The Insolvency and Bankruptcy Code (IBC): Achievements and Shortcomings

Abstract

The Insolvency and Bankruptcy Code (IBC), 2016, is one of the most transformative reforms in India’s financial and legal framework. It was enacted to consolidate and amend laws relating to the reorganization and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner. The IBC has contributed to significant changes in the way businesses operate and resolve distress in India. This article explores the legislative framework of the IBC, its key institutional features, and the notable achievements it has produced since its enactment. It also critically analyzes the shortcomings in implementation, ranging from procedural delays to imbalances in creditor treatment and a lack of finality in resolution. The article concludes with a set of policy recommendations aimed at strengthening the Code’s effectiveness and ensuring it continues to fulfil its objective of value maximisation, transparency, and efficient resolution of insolvency.

Introduction

Before the enactment of the IBC, India’s insolvency regime was scattered across multiple legislations such as the Sick Industrial Companies Act (SICA), the Recovery of Debts Due to Banks and Financial Institutions Act (RDDBFI), and the Companies Act. This fragmentation led to procedural inefficiencies, long delays, and poor recovery rates for creditors. The IBC was introduced to consolidate existing laws into a unified code and ensure a time-bound resolution process. Administered by the Insolvency and Bankruptcy Board of India (IBBI), with adjudicatory powers vested in the National Company Law Tribunal (NCLT) and its appellate authority, NCLAT, the Code emphasizes the role of Insolvency Professionals (IPs) and the Committee of Creditors (CoC) in resolution procedures.

The IBC, enacted in May 2016, was designed to overhaul the existing framework by consolidating all insolvency laws and introducing a single, time-bound process for insolvency resolution. Its key objectives include resolution of corporate insolvency, maximisation of asset value, promotion of entrepreneurship, and balancing the interests of all stakeholders.²

Legislative and Institutional Framework

The Insolvency and Bankruptcy Code, 2016 (IBC), was enacted to consolidate and amend the laws relating to the reorganisation and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner, aiming to maximise the value of assets, promote entrepreneurship, and balance the interests of all stakeholders. The IBC has substantially restructured the insolvency regime in India and is hailed as a transformative legislation in the domain of financial and corporate law.

Historical Context and the Need for Reform

Prior to the IBC, India’s insolvency framework was scattered across multiple legislations including:

• The Sick Industrial Companies (Special Provisions) Act, 1985 (SICA);
• The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act);
• The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act); and

Provisions under the Companies Act, 1956 and 2013

These laws created a fragmented and inefficient system, often resulting in long delays in resolving insolvency, low recovery rates for creditors, and significant losses to the economy.

The inefficiencies were compounded by jurisdictional overlaps and lack of coordination between various adjudicating authorities like the Board for Industrial and Financial Reconstruction (BIFR), Debt Recovery Tribunals (DRTs), and High Courts.

Role of the Bankruptcy Law Reforms Committee (BLRC)

Recognising the urgent need for a comprehensive overhaul, the Government of India constituted the Bankruptcy Law Reforms Committee (BLRC) in 2014 under the chairmanship of Dr. T.K. Viswanathan. The Committee, in its report submitted in November 2015, advocated for a unified and time-bound insolvency process, drawing on international best practices while accounting for the domestic institutional framework. The BLRC report laid the foundation for the enactment of the IBC, 2016.

Structure and Scope of the Code

The IBC provides for a uniform insolvency and bankruptcy law for companies, limited liability partnerships, partnership firms, and individuals. The key processes introduced under the Code include:

●       Corporate Insolvency Resolution Process (CIRP) for corporate debtors;

●       Liquidation Process in cases of failure of resolution;

●       Fast Track Insolvency for small companies and start-ups;

●       Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms, though implementation is currently limited.

A core feature of the Code is the time-bound resolution. Under Section 12, CIRP must be completed within 180 days, extendable by 90 days (and in exceptional cases to 330 days), thereby aiming to prevent value erosion of assets during prolonged litigation.

Institutional Pillars of the IBC

The Code is built on four key pillars that support its implementation:

(a) Adjudicating Authorities:
The National Company Law Tribunal (NCLT) has jurisdiction over corporate insolvency matters. Appeals against NCLT decisions lie with the National Company Law Appellate Tribunal (NCLAT) and subsequently with the Supreme Court on questions of law. For individuals and partnership firms, the Debt Recovery Tribunals (DRTs) are designated as adjudicating authorities.

