Is it time to revisit the Insolvency and Bankruptcy Code?

The insolvency plea of the Hyderabad-registered automotive spare parts manufacturer, which made aluminium alloy wheels for global automakers, was admitted in the NCLT on January 23, 2017, and its resolution plan approved by the Committee of Creditors (CoC) on June 24. The plan, cleared by the NCLT a few weeks later, was a precursor to the headline-grabbing defaults by the so-called “Dirty Dozen” companies whose cases were subsequently taken to the IBC. The list included ABG Shipyard, Amtek Auto, Essar Steel, Jaypee Infratech, and Bhushan Power and Steel Ltd.

The Synergies-Dooray Automotive case also grabbed headlines as admitted claims added up to Rs 972.15 crore, and lenders took a huge 94% haircut, with an actual recovery of just Rs 54 crore. Questions were raised about the realisations under this new law and how the company was allowed to merge with a related party and creditor Synergy Castings under the resolution plan. But these were still early days and marked down as a learning experience.

An ordinance was promulgated in November 2017 that inserted Section 29A in the IBC to prohibit certain persons, including wilful defaulters and promoters and related parties of the corporate debtor, from submitting a resolution plan. The other remarkable aspect of the case was that the resolution was completed roughly within 190 days. Though this was more than the 180 days mandated under the IBC, approved by Parliament in May 2016, it was still a huge improvement over the past, when similar cases used to be dragged on for years.

“This was the first case and the whole system and framework had just been set up. But the resolution was still completed in record time,” notes M.S. Sahoo, former Chairman of the Insolvency and Bankruptcy Board of India (IBBI), the regulator which came into being after the IBC. In those initial days, resolution of other cases such as Prowess International, Chhaparia Industries and West Bengal Essential Commodities Supply Corporation was also completed roughly within the 180-day window.

Fast forward nine years, and the IBC has been amended six times, and the IBBI has made more than 100 tweaks and amendments to its regulations, as per official data.

Aware of some shortcomings, the then finance minister Arun Jaitley, who had worked on the IBC, had explained that the Code was put in place in a hurry, “obviously, having no experience of an exit law or an insolvency law, you only realise when the shoe pinches once it is put into action.” He added that in the two years after it came into effect, it was amended twice “in view of the Indian conditions which exist; and to bring it in tune with the market realities”.

Ajay Tyagi, Additional Secretary in the Department of Economic Affairs in the finance ministry at the time, who became Chairman of the Securities and Exchange Board of India later, was part of the team that drafted the IBC in 2015-16 and also serviced the Joint Parliamentary Committee that reviewed the Bill and made its recommendations to Parliament. “In the initial three to four years, the government also made several amendments based on the need and requirements that came up from the experience in resolving the cases,” he recollects.

The IBC rests on four key entities—the IBBI, Resolution Professionals (RPs), the CoC and the NCLT. Cases involving corporate defaults of over Rs 1 crore can be brought to the IBC with resolution being the law’s focus and liquidation the last-ditch solution. The NCLT must take a call on admitting an insolvency plea within 14 days of receiving an application and the whole process must be completed in 180 days, which can be extended by 90 days if approved by the NCLT. The maximum limit for completion is 330 days, including extensions and litigation.

But implementation has proved tricky, and most cases drag on beyond 180 days now, bogged down by a combination of delays at the level of the NCLT, slow decision-making by the CoC and promoters trying their best to claw back control over their assets. Besides, with recoveries at just about 30% of admitted claims, there are concerns over the efficacy of the process.

Consider the numbers: The average time taken to close a corporate insolvency resolution proceeding, or CIRP, was 713 days as on March 31, 2025, up from 679 days in the previous fiscal. An analysis by CareEdge Ratings shows that as of March, of the roughly 1,900 ongoing CIRPs, 78% have experienced delays exceeding 270 days, up from 64% in March 2023 and 68% in March 2024. Liquidations continue to outrun resolutions.

Even as the IBC was grappling with these problems, the Supreme Court delivered a body blow. In a judgment delivered on May 2, it cited procedural lapses and ordered the liquidation of Bhushan Power and Steel Ltd (BPSL), rejecting a Rs 19,700 crore resolution plan and acquisition of the firm by JSW Steel, four years after the transaction had been completed.

Although the Supreme Court subsequently ordered a stay on BPSL’s liquidation, the case has opened a Pandora’s box for lenders and corporates looking to take over firms through the insolvency route.

