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The Insolvency and Bankruptcy Code (IBC), 2016 was celebrated as a watershed in India’s economic governance. It promised to end the era of endless litigation, to provide timely resolution of financial stress and insolvency, and to move beyond the days when creditors recovered only a few paise on the rupee. The IBC sought to usher in a time-bound process that emphasised efficiency, corporate revival, and maximisation of value. Almost a decade later, the record is mixed: recoveries have improved compared to the pre-IBC framework, yet judicial bottlenecks, institutional weaknesses, and persistent imbalances between creditors and debtors continue to hamper its effectiveness.
Into this landscape arrives the Insolvency and Bankruptcy Code (Amendment) Bill, 2025, tabled with the express aim of “speeding up” insolvency cases. At first glance, the Bill looks technical: it redefines terms, tightens timelines, and codifies certain judicial interpretations. But beneath the surface lies a profound shift in distributive priorities.
By redefining “security interest” under Section 3(31), the Bill excludes from its scope any charge or lien created “merely by operation of law.” This seemingly modest tweak has far-reaching consequences: it effectively strips statutory creditors tax authorities, provident fund organisations, municipal bodies, and even environmental regulators of their secured status in insolvency proceedings.
The Silent Casualties of the 2025 Amendment
One of the biggest casualties of the 2025 Amendment is the taxman. Statutory charges for unpaid dues under the Income Tax Act, GST and customs laws, which the Supreme Court controversially upheld as “secured debt” in Rainbow Papers (2022), are now downgraded. By insisting that only consensual arrangements count as security, the Bill pushes the State into the unsecured queue a direct blow to already strained public finances.
Workers fare no better. Under the Provident Funds Act, unpaid contributions enjoy a statutory first charge on an employer’s assets, a safeguard courts had previously honoured under the IBC. Removing it strips employees of vital protection for their retirement savings. This marks a troubling departure from global practice, where both the UK and US explicitly give wages and pensions priority in insolvency.
Municipal bodies and environmental regulators are also swept aside. Local authorities lose secured status for property taxes, water and power dues, while environmental liabilities under India’s pollution laws are effectively demoted. This weakens civic infrastructure, undermines the “polluter pays” principle, and risks derailing resolution plans when municipalities or regulators refuse to cooperate. At a time of mounting climate and fiscal pressures, the Amendment signals that public and ecological interests come last.
India Out of Step
Insolvency law is not only about efficiency; it is equally about distributive justice. Mature jurisdictions recognise this balance by carving out space for statutory creditors. In the United Kingdom, employees’ wages and pension contributions are treated as preferential debts, and certain taxes are placed above unsecured claims. In the United States, tax liens are acknowledged as secured claims, while environmental obligations often rank as administrative expenses under Chapter 11, reflecting a balance between private recovery and public duties. Across the European Union too, many Member States preserve protections for workers, tax authorities, and environmental regulators when distributing value in insolvency.
India’s 2025 Amendment moves in the opposite direction. By narrowing statutory protections, it tilts the Code decisively in favour of banks and financial creditors. Instead of balancing efficiency with fairness, it privileges speed over justice.
Curtailing Judicial Discretion
This distributive narrowing is reinforced by attempts to restrict judicial discretion. In Vidarbha Industries Power v. Axis Bank (2022), the Supreme Court held that admission of insolvency under Section 7 was not mandatory; the NCLT could consider wider circumstances. The 2025 Bill reverses this, mandating admission if default and completeness are shown, and treating Information Utility records as conclusive proof.
Earlier, in Innoventive Industries v. ICICI Bank (2017), the Court had already emphasised the summary nature of admission. Vidarbha injected some nuance. The new Amendment undoes that balance, cementing a mechanical, creditor-driven admission process.
While one cannot deny that judicial discretion has occasionally been misapplied for instance, in cases where tribunals admitted petitions even after resolution plans were approved the solution is not to strip away discretion entirely. What is needed is training and discipline for commercial judges, with clear requirements that reasons for the exercise of discretion be recorded.
