India’s journey with stressed asset resolution has historically been fragmented—spanning laws like the Sick Industrial Companies (Special Provisions) Act (SICA), the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), and the Recovery of Debts Due to Banks and Financial Institutions Act (RDDBFI). The enactment of the Insolvency and Bankruptcy Code (IBC) in 2016 marked a groundbreaking reform, bringing unified, time-bound insolvency resolution under one framework.
While the IBC has successfully fulfilled its foundational purpose, it now needs to evolve to address emerging economic realities and system constraints. A redefined, next-generation framework—IBC 2.0—is required to improve speed, revive smaller businesses, and align with global best practices:
A. Institutionalising pre-pack and out-of-court mechanisms
Globally, out-of-court restructuring dominates early-stage resolutions. India’s pilot pre-pack for MSMEs is a promising first step, but a robust legal framework for scalable pre-packs across industries is essential. By encouraging early engagement and negotiated solutions, this will reduce judicial burden and protect enterprise value—especially critical in cyclical or capital-intensive sectors.
B. Strengthening the judicial backbone
Delays in adjudication remain the Achilles’ heel of the IBC. In mature economies, specialised bankruptcy courts are central to efficient resolution. India must invest in a tiered and specialised judicial system.
C. Empowering MSMEs
MSMEs contribute approximately 30% of India’s GDP, yet they continue to face significant structural barriers in accessing effective insolvency resolution mechanisms. Recognising this challenge, several advanced jurisdictions have introduced streamlined, debtor-in-possession frameworks.
India must similarly prioritise the development of a dedicated, low-cost, and expedited restructuring mechanism for small businesses and personal insolvencies.
D. Professionalising Resolution Professionals (RPs)
RPs are the operational backbone of the corporate insolvency resolution process. Globally, insolvency practitioners act as turnaround specialists—tasked with reviving businesses, enabling going concern sales and maximising value. India must shift from a compliance-driven RP model to one centered on resolution outcomes and commercial judgment.
E. Revamping Section 29A
With most large-value NPAs resolved, it is time to revisit Section 29A of the IBC. A blanket ban on promoter participation, while once necessary, now hampers resolution of small businesses where fresh capital is scarce. The law should allow genuine business defaulters to participate, with clear safeguards to exclude willful defaulters. To avoid ‘moral hazard’ issues, one can design the incentives framework in a fashion that will restrict such promoters to make ‘super normal’ returns by being back in business at discounted debt values. This would improve recovery, preserve jobs, and enable faster turnaround of businesses.
F. Enhancing creditor rights
To ensure that resolution is a preferred path over litigation, creditor outcomes must be both predictable and prioritised. Future reforms should ensure post-resolution payment integrity, limit frivolous litigation by promoters, and incentivise early resolution by allowing differential payout timelines. India can better codify the roles of dissenting creditors, promote interim financing, and mandate creditor education and capacity-building.
G. Cross-border and group insolvency: Strategic urgency
As Indian companies globalise, cross-border insolvency and group restructuring are no longer optional. Over fifty countries have adopted the UNCITRAL Model Law. India’s draft Cross-Border Insolvency Bill must be prioritised. Group insolvency resolution—common across conglomerates—should be supported through “substantive consolidation” or “coordination protocols”.
H. Tech-enabled transformation
AI-driven tools can streamline resolution process. Digital e-filing, real-time dashboards, and automated compliance tracking can significantly reduce delays, enhance transparency, and ensure better monitoring of ongoing resolutions.
I. Aligning with global standards
For India to become a global investment destination, insolvency outcomes must mirror global expectations. India must build bilateral treaties for cross-border enforcement, align valuation norms and formalise ESG-linked restructuring incentives. These steps will help attract FDI.
India’s IBC was born out of a systemic need—but its future lies in becoming a strategic enabler. The next two decades must see the IBC evolve into a dynamic, resolution oriented and globally convergent framework.
With strategic intent and coordinated execution, the IBC can become a pillar in India’s aspiration to be a $10 trillion economy.
Views are personal.