Review petitions have since been filed by JSW Steel, the lenders—including State Bank of India and Punjab National Bank—as well as the former resolution professional of BPSL, Mahender Khandelwal. The outcome is keenly awaited.

Not surprisingly, the court ruling has sparked calls for a fresh round of amendments to the Code to ensure time-bound resolutions as well as more accountable and transparent decision-making, so that potential buyers don’t go cold in the face of future judicial actions overturning IBC acquisitions.  

TIME TO REVIEW?

Experts and stakeholders are hoping the Supreme Court will reverse its BPSL decision.

“We hope that the Supreme Court will review the decision in the BPSL case with all relevant facts and practical aspects associated with its resolution, as it will not just impact the IBC but also the larger investment climate of the country,” says Manish Aggarwal, Partner at professional services major Deloitte India.

Sunil Mehta, former Managing Director and CEO of Punjab National Bank and former Chief Executive of the Indian Banks’ Association, agrees that the ruling will dampen investor sentiment. “Apart from the money involved, so much effort, time and resources go into these cases and then to revive the unit and ensure it is working properly,” he says.

The government, on the other hand, feels there’s no need for a knee-jerk amendment based on the ruling. “The ruling by the Supreme Court has not questioned the processes under the IBC. It has cited other procedural lapses and delays,” notes an official in the Ministry of Corporate Affairs (MCA), although the review petition by the bankers is understood to be supported by the finance ministry.

However, not everyone is hopeful of a reprieve. Manisha Chaudhary, Managing Partner at UKCA and Partners LLP and Co-chair of the NCLT & IBC committee of industry lobby PHDCCI, believes the verdict is unlikely to be overturned, as the apex court’s stance aligns with IBC’s core objective—maximising asset value and ensuring timely resolution.

Another round of amendments has been in the works for some time prior to the ruling. These aim to enable group insolvency, cross-border insolvency and creditor-led resolution process, all of which could boost the pace of resolutions. The MCA has finalised amendments based on several rounds of discussions, including feedback from the Parliamentary Standing Committee on Finance.

The amendment Bill could be tabled in the Monsoon session of Parliament, set to begin this month. But as officials have signalled, these changes will not address a BPSL-JSW type situation.

The IBBI has also introduced amendments to streamline practices further. This will enable the RP to invite bids not only for the entire corporate debtor but also for individual assets or a combination of both.  

CHALLENGES GALORE

Everyone associated with the IBC—government officials, bankers, lawyers and resolution professionals—is quick to agree that the Code is a landmark. They say it has brought a sea change in the behaviour of promoters and borrowers, who are now faced with the very real threat of losing their companies if they default of loans and dues.

Veteran banker Mehta points out that indiscipline was very high among corporate borrowers before the IBC was enacted. “Post the implementation of the IBC and resolution of a few of the first 12 cases, the mindset of corporate borrowers changed, and they started to become financially disciplined. They realised that they could lose the asset if the loan was not repaid. The demonstrative effect of the IBC has been more than the physical effect,” he says.

By March 31, 2025, as many as 8,308 cases had been admitted under the IBC and a total of 1,194 resolution plans had been approved. Creditors had realised Rs 3.89 lakh crore till March. Compare this to the past where cases were dealt with under different laws such as the Companies Act, The Securitization and Reconstruction Of Financial Assets and Enforcement Of Security Interest Act, 2002, and the Recovery of a Debt due to Banks And Financial Institutions Act, 1993.

“Several old insolvency cases had been pending at that time, and in the initial phase, the IBC helped fast-track and resolve them within reasonable time,” recalls Tyagi.

Over the years, the IBC has emerged as the dominant route for recovery, accounting for 48% of all recoveries made by banks, followed by the SARFAESI Act (32%), Debt Recovery Tribunals (17%), and Lok Adalats (3%), in financial year 2023-24, as per the RBI Report on Trends and Progress of Banking in India.

Aggarwal of Deloitte India says the IBC has helped bring a pool of international credit that was not available earlier and has helped resolve several large cases. “So, one should not take away from what the IBC has helped achieve,” he points out.

A recent study on the Behavioral Impact of IBC by Indian Institute of Management Bangalore also found that the volume of accounts deemed ‘Overdue’ has reduced significantly, both in rupee terms as well as in the number of accounts. “Our interpretation is that the passage of the IBC has injected discipline in the credit allocation process and prompted borrowers to adhere to stipulated payment schedules,” it said.

