing room for resolution.

While ambitious in design, CIRP has faced criticism in practice. NCLT backlogs cause delays in even admitting applications – though law mandates admission within 14 days, in reality, many cases drag on as courts hear interim challenges. Resolutions themselves often extend far beyond the 330-day upper limit, due to litigation and procedural hurdles. Debtors frequently resist resolution through legal challenges, further stalling the process. So, stakeholders saw a gap: the CIRP, though legally time-bound, was functionally rigid and court-heavy, suggesting a need for a faster, more creditor-led alternative process.

The Amendment: Decoding CIIRP 

The 2025 amendment introduces Chapter IV-A (Sections 58A–58K) to the IBC, formally creating a CIIRP for notified classes of corporate debtors. CIIRP may be invoked only by certain financial creditors (to be specified in rules) acting jointly. In practice, the bill requires that at least 51% by value of the eligible creditors agree to initiate the process. Those creditors must then notify the corporate debtor in writing and give it at least 30 days to make written representations or objections. The debtor may approach the NCLT during this period to contest the initiation if it believes the procedure has not been followed or that no default occurred.

If unchallenged, CIIRP commences on the date of public notice. Unlike an ordinary CIRP, the existing board of directors stays in place, subject to the IRP/RP’s supervision. No automatic moratorium attaches under CIIRP; instead, the RP may apply to the NCLT for a moratorium with the consent of a majority (51%) of the initiating creditors. The entire CIIRP must be completed within 150 days of initiation (with one 45-day extension available upon CoC approval). At the end of this period, the CoC must have approved a resolution plan. If no plan is received on time, or if the debtor fails to cooperate or the plan is rejected, the NCLT is empowered to convert the proceedings into a regular CIRP.

In the author's opinion, CIIRP sets up a faster, out-of-court turnaround, creditors propose a plan among themselves (with debtor input), and court validation only comes at the end rather than the start. The intent is to streamline the early stage by keeping debtors in control (so business-as-usual continues) while putting creditors in the driver’s seat. These features contrast with CIRP’s “creditor in control” but more disruptive, court-centric approach.

Practical Challenges

The CIIRP framework, while promising, also raises uncertainties and potential downsides.

Who is an eligible financial creditor? 

The law leaves it to the government to notify which classes of financial creditors may initiate CIIRP. Until this is clarified, there is a risk that some creditors (e.g., certain bondholders or specialized lenders) may be excluded, concentrating power in larger banks. Debtors might challenge an initiation because the petitioners were not bona fide eligible creditors. If the definition is too narrow, valuable creditor groups could be left out; if too broad, small/uninformed creditors might trigger processes they do not fully understand.

No automatic moratorium

As noted, CIIRP does not impose an automatic stay. This can be both an advantage and a disadvantage. On the one hand, it avoids needless shutdowns. On the other hand, in practice, it means other creditors (especially large unsecured or operational creditors) can still press claims during the CIIRP unless a moratorium is granted. This undermines the collective nature of insolvency: e.g., a major supplier could sue for payment even as others negotiate a restructuring. Creditors will have to obtain a discretionary moratorium from the NCLT, which adds another procedural step and could delay matters if contested.

Debtor control risks

Allowing the debtor’s existing management to remain poses oversight challenges. Without a full moratorium or replacement of directors, there is a risk that a debtor with weak governance might “strip” value (sell assets, incur new debts, or siphon funds) before a deal is struck. The RP’s oversight role will be critical, but in practice, RPs typically lack coercive powers over directors absent court orders. This could leave creditors exposed if the debtor does not fully cooperate or acts opportunistically during CIIRP.

Forum overlap

The introduction of CIIRP adds a new layer to an already complex framework (CIRP, fast-track CIRP, pre-packaged insolvency resolution process (PPIRP) for MSMEs). Debt recovery disputes or negotiations could shift between processes. For example, creditors might attempt CIIRP and CIRP in parallel (though the bill bars CIIRP if CIRP or PPIRP has recently occurred). Without clear rules, parties might “forum-shop” to gain tactical advantages, e.g., by withdrawing one petition and filing another.

Debtor litigation risk remains

Although CIIRP aims to reduce litigation, debtors still have the right to object to a CIIRP initiation and even seek to quash it. The precise scope of permissible objections is untested. A debtor could argue, for instance, that the financial debt claimed by the petitioners is not due (no default) or that the 51% criterion was improperly calculated. Such fights will likely move to NCLT, meaning early-stage litigation is still possible, albeit hopefully limited by the short objection window.

Uncertain jurisprudence

The CIIRP scheme is new, and Indian courts have not yet ruled on its finer points. Many questions (e.g., interplay with contract law, obligations on RPs, anti-debiturism safeguards) will only be answered by future judgments. This uncertainty means that stakeholders must proceed with caution until precedents emerge.

In the author's opinion, while CIIRP simplifies and accelerates certain aspects of insolvency, it sacrifices some of CIRP’s safeguards (full moratorium, immediate RP control). Its success will depend on clear implementing rules (especially defining eligible creditors) and vigilant enforcement (e.g., RPs policing misbehavior). Critics argue the balance of power still heavily favors creditors, and worry that debtors’ rights (to continue business under Article 19(1)(g) or to equal treatment) may be curtailed. These tensions mirror earlier debates under IBC, which is precisely why legislative and judicial scrutiny will be needed.

Way Forward

The CIIRP regime’s promise will hinge on thoughtful implementation. To make this process effective, the government must first clarify which financial creditors are eligible, striking a balance between inclusivity and preventing frivolous claims. Strong oversight is equally vital since management remains in control. RPs should be empowered to intervene against asset dissipation while tribunals scrutinize related-party or fraudulent dealings. Capacity-building is another priority; both NCLT members and RPs need training and resources to handle CIIRP’s novel features, alongside ongoing institutional reforms like e-courts and vacancy-filling. Clear harmonization with CIRP and the MSME pre-pack process will be essential to avoid confusion and forum shopping. Finally, regulators and courts should closely monitor early cases to detect bottlenecks or abuse, making timely adjustments to ensure CIIRP delivers on its intended balance between creditor rights and debtor protection.

If these suggestions are implemented with balance, CIIRP could emerge as a middle path: quicker and less draconian than full CIRP, but more structured than informal workouts. It allows creditors to press debtors while still giving debtors a chance to negotiate a plan. As one leading commentary notes, the 2025 amendments (including CIIRP) aim “to restore the clarity, speed, and commercial certainty that are central to the IBC’s purpose”. Achieving this will require both creditor discipline and debtor cooperation, backed by active judicial guidance.

Conclusion

The 2025 IBC amendment marks a significant step in India’s insolvency law. By introducing CIIRP, Parliament has signaled a shift towards even greater creditor empowerment and flexibility. CIIRP’s shorter timelines and creditor-led design mirror global best practices (akin to pre-packaged restructurings), potentially speeding up resolutions and preserving value. However, this innovation is not without risks. The lack of an automatic moratorium and continued debtor management raise fresh grey areas. The success of CIIRP will depend on clear rules (especially on eligible creditors), vigilant oversight to prevent misuse, and balanced judicial review. These Amendment is “arguably the most exhaustive and comprehensive” reform to date, aiming to reconcile the IBC with lessons learned since 2016. If creditor interests and debtor rights can be harmonized in practice, CIIRP may indeed offer a welcome middle ground – faster and more decisive than CIRP, yet still bound by the IBC’s commitment to fairness. The coming months will test whether this legislative experiment strengthens recovery regimes without undermining confidence in India’s insolvency system.