HAMDARD INSTITUTE OF LEGAL STUDIES AND RESEARCH,
SCHOOL OF LAW, JAMIA HAMDARD
The Role of the Insolvency and Bankruptcy Code, 2016 in
Reshaping India's Financial Landscape
SUBMITTED TO-
DR. A.K. MISHRA
PROF. OF PRACTICE
SUBMITTED BY-
Name- AATIKAH FATEHI
Sec- A
Roll No.- 2020-342-003
Exam Roll No.- 20342003
th
10 Semester, B.A.LL.B. (Hons.)
INSOLVENCY AND BANKRUPTCY CODE
PROJECT SUBMISSION FOR INTERNAL ASSESSMENT
ACKNOWLEDGEMENT
Firstly, I would like to express gratitude to my professor Mr. A.K. Mishra sir, who provided me
with the opportunity to do this project and also helped me in completing the project. The project
helped me broaden my knowledge regarding the topic; I came to know about so many new things.
I am thankful to him.
Secondly, I would like to thank my parents, who helped me a lot in finalizing this project within
the prescribed time frame.
And lastly, I would like to thank my friends who helped me a lot in gathering different information,
collecting data from varied resources.
Abstract:
The Insolvency and Bankruptcy Code (IBC), 20161 is a landmark legislation enacted to consolidate
and amend laws related to the reorganization and insolvency resolution of corporate entities,
partnership firms, and individuals in a time-bound manner. Prior to IBC, India's insolvency regime
was fragmented, inefficient, and time-consuming, often leading to erosion of asset value and
prolonged litigation. The IBC introduced a creditor-in-control model, replacing the earlier debtor-
in-possession approach, thereby promoting a more structured and speedy resolution process.
Through the establishment of institutions like the Insolvency and Bankruptcy Board of India
(IBBI) and National Company Law Tribunal (NCLT), the Code has created a robust ecosystem
for insolvency resolution. It has significantly improved India’s ranking in the World Bank’s Ease
of Doing Business Index, especially in the category of resolving insolvency (World Bank, 2020)2.
The Code also fosters a behavioral shift in borrowers, promoting credit discipline and
accountability. Despite challenges such as delays in resolution and judicial overreach, the IBC has
played a critical role in strengthening India’s financial architecture. This project explores its
objectives, framework, implementation, and the path ahead, backed by empirical studies and legal
analysis.
Introduction
The enactment of the Insolvency and Bankruptcy Code (IBC), 2016 represents one of the most
significant legal and economic reforms in post-liberalization India. Prior to its implementation, the
insolvency regime was governed by multiple overlapping laws such as the Sick Industrial
Companies Act (SICA), the Recovery of Debts Due to Banks and Financial Institutions Act
(RDDBFI), and the Companies Act, 1956. These laws were not only time-consuming and
inconsistent but also lacked a cohesive mechanism for creditor recovery, often resulting in value
destruction of distressed assets (Ravi, 2015)3.
The IBC was introduced with the primary objective of consolidating existing laws into a single,
comprehensive framework to ensure time-bound resolution of insolvency and liquidation. It aims
to balance the interests of all stakeholder’s creditors, debtors, employees, and investors—while
also improving the ease of doing business in India. A key feature of the IBC is the shift from a
debtor-in-possession model to a creditor-in-control regime, which empowers financial creditors
and enhances their recovery prospects (Ministry of Corporate Affairs, 2016)4. The Code has
1
Insolvency and Bankruptcy Code, 2016. Ministry of Corporate Affairs, Government of India.
2
World Bank (2020). Doing Business 2020.
3
Ravi, A. (2015). A Primer on the Insolvency and Bankruptcy Code, 2016. Brookings India.
4
Ministry of Corporate Affairs. (2016). The Insolvency and Bankruptcy Code, 2016. Government of India.
significantly improved investor confidence and marked a paradigm shift in corporate governance
and financial discipline across industries.
