Insolvency and Bankruptcy Code (IBC)

As of early 2025, more than eight years since the implementation of the IBC (2016), India has seen a total recovery of ?3.89 lakh crore with a recovery rate of 32.8% under the framework. However, recent judicial interventions like in the Bhushan Power and Steel case and rising concerns over delays and implementation challenges have renewed debates on the efficacy and predictability of the Code.

IBC 2.0: Consolidation or Crisis in India’s Corporate Resolution Framework?

• Purpose of Enactment (2016):
  • Consolidated fragmented bankruptcy laws (SARFAESI, RDDBFI, Companies Act provisions).
  • Introduced a time-bound resolution mechanism (maximum 330 days including litigation delays).
  • Shifted control from debtors to creditors through the Committee of Creditors (CoC).
  • Aimed to enhance India’s Ease of Doing Business ranking (improved from 136 in 2016 to 63 in 2020).

• Improved Credit Culture:
  • As per IBBI, over 30,000 cases were resolved before admission due to the credible threat of IBC.
  • SC remarked: “The defaulter’s paradise is lost.”
• Dominant Recovery Channel:
  • RBI (2024) reports IBC accounted for 48% of all bank recoveries in FY24.
  • Recovery under IBC: ?3.89 lakh crore; average realization at 170.1% of liquidation value.
• Macro-Impact:
  • GNPA ratio declined from 11.2% (March 2018) to 2.8% (March 2024).
  • Cost of debt for distressed firms reduced by 3%, as per IIM-Bangalore study.

• Judicial Bottlenecks:
  • NCLT delays in admitting cases and approving resolutions lead to reduced asset value.
  • 2758 companies have gone into liquidation vs. 10 resolved.
• Post-resolution Uncertainties:
  • The Bhushan Steel verdict challenged post-resolution commercial certainty, affecting investor confidence.
  • Threat of reversal of approved plans discourages genuine bidders.
• Inadequate Tribunal Infrastructure:
  • Shortage of technical members, insufficient benches across India.
• Ambiguities in Code:
  • Lack of clarity on issues like IP rights, treatment of employee dues, and tech asset valuation.

• Tribunal Reforms: Expansion of NCLT benches and appointment of domain experts.
• Jurisprudential Clarity: Codify sanctity of CoC-approved plans and limit post-approval judicial interventions.
• Pre-Packaged Insolvency: Promote pre-packs especially for MSMEs for faster resolution.
• Future-Proofing the Code: Address resolution frameworks for startups, tech firms, and entities with complex IP portfolios.

Way Forward

• IBC must balance judicial scrutiny with commercial pragmatism.
• There is an urgent need to build legal certainty around resolution outcomes to sustain investor trust.
• Establishing time-bound appeals mechanism, incentivizing early distress reporting, and integrating alternate dispute resolution tools can ensure long-term resilience.
• As India eyes a $5 trillion economy, a predictable insolvency framework is crucial to uphold financial stability and attract capital.