Published On: December 9th 2025
Authored By: Yashika Tiwari
Chandigarh University
INTRODUCTION
The implementation of the Insolvency and Bankruptcy Code, 2016 (IBC), marked a pivotal moment in India’s economic legal history. Before the IBC, the insolvency resolution system was a complicated maze of various laws, causing excessive delays, asset depreciation, and a lack of a unified approach for rehabilitating struggling organisations. The Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act), and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), among others, operated independently, often resulting in conflicting outcomes and prolonged legal disputes. This fragmented and inefficient system created significant obstacles to ease of doing business in India and fostered an environment prone to misconduct by defaulters.
The IBC was designed as an all-encompassing and deadline-oriented system to tackle corporate insolvency, aiming to maximise the value of assets, encourage entrepreneurship, enhance access to credit, and harmonise the interests of all parties involved.[1] It signified a transformative change from a ‘debtor-in-possession’ to a ‘creditor-in-control’ framework, significantly modifying the power dynamics in the debtor-creditor relationship. [2]This article thoroughly analyses the efficacy of the IBC since its launch, explores recent modifications aimed at enhancing its stipulations, examines significant court rulings that have influenced its understanding, and provides suggestions for its forthcoming trajectory.
THE DESIGN OF THE IBC: A TRANSFORMATIVE CHANGE
The IBC is founded on a strong institutional structure that includes the Insolvency and Bankruptcy Board of India (IBBI) serving as the regulatory body, Adjudicating Authorities (AAs) – the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT), Information Utilities (IUs) for the retention of financial data, along with a group of accredited Insolvency Professionals (IPs) to oversee the resolution process.
- THE INSOLVENCY AND BANKRUPTCY BOARD OF INDIA (IBBI): THE DESIGNER AND PROTECTOR
The IBBI is the central authority tasked with overseeing the entire insolvency framework in India. Its establishment was a strategic move, rectifying a significant shortcoming of the earlier system: the lack of a focused, empowered regulatory body. The IBBI’s functions are diverse and essential for maintaining the integrity and effectiveness of the Code.
- Regulatory Oversight: The IBBI’s main role is to establish and implement regulations for the insolvency procedure, covering Corporate Insolvency Resolution Processes (CIRP), liquidation, and personal insolvency. It oversees the actions of Insolvency Professionals (IPs), Insolvency Professional Agencies (IPAs), and Information Utilities (IUs). This guarantees that all essential participants in the ecosystem comply with a standardised, high-quality code of conduct.
- Professionalisation of the Field: Before the IBC, insolvency was not a recognised profession. The IBBI has altered this by introducing a new category of regulated professionals—the IPs. It administers the “Limited Insolvency Examination,” which candidates must clear to achieve registration as IPs.Through the establishment of entry obstacles and the implementation of a rigorous ethical code, the IBBI guarantees that the professionals overseeing troubled companies have the necessary skills and moral standards.
- Data and Knowledge Dissemination: The IBBI serves as a primary source for information concerning insolvency processes. It consistently releases data on recovery rates, timelines, and liquidation results. This evidence-based strategy promotes openness and facilitates ongoing adjustments to policies informed by real-world data, a quality that was significantly lacking previously.
The paradigm shift introduced by the IBBI is the transition from a disorganised and unregulated setting to a systematic, professional, and responsible framework. It serves as the central hub of the IBC ecosystem, making certain that all other components operate in alignment with a unified, clear vision.
- ADJUDICATING AUTHORITIES (NCLT & NCLAT): THE LEGAL FOUNDATION
The IBC established a specialised, two-level court system to address bankruptcy issues, significantly accelerating the legal process
- The National Company Law Tribunal (NCLT): The NCLT serves as the Adjudicating Authority for corporate bankruptcy. It is the initial court where all requests to commence the CIRP are submitted. Its primary duties encompass:[3]
- Admission: Determining whether to accept or deny an insolvency application grounded in proof of default.
- Appointment: Sanctioning the selection of the Interim Resolution Professional (IRP) and subsequently the Resolution Professional (RP).
