Delving into the realms of success of the IBC and Current Pitfalls in the Corporate Insolvency Regime in India
Adv. Noopur Narang
LL.M. (Corporate Law), Manav Rachna University
Introduction
The Insolvency and Bankruptcy Code 2016 (IBC) was enacted in India as a comprehensive framework for dealing with insolvency and bankruptcy. The goal of the IBC was to develop a more effective and streamlined mechanism for resolving insolvency matters in order to promote a healthy business environment in the country. This paper will look at the success of the IBC in accomplishing its objectives, as well as the current pitfalls of corporate insolvency framework in India.
Purpose of “Insolvency and Bankruptcy Code, 2016”
The purpose of the Code was to prevent enterprises from going insolvent by instituting time-bound mechanisms and further coming up with a solution addressing the issue of companies going bankrupt. As a result of the accumulation of case scenarios and the long waits in the settlement of debts, the centralization of the laws that govern financial collapse came to be an absolute requirement.
The IB Code of 2016 asserts that it will make it more beneficial to conduct business in India by providing a conflict-resolving method that is speedy, straightforward, and constrained by a time limit. Under the regime, insolvency petitions can be submitted not only by individual people but also by institutions. When it happens to a business, it is referred to as “corporate insolvency,” while when it happens to a person, it is called “insolvency.” Following the terms of the code, both the debtors and the creditors can initiate the proceedings for resolving the dispute of insolvency. IBC plans to assist in the revitalization of the corporation in a way that is extremely time-bound while simultaneously protecting the interests of every one of the major activities.
There is a mentality that views the Code as a cure-all for all of the problems that exist in the economy and then measures its effectiveness based on how well it addresses those problems. Instead, we need to consider whether or not it was successful in connection to its goal, which was a reorganization, as mentioned in its lengthy title.
The Code requires reorganization to occur in one of two particular manners: first, the company can be saved by implementing a resolution process; second if that doesn’t work, the business can be shut down by going through insolvency proceedings. It gives the market the ability to decide what to do. In most cases, the market will choose to save a corporation if the organization it conducts is feasible, but it will choose to shut it down if the organization is not workable. The anxiety that had been felt by more than 20,000 enterprises has indeed been alleviated now that initiation for insolvency has been submitted to begin bankruptcy proceedings for those businesses. The resolution was implemented via removal, a resolution strategy, or liquidation. The amount of time that will be required, the amount of money that will be spent, as well as the performance of the resolution in regard to value maximization are all essential considerations. In regard to duration, cost, and reliability of results, the Code has performance and compliance that are multiples of those acquired under the previous legal regime and it is applicable for all the three parameters stated.
Success of the Code
The success of the IBC in attaining its objectives can be seen in the significant increase in the number of cases resolved since its implementation. Prior to the IBC, insolvency proceedings were governed by multiple laws, resulting in a process that was fragmented and inefficient. The IBC merged all laws concerning insolvency and bankruptcy, resulting in a more uniform and standardized procedure. Over 3,400 cases have been admitted under the IBC since its implementation, and over 600 cases have been resolved.[1] This says the efficacy of the IBC in streamlining the process of resolving insolvency cases, and represents a significant increase in the number of cases resolved compared to the previous regime.
Among other fundamental objectives of the IBC, one was to create a more efficient and streamlined process for resolving insolvency cases. The IBC established a time-limited resolution process of 330 days. In a landmark case[2], it was determined that “the objective of the IBC is to ensure resolution/liquidation in a timely manner to maximize the value of assets in order to balance the interests of all stakeholders”. This time-bound procedure ensures that the res0lution process is concluded within a predetermined time frame, thereby preventing delays and ensuring that stakeholders receive a timely resolution. In addition, the IBC provides a single forum for all insolvency-related matters, reducing the time and expense associated with multiple legal proceedings.
Another essential objective of the IBC was to make India a friendlier place for creditors. Under the previous system, creditors were frequently subjected to lengthy delays in the resolution of insolvency cases and were frequently left with few options for recovering their investments. IBC was a success in this regard as it laid forth broader rights as well as remedied to the creditors as a resolution to this issue. It has successfully created an environment that is more friendly towards the creditors.
