The Insolvency Bill 2025 introduces the Creditor-Initiated Insolvency Resolution Process (CIIRP), aiming to streamline and expedite the insolvency resolution for companies facing financial distress. Currently, under the Insolvency and Bankruptcy Code (IBC), the corporate insolvency resolution process (CIRP) is initiated by the National Company Law Tribunal (NCLT) upon a default in payments to creditors. The CIIRP, however, is designed to operate as an out-of-court mechanism, providing a faster and more cost-effective resolution without the complications of formal court proceedings. Under this new framework, the CIIRP will commence when there is a default and at least 51% of financial creditors approve the initiation, simplifying the process significantly.

The government is currently reviewing the draft IBC (Amendment) Bill to mitigate potential litigation risks associated with CIIRP. Concerns have been raised regarding provisions that could lead to ambiguity, specifically the calculation of the 51% debt threshold for creditors and the absence of an automatic moratorium on the corporate debtor. Experts suggest that these elements may invite disputes, as dissenting creditors could challenge the initiation of a CIIRP. Furthermore, the lack of a moratorium may encourage creditors to pursue recovery actions during the brief window between the announcement of CIIRP and the eventual imposition of a moratorium, potentially eroding company value and leading to multiple litigations.

To address these concerns, experts recommend refining the provisions of the draft Bill to include a transparent notice and response mechanism for borrowers, which would help clarify inter-creditor rights and limit litigation risks. By ensuring that the CIIRP process is well-defined, the government aims to enhance investor confidence and improve the ease of doing business in India. While the intention of the CIIRP is to alleviate the burden on judicial systems, it is crucial that the final legislation includes necessary checks and balances to prevent the emergence of litigation that could undermine the efficacy of this new insolvency resolution mechanism.