Syllabus
GS3: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.
Context: A parliamentary panel is taking a comprehensive look at the Insolvency and Bankruptcy Code (IBC) to suggest the changes and measures that need to be taken to make it more efficient.
More on the News
- The government is expected to bring the IBC Amendment Bill in Parliament in the upcoming monsoon session.
- Several Supreme Court rulings in the recent past have pointed to gaps in the implementation of the IBC, the latest being the Bhushan Power and Steel and JSW matter.
Insolvency and Bankruptcy Code:
- India enacted the IBC, its first comprehensive bankruptcy law, in 2016 to improve the overall corporate insolvency resolution process.
- According to current provisions, a maximum timeline of 330 days is allowed to find a resolution for a company admitted into the insolvency resolution process. Otherwise, the company goes into liquidation.
- Till now, IBC has rescued 1,194 companies through resolution plans.
Achievements
- Supreme Court once observed, “the defaulter’s paradise is lost” and the Code has created a credible threat that ensures timely repayment.
- According to the RBI’s December 2024 report, the IBC was the top recovery method in FY 2023-24, accounting for 48% of bank recoveries, followed by SARFAESI (32%), Debt Recovery Tribunals (17%), and Lok Adalats (3%).
- The realization under IBC is more than 170.1% as against the liquidation value. Resolution plans, on average, are yielding 93.41% of the fair value of the Corporate Debtors (CDs).
- According to the study of Insolvency and Bankruptcy Board of India (IBBI), 1,276 cases have been settled through appeal, review, or settlement, and 1,154 cases have been withdrawn under section 12A.
- Creditors have realized ₹3.89 lakh crore under the framework, with a recovery rate of over 32.8% against admitted claims.
- National Company Law Tribunal (NCLT) data show that 30,310 cases were settled prior to admission, covering underlying defaults worth ₹13.78 lakh crore till December 2024.
- The IBC has had a positive impact on corporate governance, reflected in the increased proportion of independent directors on the boards of companies resolved under the Code.
Challenges
- A recent report by India Ratings and Research highlighted following challenges associated with IBC:
- Judicial delays and post-resolution uncertainties continue to affect confidence in the IBC framework.
- Even when resolution applicants are ready and the Committee of Creditors has granted approval, delays at the NCLT continue to push recovery timelines.
- In several cases, such delays result in extended litigation or failed implementation, increasing the risk of liquidation for a viable asset that requires timely execution.
- The future insolvencies also raise questions about the Code’s readiness to handle non-traditional enterprise defaults.
- While the IBC is legally broad enough to accommodate various resolution strategies, key commercial elements such as intellectual property valuation, treatment of employee dues, and tech continuity require a clearer treatment under the framework to make it future-ready.