The Insolvency and Bankruptcy Code (IBC) in India: Overview and Impact

Introduction: Established in 2016, the IBC is India's first comprehensive bankruptcy law, designed to streamline corporate insolvency resolution processes, shift control from debtors to creditors, and improve creditor recoveries with a time-bound resolution mechanism.

Achievements and Statistics:

• As of the latest data, creditors have realized ₹3.89 lakh crore with a recovery rate of 32.8% against admitted claims.
• IBC has rescued 1,194 companies through resolution plans, and is the dominant route for recoveries, contributing 48% of all bank recoveries in FY 2023-24.
• The resolution plans yield on average 93.41% of the fair value of Corporate Debtors (CDs).
• A total of 2,758 companies have been referred for liquidation, with nearly 10 companies resolved for every 5 liquidated.

Impact on Credit Culture and Economy:

• The IBC has changed the credit culture, reducing the perception of a "defaulter's paradise".
• It has encouraged debtors to act early during distress situations, causing a decline in gross non-performing assets from 11.2% in March 2018 to 2.8% in March 2024.
• The IBC framework has led to a 3% reduction in the cost of debt for distressed firms and improved credit discipline.

Challenges and Criticisms:

• Judicial delays and post-resolution uncertainties affect the confidence in the IBC framework.
• The need for clearer treatment of key commercial elements like intellectual property and employee dues is noted for future readiness.
• Almost 78% of ongoing Corporate Insolvency Resolution Process (CIRP) cases exceed the 270-day limit, highlighting challenges in timely resolutions.

Future Directions and Improvements:

• Strengthening tribunal infrastructure and allowing for pre-packaged insolvency processes are suggested improvements.
• Recent judgments emphasize the need for timely, transparent resolutions and highlight the importance of legal sanctity post-approval.
• The IBC's evolution will require balancing judicial oversight with economic pragmatism as India aims for a $5 trillion economy.

Conclusion: While the IBC has significantly reformed the insolvency landscape in India, ongoing challenges such as judicial delays and recovery expectations persist. Strategic enhancements in infrastructure and legal clarity will be essential for the IBC to fully realize its transformative potential within India's financial ecosystem.