For operational creditors, the Mobilox v. Kirusa (2017) test of “pre-existing dispute” remains intact. Yet the broader pattern is clear: judicial flexibility is being curtailed in the name of speed, without strengthening the quality of judicial reasoning.
Cosmetic Speed vs. Structural Reform
Supporters of the Bill argue that statutory creditors complicate resolution timelines. By downgrading them, disputes are minimised, admissions speed up, and recoveries improve. But this addresses the symptom, not the disease. The real bottlenecks in the IBC process lie elsewhere. It is no longer simply a question of filling vacant NCLT benches, but of ensuring that judges possess the commercial training and discipline needed to handle complex insolvency matters. Inefficient case management and repeated appeals continue to drag proceedings far beyond statutory timelines, while the weak enforcement of approved resolution plans undermines confidence in the system.
These are structural shortcomings that no amount of tinkering with definitions or statutory deadlines can cure.
Tightening definitions and reimposing fourteen-day deadlines will not fix these structural flaws. On the contrary, statutory creditors now demoted are likely to litigate more aggressively, challenging their treatment as unsecured. Far from streamlining, the Amendment risks intensifying conflict.
A Question of Values
At its heart, the Amendment raises a normative question: what values should insolvency law serve?
If efficiency is the only metric, narrowing “security interest” may seem sensible: fewer competing claims, faster resolutions, higher bank recoveries. But insolvency law has never been only about efficiency. It embodies fairness, legitimacy, and the balance of private and public interests.
Tax authorities safeguard public revenue. Employees represent social welfare and the dignity of labour. Municipalities underpin essential civic infrastructure. Environmental regulators enforce the right to a healthy environment. Downgrading all of them is not a neutral technicality it is a choice to privilege private finance over collective welfare.
This challenges the very foundations of a welfare state. And it risks eroding the legitimacy of the IBC itself. A Code that persistently amends itself to privilege banks while excluding statutory creditors will be seen not as a neutral framework but as an instrument of financial-creditor dominance.
The Path Not Taken
More balanced reforms were possible. India could have adopted:
=Tiered priority: preserving preferential treatment for employees’ dues and environmental claims, even if tax liens were adjusted.
=A separate waterfall: carving out a dedicated distribution pool for statutory creditors.
=Conditional recognition: allowing statutory security interests but capping them to avoid disproportionate impact on banks.
Such models exist in the UK, US, and EU. Instead, the 2025 Amendment opts for blunt exclusion.
A Code of Perpetual Amendments
The IBC has already been amended multiple times in 2018, 2019, 2021, and now 2025. Each round has reacted to judicial rulings: Swiss Ribbons (2019) on Section 12A withdrawals, Essar Steel (2019) on CoC primacy, Rainbow Papers (2022) on statutory dues, Vidarbha (2022) on judicial discretion. The Code risks becoming a patchwork, forever chasing outcomes instead of offering stable rules.
On a side note, part of the problem lies in how laws are drafted. Increasingly, drafting has been outsourced to external policy think tanks and consultants. Earlier, India’s Legislative Department ensured consistency and neutrality. Government should certainly hear from think-tanks, law firms, and industry, but drafting must remain within the legislature’s remit to preserve coherence and accountability.
Conclusion
The 2025 Amendment’s redefinition of “security interest” is presented as a measure to speed up insolvency. In reality, it redistributes value away from the State, workers, municipalities, and the environment towards banks and financial creditors.
Insolvency law must serve efficiency, yes, but not at the cost of justice. By excluding statutory creditors, the Amendment tips the scales too far. Speed without fairness is not reform, it is retreat.
Dr. Neeti Shikha is lecturer at Bristol Law School, the University of the West of England, UK. She is former head for the Centre for Insolvency & Bankruptcy, Indian Institute of Corporate Affairs, India.
