SYLLABUS

GS-3: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Context: The Insolvency and Bankruptcy Code (IBC), enacted in 2016, has completed 10 years, emerging as a transformative reform that strengthened India’s insolvency resolution framework, credit discipline, and financial ecosystem.

About Insolvency and Bankruptcy Code (IBC)

• The IBC, 2016 is India’s comprehensive bankruptcy law that provides a unified and time-bound framework for insolvency resolution of companies, partnership firms, and individuals.
• Before the enactment of the IBC, insolvency and winding-up proceedings were governed through multiple laws and mechanisms such as the Companies Act, 1956/2013, Sick Industrial Companies Act (SICA), SARFAESI Act, and Debt Recovery Tribunals (DRTs).
• These frameworks suffered from excessive delays, fragmented jurisdiction, and low recovery rates.
• The IBC consolidated and modernised the insolvency framework by shifting India from a fragmented, debtor-controlled regime to a unified, creditor-driven and time-bound resolution system.
• Objectives of IBC
  • Maximisation of value of assets of distressed entities.
  • Promotion of entrepreneurship and availability of credit.
  • Time-bound insolvency resolution.
  • Balancing the interests of all stakeholders.
  • Revival of viable businesses and liquidation of unviable firms.
• Key Features of IBC
  • Introduced the Corporate Insolvency Resolution Process (CIRP).
  • Shifted the system from “debtor-in-possession” to “creditor-in-control”.
  • Prescribes a maximum timeline of 330 days for insolvency resolution.
  • Provides a moratorium during insolvency proceedings.
  • Encourages resolution and revival instead of mere liquidation.
  • Enables liquidation if resolution fails.
• Institutional Framework / Four Pillars of IBC
  • Insolvency and Bankruptcy Board of India (IBBI) – Regulator overseeing insolvency processes and service providers.
  • Insolvency Professionals (IPs) – Licensed professionals managing insolvency and resolution proceedings.
  • Information Utilities (IUs) – Electronic repositories storing and authenticating financial information and defaults.
  • Adjudicating Authority (AA) – National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) adjudicating insolvency cases.
• Under the IBC framework, the National Company Law Tribunal (NCLT), established under the Companies Act, 2013, functions as the Adjudicating Authority for corporate insolvency resolution and liquidation proceedings.
• Recent Reform: The Insolvency and Bankruptcy Code (Amendment) Act, 2026 aims to improve timelines, strengthen creditor rights, enhance certainty, and support faster business revival, thereby strengthening India’s investment climate and economic resilience.

Key Achievements of IBC

• Strengthening Recovery Mechanism: As of March 2026, 1,419 cases yielded resolution plans, through which creditors realised more than ₹4 lakh crore.
  • Recovery stood at nearly 95% of fair value and around 167% of liquidation value.
• Revival of Distressed Companies: Out of 7,102 closed cases, nearly 58% (4,099 companies) were successfully rescued under the IBC process.
  • Around 42% of the resolved companies were previously defunct or had been before the BIFR.
• Improved Credit Discipline: More than 30,000 cases involving nearly ₹14 lakh crore were settled at the pre-admission stage. The Code created a strong deterrent effect and improved repayment culture among borrowers.
• Reduction in NPAs: The gross NPA ratio of banks declined from nearly 11.8% in 2017 to around 2.1% by September 2025. The RBI also identified the IBC as the most effective mechanism for stressed asset recovery.
• Better Recovery Rates and Faster Resolution: Recovery rates improved from nearly 15–20% in the pre-IBC period to around 30–36% after the introduction of the IBC. Resolution timelines also reduced from 6–8 years earlier to around 2 years under the Code.
• Contribution to Banking Sector Recovery: Scheduled Commercial Banks recovered around ₹1.04 lakh crore through various recovery channels, of which nearly ₹0.54 lakh crore (52.4%) was realised through the IBC mechanism. This highlighted the growing importance of the Code in banking sector recovery.
• Global Recognition: S&P Global Ratings upgraded India’s insolvency framework from ‘Group C’ to ‘Group B’. The upgrade recognised improvements in resolution efficiency and creditor recovery under the IBC framework.

Significance of IBC

• Institutional Transformation: The IBC transformed India’s insolvency framework from a fragmented and delay-prone system into a structured, market-oriented, and time-bound mechanism.
• Shift in Debtor-Creditor Dynamics: The Code shifted bargaining power from defaulting promoters to creditors, improving accountability and financial discipline.
• Ease of Doing Business: A predictable insolvency framework improved investor confidence and strengthened India’s business environment.
• Preservation of Enterprise Value: The Code focuses on resolution and revival instead of mere liquidation, thereby preserving jobs, productive assets, and economic value.
• Financial Stability: By improving stressed asset resolution and reducing NPAs, the IBC strengthened the banking system and enhanced credit availability.
• Support to Economic Growth: A robust insolvency framework is critical for sustaining entrepreneurship, promoting efficient capital allocation, and achieving the vision of Viksit Bharat 2047.