IBC at 10: Transforming India's Insolvency Framework

What is the Insolvency and Bankruptcy Code (IBC), 2016?

The IBC is India's comprehensive legislative framework governing insolvency and bankruptcy of corporate entities, partnership firms, and individuals. Enacted on recommendations of the Bankruptcy Law Reforms Committee (BLRC) headed by T.K. Viswanathan, it consolidated fragmented laws including:

• Sick Industrial Companies (Special Provisions) Act, 1985
• SARFAESI Act, 2002
• Recovery of Debts and Bankruptcy Act, 1993

Key Paradigm Shift

The IBC fundamentally moved India from a "debtor-in-possession" regime (where promoters retained control of defaulting companies) to a "creditor-in-control" model.

Pillars of the IBC

Corporate Insolvency Resolution Process (CIRP)

Steps involved:

1. Application: Financial Creditor, Operational Creditor, or Corporate Debtor applies to NCLT upon payment default
2. Moratorium: NCLT declares moratorium, freezing all parallel legal proceedings
3. Committee of Creditors (CoC): Interim Resolution Professional (IRP) forms CoC comprising financial creditors
4. Resolution/Liquidation: CoC evaluates resolution plans; requires 66% voting share for approval
5. Time Limit: Maximum 330 days (including all extensions and litigation)

Key Achievements of IBC (2016-2026)

• Massive Debt Recovery: ₹4.32 lakh crore realised for creditors (till March 2026); recovery rate at 167% of liquidation value
• NPA Reduction: Gross NPA ratio reduced to 2.1% (12-year low, September 2025) from peak of 11.8% (2017)
• Rescue Focus: 58% companies successfully rescued through resolution
• Deterrent Effect: Over 30,000 cases involving ₹14 lakh crore resolved at pre-admission stage
• Global Recognition: S&P upgraded India from 'Group C' to 'Group B' in insolvency framework rating
• Timeline Improvement: Resolution time reduced from 6-8 years to approximately 2 years

Major Amendments to IBC

IBC (Amendment) Act, 2019

• Introduced 330-day deadline for CIRP completion
• Mandated NCLT to decide insolvency applications within 14 days
• Brought personal guarantors under insolvency framework

IBC Second Amendment Act, 2020

• Temporarily suspended CIRP initiation during COVID-19 pandemic

IBC (Amendment) Act, 2021

• Introduced Pre-Packaged Insolvency Resolution Process (PPIRP) for MSMEs
• Faster, cost-effective mechanism with 120-day completion timeline
• Available for defaults up to ₹1 crore

IBC (Amendment) Act, 2026

• Introduced Creditor-Initiated Insolvency Resolution Process (CIIRP) - out-of-court mechanism for select financial institutions
• CIIRP requires consent of at least 51% of financial creditors
• Strengthened "Clean Slate Principle" - approved plans extinguish past claims unless preserved
• Enhanced CoC authority in appointing/removing liquidators
• Clarified government dues are not secured creditors
• Introduced penalties for frivolous filings

Landmark Supreme Court Judgments

Swiss Ribbons Pvt. Ltd. vs. Union of India (2019)

• Ruled IBC's primary focus is revival and resolution of corporate debtor, not merely recovery of dues

Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta (2019)

• Established absolute supremacy of "commercial wisdom of the CoC"
• Limited judicial overreach; Adjudicating Authority cannot interfere with commercial merits of approved plans

Vidarbha Industries Power Ltd. vs. Axis Bank (2022)

• NCLT has discretionary power to reject CIRP application even if default exists, based on valid extraneous reasons

Persistent Challenges

1. Judicial Delays and 330-Day Conundrum

• Average resolution timeline: 744 days (March 2026) vs mandated 330 days
• Supreme Court allowed extensions in Essar Steel case to prevent mandatory liquidations
• Parliamentary Standing Committee flagged lack of accountability among Resolution Professionals

2. Declining Recovery Rates

• Recoveries against admitted claims plummeted to 23% (FY26) from 46% (FY25)
• Creditors forced to accept severe haircuts

3. Infrastructure Deficit

• Shortage of NCLT technical members
• Physical infrastructure bottlenecks
• Lack of technological fluency among judicial personnel

4. Unoperationalised Segments

• Individual and proprietorship insolvency framework remains largely dormant
• 'Insolvency and Bankruptcy Fund' not operationalised

5. Real Estate Sector Complexities

• Large share of ongoing cases from real estate/construction sectors
• Individual homebuyers (financial creditors) complicate resolution
• Project completion required rather than simple asset sale

6. Post-Resolution Challenges

• Resolved companies face delays in obtaining government approvals
• Continued stigma of being classified as former defaulters
• Difficulty in obtaining fresh bank credit

Recommendations for Strengthening IBC

1. Capacity Building: Immediate expansion of NCLT/NCLAT benches; establish specialized fast-track insolvency courts
2. Timeline for NCLAT: Parliamentary select committee proposed three-month statutory deadline
3. Shift to Enterprise Valuation: Evaluate based on future potential rather than just liquidation value
4. Institutionalise Mediation: Implement IBBI Expert Committee on Mediation (2024) recommendations
5. Cross-Border Insolvency: Adopt UNCITRAL Model Law on Cross-Border Insolvency
6. Standard Operating Procedures: Define clear roles for RPs, liquidators, and registered valuers
7. Enhanced Accountability: Audit trails, post-resolution valuation reviews, stricter monitoring of IPs
8. Minimize Haircuts: Promote accurate asset valuation, wider bidder participation, transparent auctions

Constitutional/Legal Framework

• Article 246: Subject matter falls under concurrent list
• Article 323B: Related to administrative tribunals for recovery of debts
• Part III of IBC: Deals with insolvency resolution for individuals and partnership firms
• Part IV of IBC: Addresses cross-border insolvency (not yet operationalised)

Significance for Viksit Bharat 2047

The IBC serves as the institutional bedrock for fueling India's credit machinery. A seamless, time-bound insolvency ecosystem is essential for:

• Maintaining credit discipline
• Attracting foreign investment
• Ensuring financial stability
• Promoting ease of doing business
• Supporting MSME growth and industrial revival