Insolvency and Bankruptcy Code (IBC)

14.10.2025

Insolvency and Bankruptcy Code (IBC)

Context
 In October 2025, India completed nine years of the Insolvency and Bankruptcy Code (IBC), a major reform that reshaped the country’s credit and debt recovery system. Since its inception, the IBC has enabled resolution of debts worth ₹26 lakh crore, strengthening credit discipline, corporate responsibility, and investor trust.

Background and Evolution
Introduced in 2016, the IBC unified multiple debt recovery laws, such as the SARFAESI Act, Debt Recovery Tribunals (DRTs), and Sick Industrial Companies Act (SICA), into one structured and time-bound framework. It aimed to promote financial discipline, uphold creditor rights, and improve corporate governance.

Between 2016 and 2025, over ₹26 lakh crore of debt was addressed through IBC mechanisms. Around 30,310 cases worth ₹13.78 lakh crore were settled before admission, while 1,314 cases were resolved post-admission and 1,919 withdrawn under Section 12A after mutual settlement. Non-Performing Assets (NPAs) declined from 10.9% in FY 2017–18 to 2.3% in FY 2024–25, with net NPAs at only 0.5%. Loan overdue periods also dropped from over 200 days to below 90 days.

Governance and Deterrence Reforms
 Key provisions strengthened accountability and deterrence.

• Section 29A: Bars defaulting promoters from rebidding for their assets.
   
• Section 32: Removes immunity for offences before insolvency, ensuring transparency.
   
• Provisions against preferential and fraudulent transactions protect creditor interests.
   

Constitutional and Legal Framework
 The IBC reflects the Constitution’s vision of economic justice by promoting efficiency, fairness, and transparency. It balances creditor primacy with protection for employees and investors.

Legislative Milestones:

• 2017: Section 29A introduced for ethical accountability.
   
• 2018: Homebuyers recognised as financial creditors.
   
• 2019: 330-day cap on resolution timelines.
   
• 2020: Temporary suspension of new insolvency cases during the COVID-19 pandemic.
   
• 2021: Launch of Pre-Packaged Insolvency for Micro, Small and Medium Enterprises (MSMEs).
   
• 2024: Digital filing systems and improved avoidance transaction rules.
   

Judicial Role – National Company Law Tribunal (NCLT)
 The National Company Law Tribunal (NCLT) is the main adjudicating body for insolvency and restructuring. It has revived over 3,700 companies with a combined resolution value above ₹4 lakh crore, safeguarding jobs and preventing liquidation of viable firms. Predictable and time-bound outcomes have improved credit discipline.

Economic Impact
 The IBC has boosted liquidity, credit flow, and investor confidence.

• Average sales increased by 76% post-resolution.
   
• Capital expenditure rose by 130%, showing renewed investor trust.
   
• Liquidity improved by 80%, aiding business revival.
   
• Employment and wages grew by 50%, particularly in the steel, power, and infrastructure sectors.
   
• Market capitalisation tripled from ₹2 lakh crore to ₹6 lakh crore after restructuring.
   

Collectively, these results illustrate how the IBC has promoted a resilient and transparent corporate environment vital for sustainable growth.

Key Challenges
 Despite its achievements, several structural issues persist:

1. Infrastructure Gaps: Many NCLT benches lack adequate infrastructure, causing backlogs.
    
2. Manpower Shortages: Limited permanent staff and ad-hoc members hinder consistency.
    
3. Case Backlogs: Delays indicate the need for a specialised insolvency division.
    
4. Case Management: Absence of a National Case Management System (NCMS) limits efficiency.
    

Way Forward

1. Institutional Strengthening: Create a dedicated IBC division within NCLT and fast-track benches for MSMEs.
    
2. Digital Upgrades: Introduce paperless e-courts, Artificial Intelligence-based tracking, and better coordination between the Insolvency and Bankruptcy Board of India (IBBI), Reserve Bank of India (RBI), and Ministry of Corporate Affairs (MCA).
    
3. MSME Support: Broaden pre-packaged frameworks and simplify procedures to reduce litigation costs.
    
4. Capacity Building: Train professionals, resolution practitioners, and analysts; promote insolvency education.
    
5. Personal Insolvency Expansion: Extend IBC coverage to individuals and partnerships for improved financial inclusion.
    

Conclusion
 In nine years, the Insolvency and Bankruptcy Code has emerged as a cornerstone of India’s economic reform agenda. It has reduced bad loans, revived businesses, and restored confidence in the financial system. Going forward, emphasis on digital transformation, institutional capacity, and inclusive access will ensure the IBC continues to anchor India’s vision of sustainable growth and financial resilience under Viksit Bharat 2047.