Current Pitfalls in The Corporate Insolvency Regime in India
Albeit, under the Code, the resolution procedure is time limited, however, the lack of adequate infrastructure[3], such as specialized courts and qualified resolution professionals, has caused considerable delays in the resolution of insolvency cases.[4]Not only has this affected the efficacy of the resolution process, but it has also caused a backlog of cases, which has further slowed the resolution of insolvency cases.
A further challenge for the insolvency regime in India is the inadequacy of stakeholder participation in the resolution process. Under the IBC, stakeholders such as employees, suppliers, and consumers may participate in the resolution process. However, a lack of cognizance and comprehension of the insolvency process has prevented these parties from participating. This compromises with the interest of other stake holders while the interest of creditors is put on a pedestal in resolution process.
Six years have passed since the implementation of the Insolvency and Bankruptcy Code. During these past years, it has experienced a variety of highs and lows. The Code has been revised five times, and different courts declarations have been made that perceive various sections of the legislation. The amendment made in 2020 is one of the most effective IBC amendments so far.[5]
Time Barred: IBC offers creditors a method to restore their debt payments within a specified amount of time. The procedure is referred to as the CIRP. When a company stops making payments on its debts to a creditor, therefore the creditor will make a request to CIRP to begin the process of recovering their money. In this legislation, the CIRP could be considered a method with a time limit. Whereas the procedure has to be finished within one hundred eighty days of the date when such a request was accepted according to S. 12 of the IBC, 2016.
The time limit for finishing such a technique which could also be stretched by the body holding the authority of adjudication, given that a resolution requiring a vote of at least 66% of the voting share is approved in the meeting that is held by the creditors. In the settlement, the time limit of ninety days shall not be exceeded for the completion of the CIRP.
The process must be finished within 330 days, including any extenders that may be conferred. Completion is mandatory. In addition, the provision allows for a providing additional 90 days to be granted for proceedings that go on for longer than 330 days due to unavoidable delays. When it comes to the smooth operation of the creditor’s committee, businesses that have an excessively substantial percentage of creditors are going to face obstacles.
Insufficient infrastructure of the Indian legal system: The insufficient number of benches available at the NCLT, is leading to an increase in the overall number of cases filed under the IBC. The goal of a swift settlement agreement may be rendered moot if the backlog of pending cases continues to grow.
Non-expertise of Resolution professional: Due to the small number of expert Resolution professionals, a professional in dispute resolution may not possess enough expertise to handle or manage a corporation.
Conclusion and Suggestions
IBC was a new implementation in India which brings the huge change in the banking system and companies. The need of this change was
- making a complete code for insolvency and bankruptcy for both businesses and people;
- setting up a new structure with a “committee of creditors” (COC) and “adjudicating authorities” for insolvency resolution and liquidation; and
- making the process more accountable to the courts.
However certain loopholes in the law still exists and they need to be filled up. In order to address the lacunas, following measures needs to be taken-
- Resolution process being one of the issues, it is vital that infrastructure must be improved to strengthen and support the resolution process.
- Specialized courts shall be established and in order to ensure that there is a conscious and informed decision making, a comprehensive and efficient database w.r.t. corporate insolvency cases shall be made.
- Albeit, NCLT and IBBI already do exist, but measures are required to be taken that will aid their working in an efficient manner.
- Stakeholder awareness plays a key role here. Focus must also be on out-reach programs and information distribution to other stakeholders as well.
- Another important measure that would ensure transparency will be to lay down a comprehensive and exhaustive guideline as to appointment of resolution professional and the entire procedure.
References:
[1]Diksha Munjal, ‘Explainer: The IB Code, while it Stand Today?’, The Hindu, https://www.thehindu.com/news/national/explained-what-is-the-insolvency-and-bankruptcy-code-ibc-and-where-does-it-stand-after-more-than-five-years-of-being-in-place/article65969421.ece.
[2] Japee Kesington Boulevard Apartments Welfare Association v. NBCC Limited (2021) ibclaw.in 63 SC
[3]Adimesh Lochan, Arjun Gupta, Sahil Kanunga, ‘Recent Judicial Developments Insolvency and Bankruptcy Code’, accessed 23 April 2025.
[4]Id at 5.
[5] Gratzer K and Stiefel D, History of Insolvency and Bankruptcy from an International Perspective (2010).