IBC @10: Assessing India's Insolvency Transformation
Context
- Second-Decade Transition: The Insolvency and Bankruptcy Code (IBC) completed ten years of operation in May 2026, marking a significant milestone in India's economic reform journey.
- During this period, the Code evolved from a framework for resolving corporate distress into an institution that shapes credit discipline, borrower behaviour, and financial stability.
- According to the Ministry of Corporate Affairs, the IBC has facilitated creditor realisation exceeding ₹4 lakh crore while encouraging earlier resolution of financial stress across the economy.
- 2026 Amendment: The anniversary coincides with the enactment of the Insolvency and Bankruptcy Code (Amendment) Act, 2026, which introduces the Creditor-Initiated Insolvency Resolution Process (CIIRP), strengthens procedural timelines, and creates enabling provisions for group insolvency and cross-border insolvency.
- Simultaneously, the Insolvency and Bankruptcy Board of India (IBBI) has introduced a new valuation framework that incorporates intangible assets and enterprise synergies.
- Together, these developments indicate a transition from building the insolvency framework to improving its efficiency, value preservation capacity, and institutional resilience.
Why Did India Need a New Insolvency Framework?
- Pre-IBC Fragmentation: Before 2016, India's insolvency regime operated through multiple legislations, including the Companies Act, Sick Industrial Companies Act (SICA), SARFAESI Act, and Debt Recovery Tribunal (DRT) framework.
- These mechanisms functioned through separate institutions with overlapping jurisdiction and limited coordination. As a result, insolvency resolution became slow, fragmented, and unpredictable.
- Value Erosion and Weak Recovery: The absence of a unified process led to prolonged litigation and destruction of enterprise value.
- Resolution proceedings often extended for six to eight years, during which firms lost customers, assets, and market relevance.
- Recovery rates remained low because distressed enterprises deteriorated before restructuring could occur.
- The prevailing debtor-in-possession model also allowed promoters to delay resolution while retaining operational control.
- Creditor-Centric Reorientation: The Bankruptcy Law Reforms Committee, chaired by T.K. Viswanathan, identified the lack of a time-bound and creditor-driven framework as a major weakness of India's credit ecosystem.
- The IBC, 2016 sought to address this by establishing a unified insolvency architecture centred on time-bound resolution, creditor control, and value maximisation.
- Through institutions such as the National Company Law Tribunal (NCLT), NCLAT, IBBI, and licensed Insolvency Professionals, the Code aimed to transform insolvency from a process of prolonged asset deterioration into a mechanism for preserving viable enterprises and strengthening repayment discipline.
How Has the IBC Transformed India's Insolvency Ecosystem?
- Resolution Outcomes: A decade after its enactment, the IBC has established itself as India's principal insolvency resolution mechanism.
- As of March 2026, 8,987 CIRPs had been admitted and 7,102 reached closure. Among closed cases, 1,419 resulted in approved resolution plans.
- Creditors realised more than ₹4 lakh crore, amounting to nearly 95% of fair value and significantly exceeding liquidation value.
- Importantly, around 42% of resolved firms were previously defunct or had appeared before the Board for Industrial and Financial Reconstruction (BIFR), demonstrating the Code's capacity to revive distressed enterprises.
- Banking Sector Strengthening: The IBC has emerged as the most effective recovery channel for stressed assets.
- During 2024–25, it accounted for 52.4% of total recoveries made by scheduled commercial banks.
- The framework has also contributed to improving credit quality by strengthening recovery expectations and enhancing confidence in formal lending channels.
- Behavioural Transformation: The Code's most significant achievement lies in changing incentives within credit markets.
- More than 30,000 cases involving nearly ₹14 lakh crore were resolved before admission into the NCLT, indicating the deterrent effect of potential insolvency proceedings.
- An IIM Bangalore study found that the average period for overdue loan accounts to return to the normal category declined from 248–344 days to 30–87 days between 2018 and 2024.
- This suggests that the IBC has strengthened repayment discipline beyond the boundaries of formal insolvency resolution.
- Enterprise Revival: Evidence from an IIM Ahmedabad study indicates substantial post-resolution recovery among resolved firms.
- Sales increased by nearly 89%, capital expenditure by around 106%, and aggregate market valuation from approximately ₹2.8 lakh crore to nearly ₹9 lakh crore over five years.
- These outcomes show that the IBC functions not merely as a recovery mechanism but as an instrument for restoring productive capacity and investor confidence.
- The first decade of the IBC highlights its role in strengthening repayment discipline and reviving distressed enterprises.
What Limits the Effectiveness of the IBC Today?
- Tribunal Capacity Deficit: The most significant constraint confronting the IBC is the limited capacity of the NCLT.
- Although the Code prescribes a maximum timeline of 330 days for completion of the Corporate Insolvency Resolution Process (CIRP), implementation remains considerably slower.
- As of March 2025, nearly 78% of ongoing CIRPs had exceeded 270 days, while ICRA estimated the average duration of resolution-plan cases at 843 days during 2023–24.
- The Standing Committee on Finance further noted that the average time between insolvency commencement and resolution plan approval reached 761 days.
- The problem is institutional rather than legislative. Inadequate bench strength, vacancies, and rising caseloads continue to delay admissions and approvals.
- As proceedings lengthen, firms lose operational value, making successful restructuring progressively more difficult.
- Implementation Uncertainty: The IBC prescribes timelines for resolution but does not establish a statutory framework for implementing approved resolution plans.
- Consequently, uncertainty may continue even after formal approval.
- Delayed implementation postpones capital infusion, operational restructuring, and business recovery. This weakens creditor confidence and increases execution risk for resolution applicants.
