THE CONTEXT: With eight full years of implementation, the Insolvency and Bankruptcy Code, 2016 (IBC) has resolved 1,194 corporate debtors (CDs), helped creditors realise ₹3.89 lakh crore (32.8 per cent of admitted claims; 170 per cent of liquidation value) and induced early settlement of defaults worth ₹13.78 lakh crore in 30,310 cases that never even entered insolvency.
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- Yet almost 78 per cent of live cases have crossed the statutory 270-day limit and recent Supreme Court reversals (e.g., Bhushan Power & Steel) have shaken commercial certainty.
THE BACKGROUND: Before 2016, India’s insolvency architecture was a patchwork of the Sick Industrial Companies Act (SICA), the Recovery of Debts Due to Banks Act (RDDBFI) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI). Average recovery was <20 per cent and resolution time >4.3 years.
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- The IBC replaced the debtor-in-possession regime with a creditor-in-control, time-bound Corporate Insolvency Resolution Process (CIRP) of 180 + 90 days, capped at 330 days, while ring-fencing successful resolution plans under the “clean-slate” doctrine.
TECHNICAL DETAILS:
| Terms: | Meaning: |
|---|---|
| Corporate Insolvency Resolution Process (CIRP) | Formal, court-supervised rescue of a company under IBC Sections 6-32. |
| Committee of Creditors (CoC) | Voting body of financial creditors (>66 % vote needed to approve a plan). |
| Insolvency Resolution Professional (IRP/RP) | Licensed professional who runs the company during CIRP. |
| Section 29A | Bars willful defaulters and related parties from bidding for their own assets. |
| Pre-packaged Insolvency | Hybrid out-of-court workout + in-court approval, currently notified only for MSMEs under the 2021 ordinance. |
| Haircut | Percentage of debt the lender forgives vis-à-vis admitted claims. The current average is 67 %. |
CURRENT SCENARIO (Key data up to 31 Mar 2025)
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- 8,308 cases admitted; 63.4 % disposed.
- Resolution vs liquidation = 1:2.3 (1,194 resolved, 2,758 liquidated).
- Gross NPA ratio of Scheduled Commercial Banks at 2.6 %—a 12-year low.
- IBC accounts for 48 % of total bank recoveries; SARFAESI 32 %, DRT 17 %, Lok Adalat 3 %.
WHY THE IBC MATTERS — THREE BIG PAY-OFFS
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- Credit-culture reset: Empirical study for IBBI shows overdue days have collapsed from 248–344 to 30–87 post-IBC, ending the “defaulter’s paradise” (SC in Swiss Ribbons).
- Macro-stability dividend: Distressed firms pay 300 basis points lower spreads post-resolution; corporate-bond yields have narrowed, aiding monetary-policy transmission.
- Job preservation & enterprise value: IBBI data reveal a 50 % jump in employee expenses at firms saved via resolution plans, versus liquidation-bound peers.
WHAT DRIVES PERFORMANCE:
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- Digital information utilities (NeSL, IU-stack) compress information asymmetry and deter frivolous claims.
- The RBI’s Prompt Corrective Action framework, combined with a credible CIRP threat, has front-loaded balance-sheet repair.
- Deep-pocketed strategic investors (global private-equity funds, large Indian conglomerates) actively scout stressed assets, pushing up bid values.
GLOBAL BENCHMARK:
| Metric (2024-25) | India (IBC) | United States (Ch. 11) | United Kingdom (Administration) |
|---|---|---|---|
| Avg. realisation vs claims | 33 % | ~42-48 % (post-DIP fees) | Secured ~80 %; unsecured <5 %* |
| Median duration | 425 days | 310-430 days | 280-320 days |
| Frequent pain-point | Judicial review & haircuts | Expense of debtor-in-possession (DIP) financing | Opacity in pre-pack valuations |
THE ISSUES:
| Axis of concern | Ground-level manifestation | Illustrative evidence and case law | Why it matters for public policy |
|---|---|---|---|
| Tribunal-capacity crunch | Only 63 National Company Law Tribunal (NCLT) members are in place against a sanctioned strength of 124; >12,000 insolvency-related matters are pending. | NCLT Case-Status Report, March 2025 | Violates the 330-day statutory cap, eroding constitutional guarantee of speedy justice (Art. 14 “reasonableness” test). |
| Chronic timeline slippage | 78 % of live Corporate Insolvency Resolution Process (CIRP) cases exceed 270 days; average resolution 597 days; liquidation 654 days. | IBBI Quarterly Newsletter, Jan–Mar 2025 | Fitch estimates enterprise value decays ≈2 % per month beyond 330 days, shrinking eventual tax revenues and employment. |
| Post-resolution uncertainty | Supreme Court in May 2025 set aside the 2019 Bhushan Power plan, six years after approval, despite Section 32A “clean slate” protection. | JSW Steel v. Enforcement Directorate | Undermines the principle of commercial finality affirmed earlier in Swiss Ribbons (2019) and Essar Steel (2019); raises the India risk premium for distressed-asset investors. |
| Haircut asymmetry & inter-creditor equity | Financial-creditor haircut ≈ 67 %; operational creditors frequently receive ≤ 5 %. | Videocon (96 % haircut flagged by NCLT); | Contravenes the UNCITRAL principle of “equitable treatment” and may be challenged under Art. 14 if disproportionate. |
