India’s financial system, until recently, grappled with a major problem: ineƯective and
delayed mechanisms for resolving bad debts and insolvency. Insolvency and debt crises
have long posed significant challenges to India’s economic stability. For years, lenders,
whether financial institutions or operational creditors, struggled to recover dues from
defaulting businesses through a maze of outdated and fragmented laws.
Touted as one of the most transformative reforms in India’s financial and legal landscape,
the IBC consolidates various laws related to insolvency and bankruptcy into a single
comprehensive framework. It empowers both creditors and debtors by oƯering
structured procedures to resolve financial distress, revive failing businesses, or, where
necessary, liquidate assets in an orderly manner.
*HOW DEBT RECOVERY IN INDIA EVOLVED THROUGH IBC: *
India’s Insolvency framework was plagued by fragmentation, inconsistency and
ineƯiciency. DiƯerent aspects of insolvency and debt recovery were governed by multiple
legislations. The Sick Industrial Companies Act, 1985 (SICA) focused solely on rescuing
industrial firms, while the Companies Act, 1956, navigated liquidation and winding-up
procedures. Concurrently, debt recovery laws like the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) and the
Recovery of Debt Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act)
provided avenues for security enforcement and debt recovery by financial institutions.
The disjointed legal framework led to delays, confusion, and clashes among the various
laws and forums. Moreover, many of these laws, SICA included, failed to achieve swift
restructuring with consideration for both creditors and debtors. India usually obtained a
low ranking in the World Bank’s Ease of Doing Business Index for resolving insolvencies
reflected these challenges.
*WHAT IS IBC? NOT A RECOVERY MECHANISM, BUT A REVIVAL MECHANISM*
IBC was introduced marking a significant shift in India’s approach to financial distress
and insolvency. The IBC was designed as a unified legal framework to address systemic
issues in insolvency resolution, streamline distressed asset management, and ultimately
restore confidence in India’s credit market.
A primary goal of the IBC was to move away from a debtor-friendly regime and establish
a creditor-driven system. This new approach empowered creditors to play a central role
in determining the course of action when a company was financially distressed, with
decisions oriented toward asset recovery and financial stability. To achieve timely
resolution, the IBC set a target of 180 days to resolve insolvency cases, with a possible
extension of 90 days in exceptional cases, ensuring that distressed businesses are
restructured or liquidated without undue delay
Unlike the fragmented and lengthy recovery mechanisms previously available, the IBC
provides a unified framework, helping banks recover funds more eƯiciently and improve
the health of their balance sheets.
*CHALLENGES IN IMPLEMENTATION: *
The National Company Law Tribunal (NCLT) faces the biggest challenge as it mandates
hearing cases earlier dealt with the Company Law Board (CLB) under the Companies Act,
2013, in addition to cases under the IBC.
Therefore, given its limited capacity, how will the NCLT deal with fresh IBC cases, added to
which will be the case load from the CLB. Unless its adjudication capacity is enhanced,
the NCLT will fail to hear and dispose cases in a timely manner from the start. For the IBC
cases, this could mean the inability of the NCLT to adhere to the 180-day timeline that is
the duration of the CIRP. This has earlier been seen in the case of DRTs too. DRTs were
intended to dispose of recovery cases in 180 days, but given capacity issues and
pendency, often the first hearing for a case takes place after 180 days. The 180-day
timeline represents the core design intent of the IBC – rapid resolution of insolvency to
maximise recovery. If this is compromised due to capacity constraints, the eƯectiveness
of the IBC will get diluted.
The second concern related to the NCLT is regarding the case law that develops under the
IBC. Given that it is a new law, the procedures and common practices under it need to
develop independently from the case laws under the pre-IBC regime. Since the first cases
that come to the IBC are likely to be the existing ones, the initial case law that develops
under IBC will reflect the context of these cases. The behaviour of creditors, debtors,
auditors, lawyers, valuers, liquidators are all steeped in the old case laws under the
Companies Act 1956, the Sick Industrial Companies Act 1985 (SICA), the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and
the like. This will change only when the IBC gets perfected as a law and its institutional
infrastructure reaches its capacity, allowing the NCLT to focus on upholding the design and
objective of the IBC over all priors that exist. For this, the IPs, the IUs, the NCLT and the IBBI
all need to be properly set up and functioning in a manner envisaged by the IBC.
