Article on ‘The Insolvency & Bankruptcy Code – A Legislative Measure Worth Defending Not Romanticising’ by CS Venkat R Venkitachalam, Chairman, Bizsolindia Services Pvt. Ltd (June 2026)

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THE INTRODUCTION:

When the Insolvency and Bankruptcy Code (IBC) was enacted in 2016, it promised nothing less than a cultural reset in India’s credit and insolvency ecosystem. A fragmented legal framework scattered across The Company Law, The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 and sector‑specific regimes was to be comprehensively replaced by a unified, time‑bound and creditor‑driven process for dealing with business failures. Ten years on, the Code has undeniably changed the behaviour in boardrooms and banks – but it has also accumulated enough scars to merit a candid stock‑taking.  This article examines the IBC at Ten through four lenses – the original objectives, the standout achievements, the stark failures and the friction points. This review is important because these reforms need to deliver on its full promise in the coming decade.  One may recall that IBC did not emerge in a vacuum. By the mid-2010s, India faced a twin‑balance‑sheet problem – over‑leveraged corporates and stressed bank balance sheets, especially among public sector banks. Recovery and resolution mechanisms were slow and sloppy, not to speak of the value‑destruction in the process and what was more. The objectives of the Code were often gamed by unscrupulous promoters. The World Bank’s Doing Business indicators consistently ranked India poorly on resolving insolvency, with recovery times measured in years and recovery rates far below peers.  The Code set out to tackle this through a few clear objectives:

  • Consolidate and amend the law relating to insolvency of companies, LLPs and individuals into a single, coherent framework.
  • Ensure time‑bound resolution (initially 180 days, extendable to a maximum of 330 days) to preserve value and reduce uncertainty.
  • Shift control from errant promoters to a creditor‑in‑control regime, overseen by a professional insolvency ecosystem.
  • Maximise value of assets for all stakeholders, not just secured creditors.
  • Improve credit discipline, reduce wilful defaults, and strengthen India’s broader financial stability.

Seen against this backdrop, the IBC was presciently conceived as both a micro‑level restructuring tool and a macro‑economic reform to clean up balance sheets and improve the investment climate.

  1. THE HITS: Being a daring legislative measure, let us now look at what it has achieved during the first decade of its existence.
  2. The Cultural Shift in Credit Discipline: Perhaps the most transformative impact of the IBC has been behavioural. The mere threat of being dragged to the National Company Law Tribunal (NCLT) and losing control of the company has altered promoter and borrower incentives. Creditors – especially banks – have acquired real leverage in negotiations. Large accounts now often settle or restructure even before a formal insolvency filing, precisely to avoid the consequences of a corporate insolvency resolution process (CIRP). Data over the last nine‑year period shows that a significant share of cases admitted into CIRP have been closed through resolution, settlement, withdrawal or liquidation indicating that the Code is actively used as both a resolution and a bargaining framework. This represents a fundamental departure from the earlier regime where delays and legal tactics often rewarded default rather than timely repayment.
  3. One Law & One Architecture: The IBC created, for the first time, a relatively coherent institutional architecture for insolvency:
  • The Insolvency and Bankruptcy Board of India (IBBI) as a dedicated regulator for insolvency professionals, information utilities and processes.
  • A specialised adjudicating framework through NCLT/NCLAT for corporate insolvency with the Debt Recovery Tribunal framework designated for individuals and partnerships.
  • A regulated class of insolvency professionals managing companies in distress, replacing ad‑hoc and often conflicted management arrangements.
  • Information utilities intended to improve the integrity and speed of claim verifications.

This ecosystem is still evolving and are far from perfect; but it represents a clear improvement over the pre‑IBC patchwork of laws and forums.

