{"id":49485,"date":"2025-10-27T14:19:25","date_gmt":"2025-10-27T08:49:25","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=49485"},"modified":"2025-10-29T15:07:55","modified_gmt":"2025-10-29T09:37:55","slug":"assessing-the-effectiveness-of-indias-insolvency-and-bankruptcy-code-ibc","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/assessing-the-effectiveness-of-indias-insolvency-and-bankruptcy-code-ibc\/","title":{"rendered":"Assessing the Effectiveness of India\u2019s Insolvency and Bankruptcy Code (IBC)"},"content":{"rendered":"<h2>Insolvency and Bankruptcy Code Latest News<\/h2>\n<ul>\n<li>According to the latest data from the Insolvency and Bankruptcy Board of India (IBBI), creditors have realised Rs. 3.89 lakh crore under the Insolvency and Bankruptcy Code (IBC).<\/li>\n<\/ul>\n<h2>\u00a0Introduction<\/h2>\n<ul>\n<li>India&#8217;s\u00a0<a href=\"https:\/\/vajiramandravi.com\/current-affairs\/what-is-insolvency-and-bankruptcy-code\/\" target=\"_blank\" rel=\"noopener\" target=\"_blank\">Insolvency and Bankruptcy Code<\/a>\u00a0(IBC), enacted in 2016, marked a transformative shift in the way the country approaches distressed assets and corporate resolution.\u00a0<\/li>\n<li>As a consolidated and time-bound framework, the IBC aimed to reverse the borrower-friendly environment that had led to a ballooning of\u00a0<strong>non-performing assets<\/strong>\u00a0(NPAs), and instead instil credit discipline and accountability.\u00a0<\/li>\n<li>Eight years into its journey, the Code has seen landmark resolutions, policy adjustments, and also raised serious questions about its long-term effectiveness.<\/li>\n<\/ul>\n<h2>India\u2019s Insolvency Landscape Pre-IBC<\/h2>\n<ul>\n<li>Before 2016, India had a patchwork of debt recovery mechanisms, the\u00a0<strong>SARFAESI Act<\/strong>,\u00a0<strong>Debt Recovery Tribunals<\/strong>\u00a0(DRTs), and\u00a0<strong>Company Law Board proceedings<\/strong>, often resulting in prolonged litigation and poor recovery rates.\u00a0<\/li>\n<li>The introduction of IBC centralized the resolution mechanism and aimed to conclude proceedings within 330 days from the date of admission by the\u00a0<strong>National Company Law Tribunal<\/strong>\u00a0(NCLT), failing which the company would go into liquidation.<\/li>\n<\/ul>\n<h2>News Summary: Eight Years of IBC &#8211; Outcomes and Challenges<\/h2>\n<ul>\n<li>As of March 2025, the IBC has helped rescue 1,194 companies and led to creditors recovering\u00a0<strong>Rs. 3.89 lakh crore<\/strong>, with a recovery rate of 32.8% against admitted claims.\u00a0<\/li>\n<li>It has emerged as the dominant recovery tool, contributing 48% of bank recoveries in FY 2023-24. Other channels like SARFAESI (32%), DRTs (17%), and Lok Adalats (3%) lag behind.\u00a0<\/li>\n<li>On average, resolution plans fetched 93.41% of the fair value of assets and over 170% of their liquidation value.<\/li>\n<li>Experts note that despite its moderate numerical recovery rate,\u00a0<strong>the IBC has significantly altered borrower behaviour, with 30,310 cases (worth Rs. 13.78 lakh crore) settled before admission, indicating a deterrent effect<\/strong>.\u00a0<\/li>\n<li>A study by IIM-Bangalore highlighted its positive influence on credit discipline, reducing the gross NPAs of scheduled commercial banks from 11.2% in March 2018 to 2.8% in March 2024.\u00a0<\/li>\n<li>It also improved credit terms for distressed firms and strengthened corporate governance.<\/li>\n<li>However, nearly 78% of ongoing CIRP cases exceed the 270-day limit, primarily due to delays at the NCLT.\u00a0<\/li>\n<li>Recent judgments, like the Supreme Court verdict in the Bhushan Power and Steel case, raise concerns over post-resolution certainty and discourage potential resolution applicants fearing future legal reversals.<\/li>\n<li>Analysts argue that while the framework is strong,\u00a0<strong>India must invest in tribunal infrastructure, introduce clearer norms for modern assets<\/strong>\u00a0(like IP and employee dues), and avoid excessive judicial interference after resolution approval. Without such measures, the credibility and efficiency of the IBC could be undermined despite its foundational strengths.<\/li>\n<\/ul>\n<h2>Structural Strengths of the IBC<\/h2>\n<ul>\n<li><strong>Resolution over Liquidation<\/strong>\n<ul>\n<li>Unlike legacy frameworks, the IBC emphasizes reviving distressed firms rather than pushing them into liquidation. This approach safeguards jobs, preserves asset value, and sustains credit flow in the economy.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Creditor-Centric Design<\/strong>\n<ul>\n<li>The IBC shifts control from debtors to creditors through the Committee of Creditors (CoC), which evaluates resolution plans and makes decisions, with NCLT acting as an adjudicator.