The Hidden Cost of the IBC Amendment Bill, 2025

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.

- Neeti Shikha

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 emphasized efficiency, corporate revival, and maximization 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 organizations, 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.