  1. Value Recovery: Better, But Below Potential: On pure numbers, the IBC’s performance on recoveries is mixed but meaningfully better than legacy regimes. As of late 2023, creditors had realised around ₹3.16 lakh crore against admitted claims of about ₹9.92 lakh crore in resolved cases – a recovery rate of roughly 32 percent. More recent data suggests that overall recovery rates under the IBC have hovered in the low‑30s, with modest improvement in FY25 compared to the prior year. By historical standards, this is an upgrade. Earlier mechanisms such as BIFR or conventional DRT processes delivered lower recovery percentages and often took far longer. The IBC has also enabled resolution of several high‑profile large cases in steel, power and infrastructure, which cleaned up substantial non‑performing assets on bank balance sheets.
  2. International Signalling & Investor Comfort: The IBC has become a showpiece reform in global and domestic narratives about India’s economic modernisation. It has helped improve perceptions about India’s ability to handle business failure and contract enforcement, contributing to better sovereign and corporate risk assessment by investors. For foreign investors in distressed assets, the Code offers at least a defined pathway for acquiring, restructuring and reviving Indian businesses, even if execution frictions still remain.
  3. THE MISSES: The story, however, is far from one of unqualified success. A decade of operation has exposed structural weaknesses that risk undermining the Code’s credibility itself.
  4. The Prolonged Delays in Delivery: Perhaps the most glaring gap between design and delivery lies in timelines. While the Code envisages a maximum of 330 days for completion of CIRP (including litigation), actual resolution times are far longer. Recent assessments have flagged average case durations of around 850 days – more than double the statutory outer limit. This delay has several knock‑on effects – erosion of going‑concern value, deterioration of assets, loss of employees and customers, and ultimately lower recoveries. For creditors, prolonged uncertainty ties up capital. For debtors, it becomes a slow bleed rather than a speedy surgery and recovery. The reasons are well‑documented: overburdened NCLT benches, frequent adjournments, extensive litigations at multiple levels, and delays in information verification and asset valuations. At the current pace and bench strength, even parliamentary reviews have warned that it could take close to a decade to clear the backlog of pending cases.
  5. The Liquidation Bias and Value Destruction: A sizeable proportion of CIRP cases end not in resolution but in liquidation, often after prolonged pendency. Many of these involve smaller companies where buyers are scarce and value of assets are already significantly eroded by the time a resolution plan is attempted. The Standing Committee on Finance has flagged concerns that in too many cases, value was being destroyed through delays or fire‑sale liquidations rather than maximised via timely restructuring. There are also concerns around the quality and consistency of valuations which directly affect both bidding interest and perceived fairness. Without robust enterprise‑value‑based assessments and strong post‑resolution monitoring, the system risks under valuation of viable businesses and overpaying for hopeless ones.
  6. Operational Creditors & MSMEs – The Weak Links: Although the IBC was conceived as a collective resolution mechanism, in practice financial creditors – particularly large banks – dominate the Committee of Creditors (CoC) and decision‑making. Operational creditors, including MSMEs and trade suppliers, often find themselves with low recoveries and limited voice in the process. The Pre‑Packaged Insolvency Resolution Process (PPIRP), introduced to provide a simpler path for distressed MSMEs, has seen limited traction due to procedural complexity, lack of awareness and cautious attitudes among lenders. The result is that one of the most vulnerable segments of India’s corporate ecosystem continues to face disproportionate pain in insolvency, sometimes being wiped out in resolutions where they had little say.
  7. The Capacity Constraints & Governance Issues: The IBC’s success hinges on the quality and capacity of its intermediaries – NCLTs, insolvency professionals, valuers and the IBBI. Here, the picture is uneven.
  • NCLTs remain under‑staffed and over‑burdened, despite some recent expansion in benches.
  • Insolvency professionals face conflicting pressures from creditors, promoters and regulators and found themselves unequal to bring the expertise needed for complex restructurings.
  • Concerns have been raised about transparency in CoC decisions and the potential for back‑door promoter returns through related parties. This had become contagious.

Parliamentary and policy reviews have repeatedly emphasised the need for stronger oversight, clearer standard operating procedures (SOPs) and more rigorous review of avoidance transactions and fund diversions.

  1. The Regulatory & Post Resolution Bottlenecks: Even after a resolution plan is approved, companies often face delays in obtaining regulatory clearances, no‑dues certificates and fresh financing. This slows down revival and increases the risk that resolved entities relapse into distress. The Parliamentary Standing Committee had recommended streamlined online mechanisms for post‑resolution clearances, but implementation remains patchy still. These friction points mean that the IBC often delivers “paper resolutions” – plans approved on paper, but with slow or incomplete operational turnaround.
  2. THE PERFORMANCE: How does the IBC measure up against the goals with which it was set up?
  • Time‑bound resolution: This remains the biggest miss. The Code has not, in practice, delivered consistently within its statutory timelines, and delay has become a systemic feature.
  • Maximisation of value: Performance is mixed. Recovery rates under the IBC are materially better than earlier regimes, but still well below what stakeholders would expect in a mature market, especially given the long delays and high haircuts in many marquee cases.
  • Creditor empowerment: This has largely been achieved for financial creditors, but often at the cost of operational creditors and smaller stakeholders.
  • Improved credit culture: Here, the Code’s success is evident. Early settlements, stronger pre‑default discipline, and the deterrent effect on wilful defaulters have reshaped India’s credit landscape.
  • Ease of doing business and investor confidence: The IBC has positively influenced perceptions and provided a modern framework, though investors remain wary of timeline risk and litigation unpredictability.

