Standing Committee on Finance in its 28th Report expressed concern over the low recovery rate against total admitted claims under the Insolvency and Bankruptcy Code (IBC).
Successes and Behavioural changes due to IBC
- Post-Resolution Revival: Resolved firms demonstrated significant operational and financial turnarounds, with average sales increasing by 76% in the three years following resolution and total assets growing by approximately 50%.
- Improved Credit Culture: Substantial reduction in the average number of days loan accounts remain "Overdue," dropping from a range of 248–344 days to 30–87 days post-IBC.
- Debt Settlement outside the Code: The IBC's deterrent effect has led to the settlement of significant debt before formal admission.
Core challenges impeding IBC’s effectiveness
- Time Overruns: Due to vacant judicial/ staff positions in NCLT/ NCLAT, procedural ambiguities with the Adjudicating Authorities, etc.
- Low realization and excessive ‘Haircuts’: Due to value erosion of assets as companies enter IBC process at late stage of distress, lack of transparency and accountability in the valuation process, etc.
- Jurisdictional conflicts: Conflict between IBC and the Prevention of Money Laundering Act (2002), litigants frequently approach High Courts under Article 226/227 of the Constitution to obtain stays or injunctions, etc.
Key Recommendations
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