Nine Years of the Insolvency and Bankruptcy Code (IBC)

IBC completes nine years, resolving ₹26 lakh crore debt and cutting NPAs to record lows, strengthening India’s credit and corporate governance.

Nine Years of the Insolvency and Bankruptcy Code (IBC)

Syllabus: Economy (UPSC Prelims)
Source: SSTV

Context

The Insolvency and Bankruptcy Code (IBC) has completed nine years since its enactment in 2016, resolving debt worth ₹26 lakh crore, marking a major reform in India’s financial and corporate governance landscape.

About IBC (2016)

Purpose: Introduced to replace inefficient debt recovery systems like SARFAESI, DRT, and SICA.
Objective:
- Create a time-bound and creditor-driven insolvency process.
- Strengthen credit culture, corporate discipline, and financial stability.
- Shift control from defaulting debtors to creditors.

Key Achievements (2016–2025)

Debt Resolved: ₹26 lakh crore through IBC mechanisms.
Pre-admission Settlements: 30,310 cases (₹13.78 lakh crore).
Post-admission Resolutions: 1,314 cases; 1,919 withdrawn under Section 12A (till June 2025).
NPA Reduction: Gross NPAs declined from 10.9% (2017-18) to 2.3% (2024-25); Net NPAs fell to 0.5%.
Credit Discipline: Average overdue period reduced from 248–344 days to 30–87 days.

Corporate Governance and Accountability

Section 29A: Bars defaulting promoters from rebidding for their firms.
Section 32: Removes immunity for crimes committed before insolvency.
PUF Transactions (Preferential, Undervalued, Fraudulent): Ensures transparency and ethical business conduct.
Outcome: Promotes responsible management, clean accounting, and corporate ethics.

Economic Impact

Sales Growth: +76% after resolution, showing market confidence.
Capital Expenditure: +130% increase; reformed firms attract new investment.
Liquidity: +80% improvement in cash flows and debt reduction.
Employment & Wages: +50% rise, especially in steel, power, and infrastructure sectors.
Market Capitalisation: Rose from ₹2 lakh crore to ₹6 lakh crore, proving IBC’s asset value preservation success.

Major Reforms and Amendments (2017–2024)

2017: Section 29A – disqualification of defaulting promoters.
2018: Homebuyers recognised as financial creditors.
2019: 330-day time limit for resolution.
2020: COVID relief – suspension of new filings post-March 2020.
2021: Pre-pack Insolvency for MSMEs introduced for faster resolution.
2024: Digital filings, stricter timelines, and clearer rules on avoidance transactions.

Role of NCLT (National Company Law Tribunal)

Adjudication: Central authority for insolvency, mergers, and restructuring.
Corporate Revival: Resolved 3,763 companies with value over ₹4 lakh crore.
Investor Confidence: Transparent, time-bound resolutions enhance global trust.
Reforms: Introduced standardised orders and judicial training for consistency.

Challenges

Infrastructure Gaps: Inadequate NCLT courtrooms and facilities.
Manpower Shortage: High turnover and dependence on deputed officers.
Case Backlog: Mixing of company law and IBC matters delays outcomes.
Court Management: Absence of a digital National Court Management System (NCMS).

Future Recommendations

Dedicated IBC Division: Create a permanent insolvency wing in NCLT for faster disposal.
Digital Upgrade: Promote e-courts, paperless processes, and improved data systems.
Strengthen MSME Framework: Expand pre-pack models and simplified insolvency norms.
Public–Private Collaboration: Partner with industry and legal institutions for capacity building.
Expand to Personal Insolvency: Extend IBC principles to individual borrowers for financial discipline.

Conclusion

The IBC has transformed India’s financial and corporate governance ecosystem, cutting NPAs and reviving businesses efficiently.
With further institutional reforms, digital modernization, and MSME inclusion, IBC can remain a cornerstone of Viksit Bharat 2047, ensuring financial discipline, transparency, and investor confidence.