- Moratorium: Imposing a moratorium as per Section 14, which halts all other legal actions directed at the debtor, offering an essential “calm period” for settling the situation.
- Approval of Resolution Plan: Approving the resolution strategy endorsed by the Committee of Creditors (CoC). The NCLT’s function in this context is confined to verifying that the strategy adheres to legal standards; it cannot challenge the “business judgment” of the creditors.[4]
- Liquidation Order: Initiating liquidation if an acceptable resolution strategy is not identified within the specified timeframe.
- The National Company Law Appellate Tribunal (NCLAT): The NCLAT serves as the appellate authority. Any party dissatisfied with a decision made by the NCLT has the right to appeal to the NCLAT. This secondary level provides a system for examination and aids in establishing uniform legal standards.[5]
The paradigm shift is the shift from a system featuring several interconnected legal platforms (High Courts, Board for Industrial and Financial Reconstruction (BIFR), Debt Recovery Tribunals (DRT)) to a single, specialised, and time-bound adjudicatory body. This has significantly reduced jurisdictional disputes and the excessive delays that affected the earlier system. The IBC’s rigid deadlines (a maximum of 330 days for CIRP) are upheld by the NCLT, transforming it into an effective instrument for quick resolution.
- INFORMATION UTILITIES (IUs): THE DIGITAL FOUNDATION
Information Utilities may be the most creative, yet least talked about, foundation of the IBC framework. They serve as regulated data stores that keep verified financial details regarding debts and defaults.
- A Single Source of Truth: IUs receive, hold, and provide access to financial details submitted by lenders. When a lender offers data about a debt, the IU verifies it with the borrower. This procedure generates a confirmed, unquestioned electronic record of the debt and any defaults.
- Eliminating Frivolous Disputes: In the period before the IBC, a major reason for postponement was the extended legal battles necessary to merely establish the presence of a debt and a default. Borrowers could readily contest claims, causing the process to become mired in the judicial system for many years. With the IBC, a record of default from an IU is regarded prima facie evidence.
The paradigm shift developed by IUs is the transition from a paper-oriented, legalistic framework of demonstrating debt to a digital, irrefutable system of creating default. By presenting irrefutable proof, IUs significantly hasten the acceptance of insolvency cases by the NCLT, resolving a significant obstruction of the previous system. They establish the digital groundwork upon which the rapidity and reliability of the IBC process are constructed.
THE CORPORATE INSOLVENCY RESOLUTION PROCEDURE (CIRP)
The foundation of the IBC is the time-sensitive Corporate Insolvency Resolution Process (CIRP). Once a corporate debtor fails to meet a debt obligation of INR 1 crore (the limit was raised from INR 1 lakh), a financial creditor, an operational creditor, or the corporate debtor itself may commence the CIRP. The procedure is intended to be finalised within 180 days, with a single extension option of 90 days. An essential aspect of the CIRP is the moratorium established under Section 14 of the Code, which forbids the initiation or continuation of legal actions against the corporate debtor, thus allowing a tranquil timeframe for the resolution to be developed.[6]
Upon acceptance of the application, an Interim Resolution Professional (IRP) is designated, who assumes control of the management of the corporate debtor. The IRP is tasked with forming the Committee of Creditors (CoC), which includes all financial creditors. Subsequently, the CoC selects a Resolution Professional (RP) who requests resolution plans from potential applicants. The CoC, with a voting majority of 66%, endorses the most feasible resolution plan, which is subsequently presented to the NCLT for approval. If a resolution plan is not sanctioned within the designated timeframe, the corporate debtor will enter liquidation.[7]
STATISTICAL SUMMARY: RECOVERY RATES AND TIMELINES
Since its establishment, the IBC has achieved notable progress in addressing corporate difficulties. As per information from the IBBI, by March 2024, there have been 7,058 CIRPs launched. A considerable portion of these has been settled, leading to the preservation of sustainable enterprises. The recovery ratio for financial creditors under the IBC has been significantly better compared to past systems. Although the overall recovery percentage has fluctuated, it has continually surpassed the recovery ratios seen under SICA, DRT, and SARFAESI.
