Promoters will no longer be able to wait for rival bids before settling dues with creditors to stall bankruptcy proceedings, under sweeping changes proposed in the Insolvency and Bankruptcy Code (Amendment) Bill, 2025.
The bill, now before Parliament, seeks to tighten rules on withdrawal of insolvency cases by restricting settlements to an early window, requiring consent from 90% of lenders, and shifting the power to move applications from promoters to insolvency administrators — a move aimed at curbing tactical delays and preserving the sanctity of the bidding process.
The bill disallows promoters to offer settlement once lenders that placed the distressed business under administration of a professional invite bids from new investors.
This prevents the possibility of promoters dragging their feet till they get an idea of what the company may fetch in the market and then making an incremental settlement offer to withdraw the bankruptcy proceedings, explained experts.
The new regime is proposed by way of replacing section 12A of the IBC with a revamped version. Section 12A of IBC deals with withdrawal of bankruptcy applications admitted by the National Company Law Tribunal (NCLT).
The proposed changes stipulate that only the administrator of the distressed company appointed by creditors can move a tribunal for withdrawal of bankruptcy proceedings, that too with the consent of 90% of the creditors by value. At present, promoter can directly move withdrawal applications.
The opportunity for promoters to settle with creditors is thus limited between the time a panel of creditors is set up and bids are invited for the company. Also, tribunals have to decide on such applications within a month or record reasons for delay.
Experts pointed out that this effectively prevents both the ‘tactical delay’ promoters used to resort to in settling with creditors and attempts to derail the bidding process with last-minute settlement offers.
Revamping the withdrawal of bankruptcy proceedings is a key reform, given that so far promoters of 1,192 companies have settled with creditors under section 12A of IBC after tribunals admitted bankruptcy petitions by creditors. This accounts for about 14% of the 8,492 cases admitted in tribunals since the IBC came into force in 2016 till June-end.
Withdrawal of proceedings under section 12A has been the root cause of litigation under IBC, said Prateek Kumar, partner, Khaitan & Co., a law firm.