India’s Insolvency and Bankruptcy Code (IBC): Eight Years of Impact and Challenges

Introduction

Enacted in 2016, the Insolvency and Bankruptcy Code (IBC) marked a significant reform in India’s approach to corporate debt resolution. It aimed to streamline the fragmented legal framework, ensure time-bound recovery, reverse the borrower-friendly regime, and strengthen credit discipline. After eight years, the IBC has shown tangible successes but also faces critical implementation challenges.

Pre-IBC Scenario

Prior to 2016, India’s insolvency framework was fragmented across laws like SARFAESI, DRTs, and Company Law Board, leading to delayed litigation and low recovery rates. The IBC consolidated these into a single mechanism under the NCLT, targeting resolution within 330 days.

Key Achievements of the IBC

• Recovery and Resolutions:
  As of March 2025, the IBC helped resolve 1,194 companies, enabling creditors to recover ₹3.89 lakh crore, with a 32.8% recovery rate.

• Dominant Recovery Tool:
  It contributed 48% of total bank recoveries in FY 2023–24, outperforming SARFAESI (32%), DRTs (17%), and Lok Adalats (3%).

• Asset Value Realisation:
  Resolution plans fetched 93.41% of fair value and 170% of liquidation value, indicating better outcomes.

• Deterrent Impact:
  Around 30,310 cases, worth ₹13.78 lakh crore, were settled before admission—reflecting improved borrower behaviour.

• Improved Credit Discipline:
  Gross NPAs fell from 11.2% (March 2018) to 2.8% (March 2024). The IBC also helped improve credit terms and corporate governance.

Structural Strengths

• Focus on Resolution:
  Prioritizes reviving distressed firms over liquidation, preserving jobs and economic value.

• Creditor-Driven Mechanism:
  The Committee of Creditors (CoC) makes key decisions, shifting power from defaulters to lenders.

• Boost in Out-of-Court Settlements:
  The credible threat of insolvency encourages early settlement, reducing judicial burden.

Persistent Challenges

• Judicial Delays:
  Over 78% of ongoing cases exceed the 270-day deadline due to NCLT backlogs, affecting timely resolution.

• Legal Uncertainty:
  The Bhushan Power and Steel verdict (SC invalidating an approved plan) has raised concerns over post-resolution finality and investor confidence.

• High Haircuts:
  Despite higher recoveries, average haircuts remain around 67%, requiring better valuation and bidding processes.

• Adapting to New Economy:
  The framework still lacks clarity on IP-heavy firms, startups, and digital businesses, highlighting the need for updated norms.

Way Forward

To enhance the IBC’s effectiveness:

• Expand and digitize NCLT infrastructure.

• Safeguard commercial decisions from excessive judicial intervention.

• Promote pre-pack insolvency for MSMEs and fast-track resolutions.

• Codify rules for tech, IP, and employee dues to match changing economic models.

Conclusion

The IBC has transformed India’s insolvency framework by instilling discipline, enabling better recoveries, and becoming a credible resolution tool. However, to remain relevant and impactful, it must evolve through institutional strengthening, legal clarity, and sector-specific reforms, ensuring it supports India’s ambition of becoming a $5 trillion economy.