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

Introduction

The enactment of the Insolvency and Bankruptcy Code, 2016 ^[1](IBC or “the Code”) has been the most important structural financial and legal reform in Indian history. Enacted as Act No. 31 of  2016, the Code was intended to consolidate the law relating to the insolvency and bankruptcy of companies, limited liability partnerships, partnership firms, and individuals under a single act. The law relating to insolvency and bankruptcy was dispersed in the following legislations before the IBC: the Companies Act, 1956^[2], Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), ^[3]the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI)^[4], and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI)^[5].

These laws used to overlap and result in ambiguity, delay, and confusion. It would take years to settle insolvency and usually deliver nothing or meager amounts to the creditors. India was ranked 136 out of 189 economies in resolving insolvency by the World Bank’s “Ease of Doing Business” report 2016. The IBC was enacted to provide a time-bound, cost-efficient, and equitable insolvency resolution process, increase recovery rates, promote entrepreneurship, and balance the interests of all stakeholders.

Achievements of the IBC 

One of the greatest successes of the Insolvency and Bankruptcy Code (IBC) has been its emphasis on time-bound resolution and speedy results. According to Section 12 of the IBC^[6], the Corporate Insolvency Resolution Process (CIRP) is required to be completed within 180 days, extendable by a period not exceeding 90 days. With the amendment of 2019, however, the entire process should not exceed 330 days, including time spent in litigation. This provision is in stark contrast to the prevailing legal regimes, e.g., the Sick Industrial Companies (Special Provisions) Act (SICA) ^[7]under the Board for Industrial and Financial Reconstruction (BIFR), and the Recovery of Debts Due to Banks and Financial Institutions Act (RDDBFI),^[8] under which insolvency would take in excess of 4–6 years on average. Under the IBC, the time spent in the resolution of insolvency has been considerably cut down, enhancing the predictability and effectiveness of commercial restructuring. Judicial delays continue to taint full efficiency, however. Thus, for example, in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta^[9], the Supreme Court upheld the resolution plan approved by the Committee of Creditors (CoC), but the entire process took almost 865 days. Notwithstanding such delays, however, the judicial imposition of a stringent timeline has had an effect on the behavior of creditors and debtors alike, and has led to quicker negotiations and early settlement.

Another significant contribution of the IBC is higher recovery for creditors. Recovery under pre-Code mechanisms earlier was abysmal, with average recoveries ranging from as low as 20% or even lower. The IBBI’s 2024 report ^[10]shows that average recovery under the IBC has settled at 41.3%. Cases like that of Essar Steel—where recovery of ₹42,000 crore was realized against admitted claims of ₹49,000 crore—translate into a recovery of more than 90%, unimaginable under the pre-existing regime. In the case of Bhushan Steel, Tata Steel paid ₹35,200 crore to acquire the company, well covering the dues of the lenders. Such instances are reflective of a huge improvement over pre-existing mechanisms like the SARFAESI Act and the DRTs. Section 30 of the IBC ^[11]gives the power to the CoC to sanction resolution plans for value maximization, providing financial creditors valuable control and freedom to maximize returns.

A paradigm shift brought about by the IBC is the manner in which creditors are empowered by the CoC. The Code transfers powers over the affairs of the debtor from the promoters to the creditors on insolvency. As per Section 18, ^[12]the Interim Resolution Professional is given the power of takeover of the debtor, while Section 21 ^[13]legitimizes the Committee of Creditors (CoC), whose members are the financial creditors who make the key decisions. Section 30(4) ^[14]also gives the CoC the power to approve or reject a resolution plan on commercial grounds. In the judicial landmark case of K. Sashidhar v. Indian Overseas Bank^[15], the Supreme Court held that the commercial wisdom of the CoC is not justiciable, i.e., the courts cannot intervene in their decisions except where the plan itself is legally flawed. Likewise, in Essar Steel, the apex court reiterated that judicial intervention would have to be minimal except where the plan is glaringly arbitrary, discriminatory, or illegal. These judicial statements confirm the primacy of creditor-led insolvency proceedings and enable quicker resolutions.