(b) Insolvency and Bankruptcy Board of India (IBBI):
Established under Section 188 of the Code, the IBBI is the apex regulatory body overseeing insolvency proceedings and regulating Insolvency Professionals (IPs), Insolvency Professional Agencies (IPAs), and Information Utilities (IUs). It also frames regulations, monitors implementation, and safeguards the interests of stakeholders.

(c) Insolvency Professionals (IPs):
IPs play a central role in the resolution and liquidation process. They act as Interim Resolution Professionals (IRPs) and Resolution Professionals (RPs), taking control of the debtor’s management during CIRP, managing operations, and facilitating the formation and functioning of the Committee of Creditors (CoC). Their impartiality and competence are crucial for the credibility of the process.

(d) Information Utilities (IUs):
IUs serve as repositories of financial information, facilitating transparent verification of claims and reducing information asymmetry. National e-Governance Services Ltd (NeSL) is the first IU registered with the IBBI.

Evolution Through Amendments

Since its enactment, the IBC has seen several amendments to address practical challenges and include broader categories of stakeholders. Key legislative developments include:

• The Insolvency and Bankruptcy Code (Amendment) Act, 2018, which gave homebuyers the status of financial creditors;
• The 2019 Amendment, which introduced a 330-day outer limit for resolution;
• The 2021 Pre-packaged Insolvency Resolution Process (PIRP) framework for Micro, Small, and Medium Enterprises (MSMEs), offering a hybrid and debtor-in-possession model.
• Exemptions for resolution applicants under Section 29A in exceptional cases, to prevent disqualification of bona fide buyers.

These amendments have been instrumental in expanding the scope of the Code and aligning it with stakeholder needs and judicial pronouncements.

Achievements of the IBC

1. Speed and Efficiency

The IBC introduced strict timelines for resolution. Though adherence to these timelines remains a challenge, the average resolution period has reduced considerably compared to the pre-IBC regime.⁷ This has enhanced the predictability of outcomes and helped in the quick revival of viable businesses.

2. Recovery Rates

The average recovery rate under the IBC has significantly improved. In 2023, the IBBI reported a recovery rate of approximately 42% of the admitted claims—higher than recovery under previous frameworks.⁸ This is a marked improvement from recovery rates of about 26% under SICA and SARFAESI.

3. Credit Discipline

The IBC has served as a strong deterrent against wilful default. The threat of losing control over the management of the company has created incentives for timely repayment of dues. Many debtors have opted for out-of-court settlements to avoid the CIRP.

4. Institutional Strengthening

The establishment of the NCLT, IBBI, and the network of insolvency professionals (IPs) has enhanced the institutional ecosystem for resolution. The IBBI regulates these professionals and has contributed to the overall capacity building of the insolvency framework.

Landmark Judgement

The Supreme Court’s decisions in Swiss Ribbons Pvt Ltd v Union of India and Committee of Creditors of Essar Steel v Satish Kumar Gupta¹² affirmed the constitutional validity of the Code and clarified the supremacy of the CoC’s commercial decisions. These rulings strengthened the legal foundations of the IBC and minimised judicial interference.

Shortcomings and Challenges

1. Procedural Delays

Despite the prescribed time limit of 330 days, many cases drag on for over two years due to litigation, appeals, and lack of infrastructure. As of 2024, the average resolution time was reported to be over 850 days. The NCLT and NCLAT face a massive backlog of cases, which delays the resolution process.

2. Inequitable Creditor Treatment

The IBC prioritises financial creditors, especially secured lenders, in the CoC. Operational creditors, including MSMEs and vendors, often receive negligible recoveries or are excluded from decision-making. This raises concerns about fairness and equity.

3. High Liquidation Rate

Many CIRPs end in liquidation rather than resolution. A study by IBBI shows that over 60% of admitted cases eventually go into liquidation.¹⁵ In several instances, companies are liquidated for a fraction of their original value, defeating the objective of value maximisation.