- The economic consequences are visible in creditor outcomes. ICRA estimates that average creditor haircuts increased from 64% in 2023–24 to around 73% in 2024–25, indicating continued erosion of value during post-approval delays.
- Rescue–Liquidation Imbalance: Although the IBC prioritises business rescue, liquidation continues to exceed successful resolution.
- By March 2026, around 3,003 firms had entered liquidation compared with 1,419 resolved firms.
- Delayed entry into CIRP often leaves firms with severely eroded value, reducing resolution prospects.
- The weak performance of Pre-Packaged Insolvency Resolution Process (PPIRP)–with only 11 admissions, 4 approved plans, and 2 timely completions since 2021–further highlights the absence of an effective early restructuring mechanism.
- Enterprise Value Underestimation: Valuation remains a persistent challenge under the IBC.
- Traditional approaches often undervalue intangible assets such as intellectual property, licences, customer relationships, and future earnings potential.
- This suppresses bids, increases creditor haircuts, and is particularly problematic in technology and service sectors.
- Frequent valuation disputes also contribute to litigation and delays.
- Avoidance Transaction Recovery Gap: The IBC empowers insolvency professionals to reverse preferential, fraudulent, and undervalued transactions that diminish the asset pool available to creditors.
- However, recovery outcomes remain weak, approximately ₹3.71 lakh crore was involved across 1,237 avoidance transaction cases, yet only 293 cases were resolved, generating recoveries of about ₹6,599 crore.
- Notably, nearly ₹5,500 crore of this recovery came from a single case involving Jaypee Infratech.
- This gap reflects difficulties in forensic investigation, prolonged litigation, and limited adjudicatory capacity. As a result, significant value remains beyond the effective reach of the insolvency framework.
- Resolution Finality Risks: Commercial confidence depends on certainty regarding approved resolution plans.
- The Bhushan Power and Steel case raised concerns about the vulnerability of approved plans to subsequent judicial intervention.
- Such uncertainty can discourage participation in distressed asset markets and reduce competition among bidders.
- Balancing judicial oversight with commercial finality remains essential for preserving investor confidence and the creditor-driven character of the IBC.
- CIIRP Design Challenges: The Creditor-Initiated Insolvency Resolution Process (CIIRP) seeks to provide a faster restructuring mechanism outside the conventional CIRP framework.
- However, initiation rights are currently limited to notified financial institutions, potentially excluding other sophisticated creditors with significant exposure.
- This may raise concerns regarding efficiency and creditor equality. Consequently, the long-term effectiveness of CIIRP will depend on broader and more balanced participation.
How Are Recent Reforms Addressing Emerging Insolvency Challenges?
- Institutional Adaptation: Recent reforms have focused on addressing implementation bottlenecks identified during the first decade of the Code.
- The 2026 Amendment also addressed concerns arising from the Rainbow Papers judgment by clarifying that statutory dues do not automatically acquire the status of secured claims.
- This restores the predictability of the Section 53 waterfall mechanism, which is central to creditor confidence and resolution planning.
- Similarly, the IBBI's valuation reforms seek to move beyond asset-centric assessments by recognising intangible assets and synergistic value.
- These measures indicate a broader shift from merely resolving insolvency towards preserving enterprise value and improving resolution quality.
| Challenge | Policy Response | Assessment |
| Resolution delays | 2019 Amendment (330-day limit), 2026 Amendment (admission and appeal timelines) | Strengthens procedural discipline but does not directly address NCLT capacity constraints |
| Limited restructuring options | PPIRP (2021) and CIIRP (2026) | Expands resolution pathways, though adoption remains limited |
| Legal uncertainty | Clean Slate Principle and clarification of security interests | Improves predictability for investors and creditors |
| Complex business structures | Group Insolvency and Cross-Border Insolvency provisions | Aligns framework with evolving corporate realities |
| Valuation disputes | Coordinating Valuer Framework (2026) and adoption of international valuation principles | Supports enterprise-value-based resolution |
What Should Define the Next Decade of Insolvency Reform?
- Institutional Capacity Strengthening: Dedicated insolvency benches should be established within the NCLT to improve specialisation and reduce pendency.
- Simultaneously, vacancies must be filled through a time-bound process, while periodic disclosure of bench-wise performance indicators can strengthen accountability and resource allocation.
- Execution-Focused Resolution: Parliament should introduce a statutory outer limit for implementation of approved resolution plans.
- A monitoring mechanism under the NCLT can ensure timely execution and reduce uncertainty that persists after formal approval.
- Early Stress Detection: Financial creditors should report persistently overdue accounts to Information Utilities at an earlier stage, creating an institutional early-warning system.
- Earlier identification of financial distress can improve the probability of rescue before enterprise value deteriorates significantly.
- Valuation Ecosystem Reform: The IBBI, the Institute of Chartered Accountants of India (ICAI), and the Institute of Company Secretaries of India (ICSI) should jointly develop specialised certification programmes on enterprise valuation, distressed asset assessment, and intangible asset recognition.
- A dedicated Valuation Review Panel can help resolve technical disputes without burdening insolvency tribunals.
- Recovery and Finality Enhancement: Avoidance transaction cases should receive dedicated forensic support and fast-track adjudication.
- At the same time, a clearly defined limitation period for challenges to implemented resolution plans would strengthen commercial certainty while preserving judicial oversight for procedural violations.
- Inclusive CIIRP Framework: The effectiveness of CIIRP will depend on participation by a wider range of sophisticated creditors.
- Future regulations should consider eligibility criteria based on financial exposure rather than institutional identity alone.
- This would improve restructuring flexibility and encourage earlier resolution of financial stress.