The IBC is an effective deterrent against strategic and willful defaults. Among its most significant provisions is Section 29A, ^[16]prohibiting errant promoters and related parties from submitting resolution plans. This specific condition was strengthened in the case of ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta^[17], where the Supreme Court took a stringent view of Section 29A^[18], prohibiting defaulters from taking control of their companies through backdoor means. The decision strengthened creditor confidence and reaffirmed the necessity of ethical corporate conduct. Promoters and borrowers have therefore been more cautious to pay up or go to restructuring agreements prior to the filing of CIRP. Defaults are resolved prior to admission in the majority of cases either through out-of-court settlements or through negotiations with creditors, thereby reducing the workload of the tribunal and promoting good financial discipline.

Professionalization and Pre-Packs: Building a Robust Insolvency Framework in India

The IBC has professionalized and institutionalized India’s insolvency regime. A new profession, the Insolvency Resolution Professionals (IRPs), has been created, regulated by the IBBI under Section 196 of the Code. The IRPs are tasked with running the debtor’s business, maintaining asset value, verifying claims, and coordinating the resolution process. In addition, the creation of Information Utilities (IUs) such as the National e-Governance Services Ltd. (NeSL) helps verify debt and claim records, thereby reducing fraud, disputes, and documentation delays. In addition, specialized adjudicating forums have been created to handle insolvency cases. Section 60 ^[19]states that the National Company Law Tribunal (NCLT) will be the Adjudicating Authority in the case of corporate insolvency, and appeals are heard by the National Company Law Appellate Tribunal (NCLAT) under Section 61. ^[20]This specialized framework does much to minimize process delays and build jurisprudence in insolvency law.

One of the most significant innovations of the IBC regime has been the introduction of the Pre-Packaged Insolvency Resolution Process (PPIRP) in 2021, solely for Micro, Small and Medium Enterprises (MSMEs). The process is governed by Sections 54A to 54P ^[21]of the Code. PPIRP is meant to offer a quicker and less painful alternative to CIRP by allowing debtors to proceed towards a resolution process with the prior approval of financial creditors. Importantly, management is spared by the debtor unless fraud is established. Though still in its infancy, the PPIRP is replete with promise, especially for MSMEs that are beset by liquidity problems but are unable to withstand a prolonged CIRP. With proper safeguards and creditor confidence, the pre-pack model can be extended to other sectors as well, thus making the IBC framework more elastic.

Challenges in the IBC Framework

Despite the fact that the Insolvency and Bankruptcy Code has a number of defects, the most pressing ones are procedural delays. According to the law, the Corporate Insolvency Resolution Process (CIRP) legally should be completed within 330 days as set forth in Section 12 ^[22]of the Insolvency and Bankruptcy Code but by the end of last year the Insolvency and Bankruptcy Board of India (IBBI) statistics show more than 65% cases take over a year. Because there are adjournments, legal objections, tribunal vacancies, appeals In Surendra Trading Co. v. Juggilal Kamalapat Jute Mills Co. Ltd.^[23], the Supreme Court reaffirmed that time-lines must be followed. However, due to the lack of facilities for enforcement, this is being flouted on a large scale.

That’s not to mention that results have been a financial letdown in several high-profile instances. For instance, in the Videocon Industries resolution, the creditors received ₹2,962 crore against the due of ₹61,770 crore — a 95 per cent hair-cut. The same was done to some extent in the Reliance Communications case and this trend smells of valuation of assets, competitive bidding and transparency issues. Operational creditors are also in the lurch. Even if under Section 30(2)(b) ^[24]some value at liquidation is so guaranteed, it is minimal and, as agreed in Swiss Ribbons Pvt. Ltd. v. Union of India^[25], for example, the Court justified this treatment in the face of fairness concerns.