Nonetheless, a detailed examination of the data paints a complex scenario. A significant portion of CIRPs have concluded with liquidation instead of resolution. Although liquidation is an essential result for nonviable enterprises, the elevated rate prompts inquiries regarding the efficiency of the resolution process across the board. Additionally, while the IBC establishes a rigid timeframe of 330 days (inclusive of litigation), many cases have exceeded this limit due to legal disputes and procedural holdups at the NCLT stage.
BEHAVIOURAL CHANGE AMONG STAKEHOLDERS
One of the most notable effects of the IBC has been the behavioural shift it has brought about among corporate borrowers. The anxiety of forfeiting command of the business once the CIRP is commenced has incentivised promoters to exercise greater discipline in their financial transactions and to resolve defaults promptly. Many requests for CIRP are retracted before acceptance, demonstrating that the mere prospect of IBC actions is becoming an effective recovery mechanism for creditors.[8]
RECENT MODIFICATIONS: ADJUSTING TO CHANGING DEMANDS
The IBC is an evolving set of laws that has experienced numerous modifications to tackle the issues faced during its execution.
THE INSOLVENCY AND BANKRUPTCY CODE (AMENDMENT) ACT, 2021
This modification established the Pre-packaged Insolvency Resolution Process (PIRP) for Micro, Small, and Medium Enterprises (MSMEs). PIRP is a blended framework that integrates aspects of out-of-court reorganisation with the legal protection of the official insolvency procedure. It enables the corporate debtor to retain management of the business while a resolution plan is negotiated with the creditors, consequently minimising interruptions to operations.
OTHER KEY AMENDMENTS
Through the years, additional amendments have been made to elucidate the entitlements of homebuyers as financial creditors, simplify the procedure for endorsing resolution plans, and establish a framework for cross-border insolvency (although this has not been completely put into practice). These amendments showcase the government’s and the IBBI’s proactive strategy in enhancing the Code based on input from stakeholders and judicial experience.
JUDICIAL INTERPRETATION: PIVOTAL RULINGS INFLUENCING THE IBC
The judiciary, especially the Supreme Court of India, has been instrumental in defining the parameters of the IBC via its significant judgments.
INNOVENTIVEINDUSTRIES LTD. V. ICICI BANK & ANR.
This was among the first significant cases that confirmed the dominance of the IBC over other existing legislations. The Supreme Court ruled that once a CIRP is commenced, the regulations of the IBC would take precedence, with an overriding impact on any contradictory stipulations in other laws.
SWISS RIBBONS PVT. LTD. & ANR. V. UNION OF INDIA
In this situation, the Supreme Court confirmed the constitutional legitimacy of the IBC and supported the unequal treatment of financial and operational creditors. The Court argued that financial creditors possess a superior ability to evaluate the financial sustainability of a corporate debtor and are consequently assigned a leading position in the CoC.[9]
COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED V. SATISH KUMAR GUPTA AND OTHERS.
This ruling marked a crucial point in defining the extent of the CoC’s authority and the restricted judicial oversight permitted to the NCLT concerning the CoC’s business judgment. The Supreme Court determined that the NCLT is not entitled to intervene in the CoC’s commercial choices related to the endorsement of a resolution plan.[10]
RAINBOW PAPERS LTD. V. COMMISSIONER OF CUSTOMS
This recent ruling has sparked significant debate by determining that government statutory obligations are to be regarded as secured debt under the IBC. This has raised apprehensions among creditors regarding the possible weakening of their entitlements in the distribution order outlined in Section 53 of the Code. The consequences of this ruling are still developing.[11]
THE WAY AHEAD: UPCOMING OPPORTUNITIES AND SUGGESTIONS
Notwithstanding its achievements, the IBC encounters numerous obstacles that must be tackled to improve its efficiency.
TACKLING DELAYS AND IMPROVING INFRASTRUCTURE
The NCLT and NCLAT are presently facing a significant backlog of cases, resulting in delays in the acceptance and resolution of matters. There is a pressing need to enhance the infrastructure of the tribunals, such as increasing the number of members and incorporating technology to improve the efficiency of the process.