In short, the IBC has delivered a structural and cultural reset, but not yet the level of efficiency and predictability that its designers envisioned.

  1. THE FUTURE: Recognising these challenges, the policymakers are now preparing a second‑generation overhaul. A comprehensive IBC Amendment Bill, 2025 proposes more than 70 amendments aimed at accelerating timelines, improving value realisation and strengthening procedural efficiency. The broad themes point to where the next decade of reform is headed.
  2. Sharpening the core process: Upcoming reforms seek to streamline the CIRP itself – tightening timelines, curbing frivolous litigation and improving case management. Recommendations include:
  • Expanding and strengthening NCLT capacity, with more benches and better technology‑enabled case management platforms.
  • Prescribing stricter limits on adjournments and clearer guidance on when timelines can be extended.
  • Raising penalties for frivolous or tactical applications and mandating upfront deposits for unsuccessful resolution applicants to reduce misuse.

If implemented with rigour, these steps could move resolution timelines closer to the Code’s original intent and restore some of its deterrent power.

  1. Enhancing value realisation and transparency: To reduce value destruction and improve outcomes, reforms and policy recommendations focus on:
  • Valuing assets on an enterprise‑value basis rather than just break‑up value, with appropriate benchmarking and review.
  • Expanding competitive bidding, including stronger global outreach for potential resolution applicants.
  • Standardised SOPs and post‑resolution valuation reviews for liquidators and valuers to improve accountability.

Stronger and more transparent valuation processes would also build trust among stakeholders and reduce litigation around price discovery.

  1. Making IBC work for MSMEs and operational creditors: The Code’s next decade will be judged heavily on how it treats smaller businesses and operational creditors. Suggested directions include:
  • Simplifying PPIRP procedures and improving awareness, particularly among banks and MSMEs, so that pre‑packs become a genuine option for early rescue.
  • Considering calibrated changes in voting and distribution frameworks to ensure operational creditors receive fairer treatment in resolution plans.
  • Providing clearer guidelines and incentives for lenders to use the IBC constructively for MSME restructuring rather than as a last‑resort recovery tool.

A more inclusive regime would align the Code with the structural reality of India’s economy, where MSMEs are both major employers and critical parts of supply chains.

  1. Addressing cross‑border and group insolvency: With increasing globalisation of Indian businesses, cross‑border and group insolvency are no longer theoretical issues. The proposed amendments envisage frameworks for domestic group insolvency and strengthened mechanisms for cross‑border insolvency, giving effect to long‑discussed principles based on international models. Effective group insolvency norms would allow coordinated resolution of corporate groups rather than fragmented proceedings entity‑by‑entity, improving both value realisation and predictability for investors.
  2. Strengthening governance and oversight: Finally, the success of the IBC in its second decade will depend on governance:
  • Empowering resolution professionals to carry out deeper, time‑bound investigations into avoidance transactions and fund diversion.
  • Enhancing IBBI’s capacity for supervision, data analysis and ecosystem development.
  • Flushing out conflicts of interest in CoC decisions and ensuring greater disclosure around evaluation criteria and selection of resolution plans.

Done right, this would move the ecosystem from a purely legal‑procedural focus to one that is also rich in commercial expertise and ethical discipline.

THE CONCLUSION:

At ten years, the IBC is neither the silver bullet its early cheerleaders had claimed nor a failed experiment that its harshest critics portray. It has delivered genuine gains in credit discipline, institutional architecture and recovery outcomes compared with the pre‑IBC era. But it has also fallen short on its promise of swift, value‑maximising resolution and has sometimes imposed disproportionate pain on smaller stakeholders. For businesses, lenders and policymakers, the right stance now is neither celebration nor cynicism, but a clear recognition that the Code is a living framework. Its success will be measured not by the elegance of its original design, but by how honestly India confronts its shortcomings and how quickly the ecosystem adapts. The next decade of the IBC will be defined by whether India can make insolvency truly time‑bound, fair to all stakeholders, and predictable enough to anchor long‑term investment decisions. That, more than anything, will determine whether the Code is ultimately remembered as a one‑off clean‑up tool of the 2010s or as a durable pillar of India’s economic architecture.

Thank you.