The Fourth Amendment: Will IBBI’s 2025 Reforms Fix or Fracture CIRP?

Introduction

In May this year, the Insolvency and Bankruptcy Board of India (“IBBI”) announced the Fourth Amendment Regulations, 2025, marking another significant step toward transforming India's insolvency landscape. The amendment, in terms of granting observer status to the interim financiers of the Committee of Creditors (“CoC”) or requiring all plans of resolution, whether compliant or otherwise, to be presented to the CoC, augurs well in terms of increased transparency, flexibility, and creditor protection. On paper, the reforms aim to simplify the Corporate Insolvency Resolution Process (“CIRP”) by addressing endemic inefficiencies and power imbalances. Still, the changes cannot be regarded separately. The Insolvency and Bankruptcy Code (“IBC”), released in 2016, has been touted as the most significant economic change in India since the introduction of GST, with the intention of enhancing investor confidence, salvaging ailing companies, and providing resolutions within time limits. Yet, in reality, the IBC has been faced with a juggling act between speed and equity. Where swiftness required certainty, justice tended to be intruded upon by the courts; where creditor interests had to be preserved by default; where creditors had to be put at a distance.

In this context, the 2025 amendments pose a pressing question: will the reforms truly address the long-standing bottlenecks in CIRP, or will they create a new set of grey areas, making the Indian insolvency regime even more complex?

Brief Overview of the Changes

The Amendments brought various changes, firstly, Observer status for interim financiers in the CoC. The Fourth Amendment adds a new sub-regulation (5) to Regulation 18, granting the CoC the authority to invite providers of interim finance to meetings without voting rights. This is intended to increase transparency and help financiers make informed funding decisions. Secondly, flexible restructuring options: whole company, asset-level, or hybrid plans. Approved CoC Resolution Professionals can now invite expressions of interest on the corporate debtor as a unit, on individual assets, or both, and do so without regard to any pre-delivered requirement first to solicit expressions of interest on the whole. Thirdly; Pro-rata, priority distributions to dissenting financial creditors; In the case of resolution plans with staged or phased payments, dissenting financial creditors must receive payments on a pro-rata basis and with priority over other creditors, at each stage and, lastly, Mandatory disclosure of all resolution plans (including non-compliant ones) to the CoC; Resolution Professionals (“RPs”) must now provide the CoC with all received resolution plans, including non-compliant ones, along with the reasons for non-compliance. However, only the compliant plans may be considered for approval.

Analysis

This observer position, assigned to interim financiers, is intended to promote transparency, ensuring that lifeline funders remain informed as the CIRP progresses. However, the risk of undue influence cannot be ignored, as even the non-voting presence at the CoC can occasionally bias negotiations in favour of those with greater financial exposure, thereby establishing a low-level imbalance in decision-making. In the case of Chitra Sharma v. Union of India, (2018) 18 SCC 575, the recognised role of interim finance in preserving the corporate debtor is a growing concern. The flexibility of resolution plans, between company-wide restructuring and asset-level or hybrid plans, is a pragmatic move towards value maximisation. Still, it can lead to cherry-picking of assets and leave the remainder of the businesses unsold, or prompt smaller creditors to take disproportionate losses. On the same note, introducing pro rata payouts to dissenting financial creditors aims to protect minorities against being silenced by the commercial wisdom of the majority, and thus, undermines consensus-building. Finally, requiring full disclosure of all resolution plans is intended to enhance transparency and minimise backroom deals. Still, it can have the effect of over-saturating the information and causing collusion among bidders, as well as a surge in litigation challenging the perceived unfairness of the processes. In the case of Swiss Ribbons Pvt. Ltd. v. Union of India, the court emphasised the importance of transparency and accountability in insolvency processes. When combined, these amendments have given rise to a dilemma that still prevails: whether incremental reforms can contribute towards addressing the bottlenecks in the insolvency resolution or instead shift the conflicts to new grey areas.

Policy Implications and Look Forward

The fourth Amendment Regulations, 2025, is the next project the IBBI aims to undertake to enhance the CIRP, but it is not evident how to ensure the fairness of its application. The more relaxed resolution model, combined with observer rights of interim financiers, will attract greater investment and encourage innovation, though it may also bring about a drag on the resolution process through the increased procedure. This is a critical conflict, considering India's efforts to ensure that doing business becomes easy and that international investors have no reservations about the IBC being an effective and efficient time-saving tool that facilitates debt recovery. Such changes also occurred in the wake of a 2025 Supreme Court decision, which restricted judicial review of plans endorsed by the Competition Commission of India (CCI), but permitted resolution plans to be assessed following approval. This development may put plans under tactical litigation. The consensus of creditors on which the CIRP relies could be weakened by encouraging some creditors to dissent strategically to permit the non-dissenting creditors to receive pro rata payment and to safeguard the voice of the minorities.

These provisions may be the subject of legal controversy in the future because of their interpretation by the NCLT court and the appellate court, for example. These could mainly be an outcome of ambiguity in interpretation by the court.

Some of these issues are the specific area of the rights of the observers, the powers of the CoC to sanction various kinds of resolution plans, and the allocations to the counterpart creditors. Such investigations may increase litigation. The RPs of multiple disclosures of plans that co-occurred may also be subject to scrutiny, and this can lead to an unequal flow of information with creditors. It is also significant that the IBC is under development, even though the revisions are encouraging. The effectiveness of these reforms is supposed to be enhanced, but this can be compromised in the event of the emergence of new uncertainties to take the place of the current problems in the absence of clear legal guidelines and the right involvement of stakeholders in the dynamics of reforms.

Conclusion

The first step in the modernisation of the IBC is the Fourth Amendment Rules, 2025. The amendments need additional details, provide interim financiers with the status of a bystander, and increase the number of possible resolution options. These reforms are meant to balance the interests of debtors, creditors and the economy in general. Nonetheless, the regulations aimed at streamlining the procedure can also potentially create new issues due to disagreements between minority creditors or the CoC's excess of conflicting ideas. The reforms tested the Code. The question that remains unanswered is whether these revisions actually provide the balance between justice and speed, or whether the attendant controversies will be left to the courts to decide on.  It is all a matter of the efficiency of the explanation, coordination and judicial teaching of the execution, despite the notion of a balance between speed and fairness. In the absence of these, the state of disputes is likely to deteriorate, and the courts would be left to settle disputes again instead of facilitating a streamlined and fair insolvency procedure.

Author: Anshika Gupta, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.