Interestingly, the study also found that the proportion of aggregate default amount to the proportion of aggregate overdue has steadily increased over the years from 27% in 2018 to 80% in 2024, indicating, that “there is greater confidence among creditors to take errant borrowers to task, even in case of large overdue amounts.”

However, the fact remains that lenders do take large haircuts, and this has been a consistent criticism of the Code. The overall recovery rate under the IBC till the quarter ended March 31, 2025, was 32.76%, indicating that creditors face a haircut of about 70% on admitted claims. However, this is contested by experts, who say the IBC has delivered higher returns.

Atul Gala, Partner, Bhuta Shah & Co, who is also a registered RP, says the stated or book value in many cases is not be the best benchmark to compare the realised value under IBC. “We must also keep in mind that in several cases, the new owners have had to invest significant money to revive the asset,” he says.

GETTING IT RIGHT

Ground-level implementation challenges, and delays at the level of the NCLT, are difficult to navigate, say most industry experts and legal practitioners.

“Everyone wants to game the system, and new ways are emerging, which lead to delays. Lawyers and RPs often feel that the longer the cases drag on, the more fees they will get, while promoters want to hold on to their companies and bankers are often wary of taking a decision at the earliest,” says an industry expert.

The NCLT, set up with effect from June 1, 2016, is the adjudicating authority under the IBC. From an initial 11 benches, the tribunal now has 16 benches across the country with sanctioned posts of 63 members (judicial and technical). But vacancies had piled up, which experts believe increased pendency.

Finally, this February, 21 new members were appointed, and industry experts say there has been some improvement since then. But the quasi-judicial authority clearly needs more capacity and strength. There is a proposal to increase the number of members to 100, but this would take some time.

Sahoo believes the NCLT’s capacity needs to be increased. Using the US model and applying it to the current caseload of the Adjudicating Authority of the tribunal, he estimates that the NCLT needs about 360 members.

There are other issues that need to be addressed too. The same bench often takes care of more than one jurisdiction. That everyone takes recourse to the court, and files applications that must be heard by the NCLT before it can approve the final resolution plan, adds more uncertainty to the timelines.

“The NCLTs were set up to deal with cases related to the Companies Act, but the majority of their work now is around the IBC. The NCLTs have, however, not been strengthened… there are several vacancies and often the skill sets of their members have been questioned. Various judicial interventions have further complicated the scenario,” says Tyagi.

Aggarwal of Deloitte concurs, adding that issues often arise from insufficient capacity and expertise in dealing with complex cases.

Other factors combine to make these issues worse. Gala says timelines get extended due to delays by both the CoC and the judiciary. “There are cases where the CoC takes two to three months just to gather the required data, then present it to their final authority, and only after that do they approve the plan, largely in case of banks. This causes major delays,” he says.

Delays in resolutions are definitely hurting the Code’s credibility, Aggarwal stresses, calling for measures to ensure the RPs strictly adhere to timelines. Second, the responsibility of the CoC must be reinforced—they must remain focused on the IBC’s objective of value maximisation and avoid delays.

There have also been discussions on enforcing a Code of Conduct for the CoCs, which are dominated by banks, while the bond and debenture holders aren’t given the same importance amongst the financial creditors. Operational creditors, who might have a significant interest in some cases, are not allowed to vote. That needs to be reviewed.

Chaudhary of UKCA and Partners says further amendments are needed and the key areas include strengthening NCLT's capacity, introducing a clear cross-border insolvency framework, improving outcomes for operational creditors, and refining the pre-pack mechanism for broader use. “Streamlining timelines, curbing frivolous litigation, and enhancing transparency in resolution plans can boost efficiency and recovery rates,” she says.

There are several other items that need to be tackled. These include a review of the pre-pack insolvency for micro, small and medium enterprises (MSMEs), introducing a pre-pack for large companies, and dealing with future insolvencies of new-age start-ups that tend to have an asset light model.

Last but not the least, after NCLT approvals, appellants move the Supreme Court, which can delay the resolution by months.

All eyes are now on the Supreme Court’s ruling in the review petition on its JSW-BPSL order, as this could have a lasting impact on the IBC and, more importantly, its credibility.

Policymakers need to ensure that the Code not only keeps adapting to such challenges but also evolves in tune with the emerging business landscape.  

@surabhi_prasad