Why was IBC introduced?
- Enacted in 2016 as India’s first comprehensive bankruptcy law.
- Aimed to:
- Shift control from debtors to creditors.
- Ensure time-bound resolutions (within 330 days).
- Improve creditor recovery and reduce judicial delays.
- Replace fragmented, inefficient earlier mechanisms.
Relevance : GS 3(Banking ) ,GS 2(Governance)
Impact on Borrower Behaviour & Credit Discipline
- Led to a cultural shift in how borrowers respond to financial distress.
- Borrowers now show proactive distress resolution due to credible threat of insolvency.
- Supreme Court remark: “The defaulter’s paradise is lost.”
- Over 30,000 cases settled before admission, covering defaults worth₹13.78 lakh crore.
- Study by IIM-Bangalore found:
- Reduction in cost of debt for distressed firms.
- Improved corporate governance (more independent directors).
- Credit discipline significantly improved.
IBC as a Recovery Tool
- Dominant route for bank recoveries in FY 2023–24 (48% of total recoveries).
- Recovery rate of 32.8% on admitted claims.
- Resolutions fetched over 170.1% of liquidation value.
- Resolution plans achieved 93.4% of fair value on average.
- Out of total cases, 2,758 went into liquidation, but 10 companies were resolved for every 5 liquidated.
Challenges Facing IBC
- Judicial delays at NCLT/NCLAT slow down the resolution process.
- Cases often get caught in extended litigation, risking asset value erosion.
- Lack of clarity in non-traditional enterprise defaults (IP valuation, tech assets, employee dues).
- No data migration from earlier digital systems into UMEED-like platforms.
Post-Resolution Uncertainty
- Bhushan Steel verdict reignited fear of judicial reversals after resolution implementation.
- Such reversals threaten commercial finality, reducing investor confidence.
- Risk: Applicants may hesitate to invest in distressed assets due to lack of certainty.
Way Forward
- Strengthen tribunal infrastructure (faster benches, trained staff).
- Institutionalize pre-packaged insolvency for faster resolution.
- Ensure judicial restraint in re-evaluating commercial decisions post-resolution.
- Build a more future-ready IBC that accommodates:
- Startups
- Digital and IP-heavy firms
- Service-based economies
Conclusion
- The IBC has been a game-changer for India’s insolvency landscape.
- While it has improved credit discipline and recovery outcomes, its success depends on balancing judicial oversight with commercial pragmatism.
- As India moves toward a $5 trillion economy, a robust, predictable, and evolving insolvency framework is essential.