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Pre-admission Settlements<\/strong>\n<ul>\n<li>The credible threat of insolvency has resulted in a surge in out-of-court settlements, reducing the load on formal institutions and accelerating repayments.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2>Key Challenges and Bottlenecks<\/h2>\n<ul>\n<li><strong>Judicial Delays<\/strong>\n<ul>\n<li>A major concern is the inability of the NCLT to process cases within the stipulated time. These delays often derail viable resolutions and lead to lower recovery.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Legal Uncertainty<\/strong>\n<ul>\n<li>Cases like Bhushan Power and Steel, where resolution outcomes were reopened years after implementation, erode commercial certainty and dampen investor confidence.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Haircuts and Recovery Rates<\/strong>\n<ul>\n<li>While numerical recoveries are better than pre-IBC levels, haircuts remain high, averaging nearly 67%. Stakeholders call for better valuation and bidding frameworks to minimize such losses.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Future-Readiness<\/strong>\n<ul>\n<li>Emerging insolvency cases involving tech firms, startups, and IP-centric businesses demand updated resolution norms beyond traditional asset-heavy models. There is also a growing need for pre-packaged insolvency mechanisms to fast-track smaller cases.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2>Way Forward<\/h2>\n<ul>\n<li>To fully realize the IBC\u2019s potential, India must:\n<ul>\n<li>Strengthen NCLT capacity through digitization and more benches.<\/li>\n<li>Protect commercial decisions from prolonged judicial scrutiny.<\/li>\n<li>Encourage pre-pack insolvency and faster implementation of resolution plans.<\/li>\n<li>Codify rules for emerging sectors and provide better treatment for employee claims and tech-based businesses.<\/li>\n<li>With continued institutional reforms and jurisprudential clarity, the IBC can remain central to India&#8217;s aspiration of becoming a $5 trillion economy.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2>India\u2019s Insolvency and Bankruptcy Code FAQs<\/h2>\n<p><strong>Q1.\u00a0<\/strong>What is the primary objective of the IBC?<\/p>\n<p><strong>Ans.<\/strong>\u00a0The IBC aims to provide a time-bound, creditor-led framework for resolving corporate insolvencies and improving debt recovery.<\/p>\n<p><strong>Q2.\u00a0<\/strong>How effective has the IBC been in debt recovery?<\/p>\n<p><strong>Ans.<\/strong>\u00a0As of March 2025, creditors recovered \u20b93.89 lakh crore with a recovery rate of 32.8% under the IBC framework.<\/p>\n<p><strong>Q3.<\/strong>\u00a0What are the major challenges faced by IBC?<\/p>\n<p><strong>Ans.<\/strong>\u00a0Key challenges include judicial delays, high haircuts, and legal uncertainty in post-resolution cases.<\/p>\n<p><strong>Q4.\u00a0<\/strong>How has the IBC impacted borrower behavior?<\/p>\n<p><strong>Ans.<\/strong>\u00a0The IBC has led to a shift in borrower conduct, with over \u20b913.78 lakh crore in defaults settled before admission.<\/p>\n<p><strong>Q5.\u00a0<\/strong>What is the concern arising from the Bhushan Steel verdict?<\/p>\n<p><strong>Ans.<\/strong>\u00a0The verdict has raised concerns about the legal finality of resolution plans and its impact on investor confidence.<\/p>\n<p><strong>Source:\u00a0<\/strong><a href=\"https:\/\/www.thehindu.com\/business\/is-ibc-an-effective-resolution-tool-explained\/article69660687.ece#:~:text=As%20the%20National%20Company%20Law,a%20leap%20forward%2C%20he%20said.\" target=\"_blank\" rel=\"nofollow noopener\">TH<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>More than eight years since its enactment, India\u2019s Insolvency and Bankruptcy Code has streamlined debt resolution, but challenges like judicial delays and legal uncertainty remain.<\/p>\n","protected":false},"author":8,"featured_media":49433,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[731],"class_list":{"0":"post-49485","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"tag-insolvency-and-bankruptcy-code","9":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/49485","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=49485"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/49485\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/49433"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=49485"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=49485"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=49485"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}