| Valuation of intangibles | Regulation 35 templates rely on replacement cost or market comparables ill-suited to IP-centric or data-platform firms. | Videocon & Jet Airways observers note discounting of brand and slot value. | Risks fire-sale outcomes, discouraging innovation-led enterprises from formal credit markets. |
| Cross-border blind spot | Draft Cross-Border Insolvency Bill 2023 yet to be enacted; courts apply ad-hoc comity (e.g., Dutch trustee in Jet Airways). | Parliamentary Standing Committee on Finance urged adoption of UNCITRAL model (2021). | Absence of a Centre-of-Main-Interests (COMI) test jeopardises recovery from foreign assets and contravenes G20 Principles for financial stability. |
| Human-ware deficit | ≈ 4,000 licensed Insolvency Professionals (IPs) for a potential 20,000-case pipeline by 2030. | IBBI capacity statement, 2024 (cited in Asia-Pacific Restructuring Review). | Drives fee escalation and conflicts of interest; threatens quality of forensic scrutiny. |
| Constitutional & federal tensions | Section 29A (promoter ineligibility) upheld in ArcelorMittal but flagged as overly restrictive by the 32nd report of the Standing Committee on Finance; States press for carve-outs for MSMEs. | Committee report 2021 | Balances the right to carry on business (Art. 19(1)(g)) with legitimate aim of disciplining willful defaulters. |
THE WAY FORWARD:
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- Expand and Digitise the Adjudicatory Infrastructure: Fill vacant seats and create circuit benches of the National Company Law Tribunal (NCLT) in every High Court zone, following the Law Commission’s 277th Report.
- Hard-Wire Commercial Finality through a Sharper Section 32A: Amend Section 32A of the Insolvency and Bankruptcy Code (IBC) to bar any challenge to a duly-approved resolution plan after 60 days, except where fraud is prima facie established; mirror the “safe-harbour” shield in the United States’ Chapter 11. Statutory certainty will restore investor confidence, lower the risk premium on Indian workouts, and align with UNCITRAL’s Legislative Guide principle of finality.
- Scale Pre-Pack Insolvency to Large Corporates with Predictive Triggers: Extend the present Micro, Small, and Medium Enterprises pre-pack scheme to companies with debt above ₹500 crore, while embedding early-warning alerts from Goods and Services Tax e-invoice data and the Trade Receivables Discounting System. United Kingdom evidence shows that pre-packs can reduce resolution time to 90–120 days and preserve up to 85 percent of going-concern value. A “file-early, fix-fast” pipeline will decongest NCLT dockets and prevent value-erosion spirals for complex groups.
- Guarantee a Fair Floor for Operational Creditors: Statutorily mandate that operational creditors receive at least ten per cent of the realisable value, or an equity swap of equivalent worth, whenever a resolution plan is approved. The Insolvency Law Committee’s 2020 report flagged the same concern; a minimum floor maintains vendor confidence in formal credit channels.
- Legislate Cross-Border and Group Insolvency Protocols Now: Enact the pending Cross-Border Insolvency Bill 2023—built on the United Nations Commission on International Trade Law (UNCITRAL) Model Law—and notify group-insolvency rules patterned on the Jet Airways cooperation protocol with Dutch trustees. Doing so provides a single window for multi-jurisdictional workouts, improving average recoveries by 15–20 percent (World Bank, 2024) and shielding Indian conglomerates from fragmented foreign litigation.
- Create a National Insolvency Analytics Stack and Professionalise the Ecosystem: Charter an Indian Institute of Insolvency Professionals with compulsory continuous-learning credits, algorithmic conflict checks, and peer-review audits—crucial when only about 4,000 licensed professionals are available for a projected 20,000 cases by 2030. Finally, impose a 50-basis-point capital surcharge on banks whose approved plans remain outstanding for more than 330 days, thereby tightly aligning lender incentives with time-bound resolution.
THE CONCLUSION:
Build a blockchain-secured, open-application-programming-interface platform that links land registries, Registrar of Companies filings, secured-creditor charges, and real-time valuation dashboards. It should ensure a tamper-proof transparency for every Corporate Insolvency Resolution Process.
UPSC PAST YEAR QUESTION:
Q. How far do you agree with the view that tribunals curtail the jurisdiction of ordinary courts? In view of the above, discuss the constitutional validity and competency of the tribunals in India. 2018
MAINS PRACTICE QUESTION:
Q. Has the Insolvency and Bankruptcy Code, 2016 successfully transformed India’s credit ecosystem, or has judicial and procedural drift diluted its objectives? Discuss.
SOURCE:
https://www.thehindu.com/business/is-ibc-an-effective-resolution-tool-explained/article69660687.ece
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