Objectives of the IBC
The Insolvency and Bankruptcy Code (IBC), 2016 was enacted with a clear set of objectives aimed
at transforming India’s insolvency framework into a more efficient and transparent system. One
of the primary goals is to ensure time-bound resolution of insolvency cases. The Code mandates a
180-day resolution process (extendable by 90 days), thereby minimizing the value erosion of assets
and enhancing predictability in outcomes (Insolvency and Bankruptcy Code, 2016).5
Another key objective is creditor protection. The IBC empowers both financial and operational
creditors with legal mechanisms to initiate insolvency proceedings and ensures equitable
treatment, reducing the arbitrariness seen under earlier laws (Ravi, 2017)6. This has significantly
enhanced creditor confidence, particularly among institutional lenders.
The Code also seeks to promote entrepreneurship by providing a structured and dignified exit
mechanism for failed businesses. This reduces the stigma associated with business failure and
promotes innovation and risk-taking—key drivers of a dynamic economy (MCA, 2016)7.
Furthermore, the IBC contributes to enhancing India’s ease of doing business, especially in the
area of resolving insolvency, where the country’s global ranking improved substantially following
the Code’s implementation (World Bank, 2020).8
3. Institutional Framework:
The Insolvency and Bankruptcy Code (IBC), 2016 introduced a comprehensive institutional
framework designed to ensure efficient and transparent implementation of the insolvency
resolution process. At the center of this framework is the Insolvency and Bankruptcy Board of
India (IBBI), the apex regulatory authority responsible for overseeing insolvency proceedings and
regulating the functioning of Insolvency Professionals (IPs), Insolvency Professional Agencies
(IPAs), and Information Utilities (IUs) (IBBI, 2021)9.
5
Insolvency and Bankruptcy Code, 2016. Government of India.
6
Ravi, A. (2017). The Indian Insolvency Regime in Practice: An Analysis of Insolvency and Debt Recovery
Proceedings.
7
Ministry of Corporate Affairs (MCA). (2016). Press Information Bureau Release.
8
World Bank (2020). Doing Business Report 2020.
9
Insolvency and Bankruptcy Board of India (IBBI). (2021). Annual Report.
The National Company Law Tribunal (NCLT) serves as the primary adjudicating authority for
corporate insolvency cases, ensuring timely and fair resolution. Appeals against NCLT decisions
are handled by the National Company Law Appellate Tribunal (NCLAT), and further appeals can
be made to the Supreme Court of India on questions of law (IBC, 2016)10.
Insolvency Professionals (IPs) play a critical role in managing the resolution process, including
taking over the management of the debtor’s assets, facilitating the formation of the Committee of
Creditors (CoC), and implementing the resolution plan. Information Utilities (IUs), such as the
National E-Governance Services Ltd. (NeSL)11, collect and store financial data that enhances the
accuracy and transparency of insolvency proceedings (NeSL, 2020).
This institutional ecosystem fosters accountability, clarity, and efficiency in resolving insolvency
cases.
Key Provisions of the IBC:
The Insolvency and Bankruptcy Code (IBC), 201612 is structured around several key provisions
that form the backbone of India’s insolvency framework. At its core is the Corporate Insolvency
Resolution Process (CIRP), which mandates a time-bound resolution of a distressed corporate
debtor within 180 days, extendable by 90 days in exceptional cases (IBC, 2016, Section 12). This
mechanism prevents undue delays and helps preserve the value of the debtor's assets.
The decision-making authority during CIRP lies with the Committee of Creditors (CoC),
consisting primarily of financial creditors. The CoC is empowered to approve or reject resolution
plans, with at least 66% voting share required for approval (Section 30 of the Code). Once a
resolution plan is accepted, it becomes binding on all stakeholders, including operational creditors
and guarantors.
In cases where resolution is not feasible, the Code provides for liquidation of the corporate debtor’s
assets, and proceeds are distributed based on a waterfall mechanism outlined in Section 53 of the
Code.