4. Legal Uncertainty

Post-resolution litigation and intervention by courts affect the finality of the process. In Lalit Kumar Jain v Union of India, the Supreme Court’s interpretation altered liability scopes under personal guarantor provisions. The reversal of the Bhushan Power resolution deal after approval also created unpredictability for investors.

5. Lack of Pre-pack Mechanisms

Although pre-packaged insolvency has been introduced for MSMEs, its implementation has been limited. A broader application across sectors could reduce the burden on tribunals and allow quicker resolution.

Legal and Policy Analysis

The IBC represents a major shift from debtor-in-possession to creditor-in-control, aligning India with global best practices. However, it must strike a balance between creditor rights and debtor protections. The Code relies heavily on the commercial wisdom of financial creditors, and judicial restraint has been advised by the courts.

The legal jurisprudence under the IBC has evolved rapidly. Cases like Pioneer Urban Land v Union of India and Jaypee Infratech Ltd v Axis Bank Ltd have addressed complexities around homebuyers, group insolvency, and third-party securities.

Internationally, Chapter 11 of the US Bankruptcy Code allows greater scope for restructuring. India may consider adopting certain debtor-friendly mechanisms to ensure revival of companies rather than liquidation.

Proposed Reforms

1.     Strengthening Adjudicatory Infrastructure: Increase the number of benches and judicial appointments in NCLTs and NCLAT to address backlogs.

2.     Enhancing Rights of Operational Creditors: Include operational creditors in the CoC with limited voting rights to ensure fair treatment.

3.     Improving Finality of Outcomes: Limit post-resolution litigation and clarify the scope of judicial review after CoC approval.

4.     Expanding Pre-packaged Insolvency: Encourage the use of pre-packs in non-MSME sectors with defined guidelines.

5.     Capacity Building: Expand training and accreditation of insolvency professionals, streamline IBBI processes, and use technology for automation and tracking.

6.     Strengthen Liquidation Framework: Introduce time-bound auctions, simplify liquidation rules, and maximise asset realisation for creditors.

Conclusion

The Insolvency and Bankruptcy Code has brought significant progress to India’s insolvency ecosystem. It has enhanced creditor rights, improved recovery rates, and instilled credit discipline. Nevertheless, persistent challenges such as procedural delays, inequitable treatment of creditors, and legal uncertainty hamper its full potential.

With appropriate reforms, strengthened institutions, and consistent jurisprudence, the IBC can serve as a robust mechanism for corporate restructuring and contribute to India’s long-term economic stability. The goal must be to make resolution efficient, inclusive, and just—thereby fulfilling the original intent of the Code.

References

1.     Ministry of Corporate Affairs, Report of the Bankruptcy Law Reforms Committee (November 2015).

2.     Insolvency and Bankruptcy Code 2016, Preamble.

3.     ibid.

4.     Insolvency and Bankruptcy Code 2016, s 5.

5.     ibid. ss 6–9.

6.     ibid s 12.

7.     IBBI, ‘Annual Report 2022–23’ https://ibbi.gov.in accessed 15 July 2025.

8.     ibid.

9.     RBI, Report on Trends and Progress in Banking in India 2023 (December 2023).

10.  IBBI, ‘Handbook of Insolvency Professionals’ (2023).

11.  Swiss Ribbons Pvt Ltd v Union of India (2019) 4 SCC 17.

12.  Committee of Creditors of Essar Steel v Satish Kumar Gupta (2020) 8 SCC 531.

13.  Bar & Bench, ‘Eight Years of IBC: Trials and Triumphs’ (2024) https://barandbench.com.

14.  Sapan Gupta, ‘Operational Creditors and the IBC’ (2023) 5 NUJS L Rev 31.

15.  IBBI (n 7).

16.  Lalit Kumar Jain v Union of India (2021) 9 SCC 321.

17.  Reuters, ‘SC reversal casts doubt on insolvency finality’ (May 2025).

18.  IBBI (n 7).

19.  Vikram Nanda, ‘Creditor-in-Control: A Comparative Study’ (2022) 14 NALSAR LJ 58.

20.  Pioneer Urban Land v Union of India (2019) 8 SCC 416.

21.  Jaypee Infratech Ltd v Axis Bank Ltd (2020) 15 SCC 95.