Hello! Welcome back to our updates from the insolvency law landscape in India.
In the News
The Finance Minister has introduced Insolvency and Bankruptcy Code (Amendment) Bill, 2025 in Lok Sabha on 12.08.2025 wherein the government proposed various changes in the Insolvency and Bankruptcy Code, 2016 (“IBC”). Some of the major changes that are being introduced are provided below:
- The proposed amendment provides that rights created by mutual agreement between parties can only be considered as “security interest” while determining security interest and not the ones which are created by statutes.
- NCLT is required to ascertain within 14 days of receipt of the application under Section 7(2) as to admit or reject the application and if it does not pass an order within 14 days, it must record reasons in writing.
- Similarly, NCLT is also required to provide reasons in writing if applications under section 9 of IBC are not decided within 14 days.
- Once the application for CIRP is admitted, it can only be withdrawn after the constitution of the CoC and obtaining the consent of CoC members representing not less than 90% of the voting shares. No withdrawal application can be entertained after issuing the first invitation for a resolution plan.
- Amendment Bill seeks to insert a new Chapter VA titled “Group Insolvency” in Part II of the Code to enable the Central Government to make rules concerning the manner and conditions for conducting insolvency proceedings and liquidation proceedings under Part II, where these proceedings are initiated against two or more corporate debtors that form part of a group.
- Interim moratorium for personal guarantors will not apply where an application to initiate an insolvency resolution process in respect of a personal guarantor to a corporate debtor is filed by a creditor or the debtor itself.
This Bill has been referred by Lok Sabha to Select Committee.
As per a report by Crisil Ratings, IBC has helped in resolving debt of Rs. 26 lakh crore since it was introduced in 2016.
IBBI has notified the IBBI (Insolvency Resolution Process for Corporate Persons) (Fifth Amendment) Regulations, 2025 on 04.07.2025 wherein Resolution Professional is required to mandatorily include in the Information Memorandum details of all identified avoidance transactions or fraudulent or wrongful trading.
The Finance Minister recently stated that insolvency proceedings with respect to 204 realty companies have been resolved until March 2025 leading to average recovery of 44.7% against the lenders’ admitted claims.
From the Docket
The Supreme Court in Sincere Securities Private Limited v. Chandrakant Kemka, held that where the CoC and Resolution Professional themselves resolve that retention of a leased/licensed property is unnecessary and financially burdensome, Section 14(1)(d) of the IBC does not bar returning possession of such property to its owner, since it is not a case of recovery against the will of the CoC.
The Madras High Court in KJ Vinod vs. The Registrar Of The National Company Law Tribunal Chennai Bench held that under Sections 10(3)(b) and 16(2) of the IBC, the Interim Resolution Professional proposed by the financial creditor or corporate debtor must ordinarily be appointed, and NCLT cannot substitute another IRP unless statutory conditions apply; only the CoC has discretion to replace the IRP later.
In Rajendra Prasad Tak v. Mahanadi Coalfield Limited, the NCLAT held that margin money deposited for securing a performance bank guarantee does not constitute an asset of the corporate debtor or a “security interest” under Section 14(1)(c) of the IBC. It further stated that once the bank guarantee is invoked, the margin money stands appropriated towards payment and cannot be refunded to the corporate debtor.
The NCLAT in Park Energy Private Limited v. State Bank of India held that shareholders or promoters do not qualify as “aggrieved persons” under Section 61 of the IBC and therefore lack locus to challenge admission under Sections 7 or 9. The NCLAT while relying on Nirej Vadakkedathu Paul & Ors., v. Sunstar Hotels and Estates Private Limited, Comp App (AT) (CH) (Ins) No.142/2022, observed that once CIRP is admitted and the IRP takes over the board’s functions, the erstwhile directors, as representatives of the shareholders, may intervene and file an appeal under Section 61 of IBC.
In Dhruv Harjai v. PPG Asian Paints Pvt. Ltd., the NCLAT held that an advance secured by a promissory note with interest, given to enable the corporate debtor to procure equipment and meet purchase commitments, constitutes a “financial debt” under Section 5(8)(f) IBC and not operational debt as it has the commercial effect of borrowing.
The NCLAT in Cosmos Co-Operative Bank Ltd. v. CS Anaghaanasingaraju, held that a secured creditor who realises its security outside liquidation under SARFAESI is bound to contribute proportionately towards workmen’s dues, but cannot be directed to contribute towards liquidation costs since Section 52(8) of IBC covers only insolvency resolution process costs and not liquidation costs.
In Indian Bank v. Anshul Gupta, the NCLAT held that Income Tax Refund received during the CIRP forms part of the assets of the corporate debtor and must be transferred to the CIRP/liquidation account. The bank holding such funds cannot treat it as secured receivable or impose conditions on its transfer.
In Anil Kohli v. Directorate of Enforcement, the NCLAT held that attachment of assets under the PMLA, even if made during CIRP, does not violate the IBC moratorium, since tainted assets fall outside the resolution estate. NCLAT also held that Section 238 of the IBC cannot override the PMLA in respect of proceedings involving proceeds of crime.
The NCLAT in Rajesh Alfred v. Ketsaal Retail LLP, a transaction structured under a Reseller Agreement, even if it provides for fixed/assured returns, does not constitute a “financial debt” under Section 5(8) of the Insolvency and Bankruptcy Code, 2016, since it lacks the essential element of disbursement against consideration for the time value of money.
In Anil Singh Vs SREI Equipment Finance Ltd., NCLAT held that when allegations of fraudulent or malicious initiation of CIRP are raised under Section 65 of the IBC by stakeholders such as workers of the corporate debtor, the NCLT must examine them on merits. The dismissal of such applications solely on the ground of lack of locus standi is unsustainable.
The NCLAT in M/s Propertree Real Estate Solutions Private Limited v. Mr. A. Viswanadha Sarma, held that a claim based only on booking advances or adjustment of brokerage, without real disbursement carrying time-value of money, is operational debt and not financial debt. It further held that a creditor who earlier filed an application as an operational creditor is estopped from later asserting status of financial creditor.
Thank you for reading! We will be back again with more updates on insolvency.
Disclaimer
The content provided in this newsletter is intended for general awareness and should not be considered as legal advice. Readers are advised to consult with a qualified legal professional regarding any specific issues mentioned herein. If you have any questions about any of these developments or would like to see something different next month, reach out to us at knowledge@sarthaklaw.com.