Additionally, the IBC was extended to include personal guarantors of corporate debtors, making
them legally accountable for unpaid dues, thereby reinforcing creditor rights and financial
discipline (MCA Notification, 2019).13
10
Insolvency and Bankruptcy Code, 2016. Government of India.
11
NeSL. (2020). Overview and Role of Information Utilities.
12
Insolvency and Bankruptcy Code, 2016. Government of India.
13
Ministry of Corporate Affairs (MCA). (2019). Notification on Personal Guarantors.
Amendments to the IBC:
Since its enactment, the Insolvency and Bankruptcy Code (IBC), 2016 has been amended multiple
times to adapt to practical challenges and evolving economic needs. The IBC (Amendment) Act,
201814 was a significant reform that allowed the withdrawal of insolvency applications under
Section 12A, provided 90% of the Committee of Creditors (CoC) agreed. It also clarified the
eligibility criteria for resolution applicants, addressing concerns raised in landmark cases like
Swiss Ribbons v. Union of India (2019).15
The IBC (Amendment) Act, 2019 was introduced to strengthen procedural timelines and bring
more clarity to the insolvency process. It extended the maximum resolution period to 330 days,
including litigation time, thereby ensuring finality in resolution proceedings. Additionally, it
brought financial service providers (FSPs) like NBFCs under the ambit of IBC, with specific
guidelines issued for their resolution (MCA, 2019).
In response to the COVID-19 pandemic, the IBC (Amendment) Act, 2020 introduced a pre-
packaged insolvency resolution process (PIRP)16 specifically for micro, small, and medium
enterprises (MSMEs). This mechanism allows faster, debtor-in-possession-led resolution, while
maintaining the sanctity of creditors' rights.
These amendments demonstrate the dynamic nature of the Code, ensuring it remains responsive
and effective.
6. Impact on India's Financial Ecosystem:
The implementation of the Insolvency and Bankruptcy Code (IBC), 2016 has had a transformative
impact on India's financial ecosystem, particularly in terms of creditor confidence, economic
transparency, and foreign investment. One of the most notable outcomes has been the improvement
in recovery rates. According to the Insolvency and Bankruptcy Board of India (IBBI), the average
recovery rate under the IBC is around 43%, significantly higher than the pre-IBC average of 26%
under previous mechanisms such as the SARFAESI Act and Debt Recovery Tribunals (IBBI,
2021). This enhanced recovery framework has strengthened the credit culture by making default a
serious consequence.
14
Insolvency and Bankruptcy Code (Amendment) Acts: 2018, 2019, 2020.
15
Supreme Court of India. Swiss Ribbons Pvt. Ltd. v. Union of India, 2019.
16
Ministry of Corporate Affairs. (2020). Guidelines on Pre-pack Insolvency for MSMEs.
Furthermore, the IBC has contributed to a substantial rise in India’s ranking in the World Bank’s
Ease of Doing Business Index, particularly under the “Resolving Insolvency” parameter. India
moved up from 136th in 2017 to 52nd in 2020, reflecting global confidence in the reforms (World
Bank, 2020).17
Additionally, the predictability and transparency introduced by the IBC have made India more
attractive to foreign investors, particularly distressed asset investors and global private equity
firms, who now have clearer exit and enforcement strategies (Deloitte, 2021).18
Challenges and Criticisms:
While the Insolvency and Bankruptcy Code (IBC), 2016 has marked a paradigm shift in India’s
insolvency regime, its implementation has not been without challenges. One of the primary
concerns is the delay in resolution. Although the Code prescribes a 180-day period (extendable to
330 days) for completing the Corporate Insolvency Resolution Process (CIRP), many cases extend
well beyond this timeline due to litigation, lack of bidder interest, or delays in NCLT proceedings.
According to the IBBI’s 2023 report, nearly 65% of ongoing cases have crossed the 270-day mark
(IBBI, 2023)19.
Another criticism is the misuse of IBC provisions by defaulting promoters. In some instances,
promoters have attempted to regain control of their companies through proxy bidders or complex
restructuring, raising concerns about the spirit of the Code being compromised (Chitra Sharma v.