CROSS-BORDER INSOLVENCY: THE NEXT FRONTIER
With the growing interconnection of the Indian economy with the world economy, a strong structure for international insolvency is crucial. Although the IBC includes a clause for this, it has not been completely operationalised. Embracing the UNCITRAL Model Law on Cross-Border Insolvency would represent a crucial advancement in this area.
ENHANCING THE FUNCTION OF INSOLVENCY EXPERTS
Insolvency Professionals are the linchpin of the IBC procedure. There is a necessity for ongoing capacity development and training of IPs to guarantee that they possess the essential skills to manage intricate resolutions. A stronger system for overseeing the behaviour of IPs is also required to uphold the integrity of the process.
THE PATH FORWARD FOR INDIVIDUAL BANKRUPTCY
The clauses of the IBC concerning personal insolvency have not been entirely announced yet. Enforcing these clauses will be a vital subsequent action in finalising the insolvency structure in India.
CONCLUSION
The Insolvency and Bankruptcy Act, 2016, has been a groundbreaking piece of legislation that has fundamentally changed the credit environment in India. It has effectively shifted the power dynamics from the borrower to the lender and has established a time-sensitive framework for addressing corporate challenges. The Code has been a fluid and developing statute, with revisions and court interpretations consistently moulding its framework.
However, the path of the IBC is far from complete. Issues like holdups in the NCLT, the necessity for a strong cross-border insolvency structure, and the comprehensive execution of personal insolvency regulations persist. The government, the judiciary, and the IBBI should continue collaborating to tackle these issues and guarantee that the IBC realises its complete capability. The future of the IBC will hinge on its capacity to adjust to the evolving economic environment and to offer a prompt, effective, and fair resolution for all parties involved. The Code has established a robust basis for a contemporary insolvency system in India, and with ongoing reforms, it holds the promise of becoming a significant catalyst for economic development and stability in the forthcoming years.
REFERENCES
[1] The Insolvency and Bankruptcy Code, 2016 (Act No. 31 of 2016), IndiaCode https://www.indiacode.nic.in/handle/123456789/2154
[2] Vinod Kothari and Sikha Bansal, The Law Relating to Insolvency and Bankruptcy Code, 2016 (6th edn, Taxmann 2023).
[3] The National Company Law Tribunal Rules, 2016 (GSR 716(E), Ministry of Corporate Affairs, notified 21 July 2016) ibclaw https://ibclaw.in/nclt-rules-2016/
[4] The Insolvency and Bankruptcy Code, 2016 (Act No 31 of 2016), s 14, IndiaCode https://www.indiacode.nic.in/handle/123456789/2154
[5] S Krishnan and Umakanth Varottil, The Insolvency and Bankruptcy Code: Law, Practice and Procedure (2nd edn, LexisNexis 2022).
[6] The Insolvency and Bankruptcy Code, 2016 (Act No 31 of 2016), s 14, IndiaCode https://www.indiacode.nic.in/handle/123456789/2154
[7] Vinod Kothari and Sikha Bansal, Law Relating to Insolvency and Bankruptcy Code, 2016 (6th edn, Taxmann 2023).
[8] Ritu Gupta, ‘Behavioural Change in Borrowers under the Insolvency and Bankruptcy Code’ (ibclaw, 2023) https://ibclaw.in/
[9] Swiss Ribbons Pvt. Ltd. and Anr v Union of India (2019) 8 SCC 1 https://ibclaw.in/swiss-ribbons-pvt-ltd-anr-v-union-of-india-anr-supreme-court/
[10] Committee of Creditors of Essar Steel India Ltd v Satish Kumar Gupta and Ors (2019) 11 SCC 1 https://ibclaw.in/committee-of-creditors-of-essar-steel-india-limited-through-authorised-signatory-v-satish-kumar-gupta-anr-supreme-court/
[11] State Tax Officer v Rainbow Papers Ltd (2022) 9 SCC 330 https://ibclaw.in/state-tax-officer-vs-rainbow-papers-ltd-supreme-court/
