Insolvency and Bankruptcy Code: Successes and Challenges
The Insolvency and Bankruptcy Code (IBC), 2016 is a landmark reform in India’s financial and corporate sector, designed to consolidate and streamline insolvency laws, resolve distressed assets efficiently, and promote credit discipline. Before the IBC, India’s insolvency regime was fragmented across multiple laws like the Sick Industrial Companies Act, 1985 (SICA), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act), and the Companies Act, 2013. These frameworks were slow, inefficient, and often resulted in delayed resolution or liquidation, eroding the value of assets and burdening banks with non-performing assets (NPAs). The IBC was introduced to provide a time-bound, creditor-driven, and market-oriented mechanism to handle insolvency in both corporate and individual contexts.
One of the IBC’s significant successes has been its time-bound resolution framework. The Code mandates that corporate insolvency resolution processes (CIRP) be completed within 270 days, including litigation, promoting efficiency and predictability. The creation of the Insolvency and Bankruptcy Board of India (IBBI) as the regulator, along with professional insolvency resolution professionals (IRPs) and dedicated National Company Law Tribunals (NCLT), has established a specialized institutional mechanism to handle insolvency cases. This system has helped reduce pendency, improve asset recovery, and restore investor confidence, particularly for banks and financial institutions facing high NPAs.
The IBC has also strengthened creditor rights, giving banks and financial institutions the authority to initiate insolvency proceedings against defaulting companies. By enabling transparent auctions, resolution plans, and liquidation processes, the Code ensures that value is maximized for all stakeholders. Landmark cases like the Essar Steel resolution demonstrated that large corporate insolvency cases could be resolved effectively under the IBC, generating billions of rupees in recovery and preserving jobs and business continuity. The Code’s application has also influenced behavioral discipline, encouraging companies to honor debt obligations and adopt prudent financial management practices.
However, despite these achievements, the IBC faces several challenges. The most prominent issue is judicial delays and litigation. Appeals against NCLT orders frequently go to the National Company Law Appellate Tribunal (NCLAT) and subsequently to the Supreme Court, extending resolution timelines and reducing the Code’s effectiveness. Moreover, while the Code is intended to resolve insolvency within 270 days, in practice, many cases exceed this period due to complex financial structures, creditor disputes, and legal bottlenecks.
Another challenge is the inadequate number of qualified resolution professionals and specialized tribunals in some regions, which creates capacity constraints. Small and medium enterprises (SMEs) often struggle to access the insolvency framework due to high costs, complex procedures, and limited awareness. Additionally, cross-border insolvency cases remain difficult to manage, as India has yet to fully implement UNCITRAL Model Law provisions, limiting its effectiveness in handling global corporate debt.
The IBC has also highlighted issues of creditor-centric bias, as secured creditors often dominate decision-making in resolution plans, potentially marginalizing other stakeholders such as employees, operational creditors, and minority shareholders. Addressing these concerns requires policy refinements, stronger regulatory oversight, and enhanced transparency in the resolution process.
In conclusion, the Insolvency and Bankruptcy Code, 2016, represents a transformative step in India’s financial and corporate governance landscape. Its successes include time-bound resolution, increased recoveries, enhanced creditor confidence, and improved financial discipline. Yet, challenges like judicial delays, capacity constraints, procedural complexity, and stakeholder equity must be addressed to fully realize its objectives. The future effectiveness of the IBC depends on streamlined judicial processes, capacity building, technological integration, and inclusive resolution mechanisms, ensuring that insolvency management in India becomes efficient, fair, and globally competitive, thereby strengthening the overall financial ecosystem and investor confidence.