Union of India, 201820). This undermines the IBC’s intent to ensure accountability and discipline.
Furthermore, inconsistencies in the application of IBC across different NCLT benches have led to
unpredictability in rulings. These disparities stem from varying interpretations of legal provisions
and a shortage of judicial capacity, thereby affecting uniformity and investor confidence.
Future Prospects:
The future of the Insolvency and Bankruptcy Code (IBC), 2016 appears promising, with ongoing
reforms aimed at addressing the current challenges and improving its efficacy. One of the key
areas of focus is streamlining processes. The government and the Insolvency and Bankruptcy
Board of India (IBBI) have been working on simplifying procedural steps to minimize delays and
ensure more predictable outcomes. For example, there is an ongoing discussion on reducing the
17
World Bank. (2020). Doing Business Report 2020.
18
Deloitte. (2021). India’s Insolvency Landscape: Trends and Opportunities.
19
Insolvency and Bankruptcy Board of India (IBBI). (2023). Annual Report.
20
Supreme Court of India. Chitra Sharma v. Union of India, 2018.
time required for pre-packaged insolvency proceedings, particularly for micro, small, and medium
enterprises (MSMEs), which would help expedite resolution (IBBI, 2022).21
Another significant reform focus is strengthening enforcement mechanisms. Given concerns about
the misuse of IBC provisions, there are calls for more robust mechanisms to ensure accountability
and prevent promoters from regaining control of distressed companies. Proposed changes include
tightening the eligibility criteria for resolution applicants and enhancing the powers of regulators
to monitor proceedings more closely (MCA, 2021)22.
Additionally, there is a movement towards expanding the coverage of the IBC to encompass more
sectors and entities. For example, financial service providers (FSPs), which were brought under
the IBC in 2019, may see further regulations aimed at resolving insolvency in non-banking
financial companies (NBFCs) and fintech sectors. These expansions will make the IBC more
inclusive and adaptable to emerging sectors (Deloitte, 2021).23
Conclusion:
The Insolvency and Bankruptcy Code (IBC), 2016 has played a pivotal role in transforming India’s
insolvency landscape, offering a structured, transparent, and time-bound process for resolving
corporate insolvency. Prior to the enactment of the IBC, India’s insolvency framework was
fragmented, inefficient, and riddled with delays, which often led to erosion in asset value and
diminished creditor confidence. The IBC addressed these gaps by introducing a unified and
comprehensive framework aimed at minimizing delays and maximizing recoveries for creditors
(MCA, 2016). One of the most significant achievements of the Code has been its ability to enhance
creditor recovery rates, which have risen considerably since its introduction. According to the
Insolvency and Bankruptcy Board of India (IBBI), the average recovery rate under the IBC is
around 43%, compared to an earlier average of 26% under previous frameworks (IBBI, 2021).
Moreover, the ease of doing business in India has markedly improved, especially in the area of
resolving insolvency. India’s ranking in the World Bank’s Ease of Doing Business index improved
substantially from 136th in 2017 to 52nd in 2020, particularly in the category of resolving
insolvency (World Bank, 2020). This has contributed to greater investor confidence and has
positioned India as an increasingly attractive destination for foreign capital.
While the IBC has ushered in significant reforms, challenges such as delays in resolution, misuse
of provisions by promoters, and inconsistencies in implementation remain (Vidhi Centre for Legal
Policy, 2022). However, ongoing reforms, such as the introduction of pre-packaged insolvency for
21
Insolvency and Bankruptcy Board of India (IBBI). (2022). IBC Reform Proposals and Updates.
22
Ministry of Corporate Affairs (MCA). (2021). Regulations for Strengthening Enforcement under IBC.
23
Deloitte. (2021). The Future of Insolvency and Bankruptcy in India.
MSMEs and strengthened enforcement mechanisms, hold the promise of addressing these issues.
With these continuous improvements, the IBC is poised to further strengthen India’s insolvency
ecosystem and make the country an even more appealing hub for investment and business.
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