*POSITIVE IMPACT OF INSOLVENCY AND BANKRUPTCY CODE: *
IBC has significantly transformed India’s Insolvency Framework, bringing eƯiciency,
transparency and accountability.
One of the most significant impacts of IBC is the improved recovery rate of defaulted loans.
According to data from the Reserve Bank of India (RBI) and IBBI, creditors have been able
to recover a substantial portion of their claims compared to older mechanisms. Also, the
fact that the resolution process has a time limit has cut down on the time it takes to fix
troubled assets, which stops their value from going down.
The introduction of the IBC has also increased recovery rates exceeding those achieved
under prior mechanisms. By helping banks retrieve a greater portion of defaulted funds,
the IBC has strengthened the bank balance sheets and allowed more eƯective reallocation
of resources. Yet, the structural changes brought by the IBC have had mixed eƯects on the
banking sector’s approach to credit risk. Recognizing the stringent recovery standards
under the IBC, banks have adopted more conservative lending practices, increasing their
scrutiny of borrowers’ financial viability.
The regulatory revamp of India’s Insolvency and Bankruptcy Code marks a critical
inflection point. By empowering insolvency professionals, streamlining procedural
complexities, and integrating technology, these reforms push the Code toward greater
reliability and global competitiveness.
*CONCLUSION *
The Insolvency and Bankruptcy Code, 2016 represents a structural transformation in
India’s insolvency regime by replacing fragmented and ineƯicient recovery mechanisms
with a unified, time-bound, and market-driven framework. Unlike earlier systems that
prioritized prolonged litigation and promoter control, the IBC redefined insolvency
resolution as an economic process rather than merely a legal one. Its emphasis on creditor
empowerment, institutional coordination, and strict timelines has significantly altered
borrower behaviour and strengthened the overall credit culture in India.
The impact of the IBC is evident in landmark cases such as Bhushan Steel and Essar
Steel, which illustrate both its potential and its complexities. In the Bhushan Steel case,
Tata Steel’s acquisition marked one of the earliest successful resolutions under the IBC,
enabling substantial recovery for lenders while ensuring the revival of a distressed
industrial asset. This case demonstrated the eƯectiveness of competitive bidding and
creditor-led decision-making in maximizing asset value. Similarly, the Essar Steel case
highlighted the evolving jurisprudence of the IBC. The Supreme Court’s ruling aƯirming the
primacy of the Committee of Creditors in commercial decisions reinforced the creditorcentric philosophy of the Code and clarified the balance between judicial oversight and economic eƯiciency. Together, these cases underscore how the IBC has contributed to
faster resolutions, improved recoveries, and greater legal certainty.
However, an analytical assessment reveals that the IBC’s outcomes have been uneven.
While some high-profile cases have delivered strong recoveries, many others continue to
face procedural delays, litigation, and capacity constraints at adjudicatory forums such as
the NCLT. Moreover, the growing complexity of insolvency proceedings raises questions
about whether the original objective of swift resolution is being consistently achieved.
These limitations suggest that the eƯectiveness of the IBC depends not only on statutory
design but also on institutional strength, judicial discipline, and stakeholder cooperation.
In conclusion, the IBC can be viewed as a dynamic institutional reform rather than a static
legal instrument. Its success lies in its ability to balance eƯiciency with fairness, creditor
rights with economic revival, and legal certainty with commercial pragmatism. While it has
significantly addressed the problems of delays, defaults, and debt traps, its long-term
impact will depend on continuous reforms, technological integration, and capacity
building. As India’s economy grows and financial markets deepen, the IBC will remain a
critical pillar in ensuring sustainable credit systems and resilient corporate governance.
By: CS Arya Dhondrikar
PGIP VIIth Batch