Moreover, common stock investors usually hold all value, representing a major issue in investor protection. This in turn burdens already overworked NCLTs further. When there are over 18,000 pending bankruptcy cases as of July 2025, problems of timeliness–whether it be in admissions (Section 7/9)^[26], appointments to be made under IRP (Section 16^[27]), or approval of plans (Section 31)^[28] might arise at any point during the bankruptcy process. In addition, the procedure for individual and partnership bankruptcies under Part III (Sections 78–187)^[29] of the Code remains largely unnoticed, which creates particular conflict in national resolution for those non-corporate entities. Finally, constant amendments to the law and court interventions–like the case of Jaypee Infratech Ltd v. NBCC India Ltd.^[30]–are another source of inconsistency and uncertainty. Now is the time for immediate action by judiciary, institutions, and lawmakers to bring the Code up to its full potential. 

Conclusion

In India, the Insolvency and Bankruptcy Code, 2016 has altered the landscape of insolvency law. It replaces a fragmented, inefficient system with an efficient modern one which is conducive to creditors. Code’s accomplishments higher recoveries, faster resolutions, professionalization, deterrence of defaulters-all testify to its remarkably reformist status. But the IBC still has a way to go. Structural chokepoints, procedural delays, hard evidence of deviation from fair practice by some interested parties, or an insufficient regime for non-commercial debtors – such issues present serious handicaps.

While the Code is in course of realizing all its potential, it needs gradually to be perfected, by strengthening tribunals systemically, using digital tools for better justice, piling up human and other resources and ensuring stable case law. With moderate reforms and beneficent policies, the IBP will yet emerge as a first-rate release for debtors from arrest as well as insolvency in this Asean country and our economy’s pillar.

 

References

[1] Insolvency and Bankruptcy Code 2016 (India).

[2] Companies Act 1956 (India)

[3] Sick Industrial Companies (Special Provisions) Act 1985 (India)

[4] Recovery of Debts Due to Banks and Financial Institutions Act 1993 (India).

[5] Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (India).

[6] Insolvency and Bankruptcy Code 2016 (India) s 12

[7] Supra note 3

[8] Supra note 4

[9] Committee of Creditors of Essar Steel India Ltd v Satish Kumar Gupta AIR 2020 SC 930 (India).

[10] Insolvency and Bankruptcy Board of India, Annual Report 2023–24 (IBBI, 2024)https://ibbi.gov.in/uploads/publication/de2f17cca103664da3f2c845fef35505.pdf accessed 19 July 2025

[11] Insolvency and Bankruptcy Code 2016 (India) s 30.

[12] Insolvency and Bankruptcy Code 2016 (India) s 18.

[13] Insolvency and Bankruptcy Code 2016 (India) s 21.

[14] Insolvency and Bankruptcy Code 2016 (India) s 30(4).

[15] K. Sashidhar v Indian Overseas Bank & Ors (2019) 12 SCC 150.

[16] Insolvency and Bankruptcy Code 2016 (India) s 29A.

[17] ArcelorMittal India Pvt Ltd v Satish Kumar Gupta AIR 2020 SC (Civ) 387 (India).

[18] Supra note 16

[19] Insolvency and Bankruptcy Code 2016 (India) s 60

[20] Insolvency and Bankruptcy Code 2016 (India) s 61.

[21] Insolvency and Bankruptcy Code 2016 (India) ss 54A–54P.

[22] Insolvency and Bankruptcy Code 2016 (India) s 12.

[23] Surendra Trading Co v Juggilal Kamlapat Jute Mills Co Ltd [2017] ibclaw.in 08 SC.

[24] Insolvency and Bankruptcy Code 2016 (India) s 30(2)(b).

[25] Swiss Ribbons Pvt Ltd v Union of India (2019) 4 SCC 17.

[26] Insolvency and Bankruptcy Code 2016 (India) ss 7, 9.

[27] Insolvency and Bankruptcy Code 2016 (India) s 16.

[28] Insolvency and Bankruptcy Code 2016 (India) s 31.

[29] Insolvency and Bankruptcy Code 2016 (India) ss 78–187.

[30]  Jaypee Infratech Ltd. and NBCC India Ltd. (2021) ibclaw.in 26 SC