Unlocking India's economic promise: Can IBC act as a catalyst for expansion?

For years, India's potential as a thriving market for economic growth has been recognized worldwide. In 2016, India took a significant leap forward by introducing the Insolvency and Bankruptcy Code, 2016. This landmark legislation has emerged as a catalyst for economic expansion, offering a streamlined and effective mechanism for resolving insolvencies which also unleashed India's economic potential and laid the foundation for sustainable growth.

Prior to the IBC, insolvency and bankruptcy matters were not governed by a single law. Instead, they were addressed through several statutes, namely the Sick Industrial Companies (Special Provisions) Act, 1985; the Recovery of Debt Due to Banks and Financial Institutions Act, 1993; the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; and the Companies Act, 2013. These laws create multiple bodies like Board of Industrial and Financial Reconstruction (BIFR), Debt Recovery Tribunal (DRT), etc. their respective Appellate Tribunals to handle such cases. The liquidation of companies was managed by the High Courts. For individual bankruptcy and insolvency matters, the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920 come into play, and the Courts are responsible for dealing with them. The entire process was a cumbersome process.

The earlier framework for insolvency and bankruptcy was time-consuming, inadequate, and ineffective, leading to significant delays in the resolution process. The absence of comprehensive legislation meant that companies often languished in distress for years, causing significant losses to creditors, stalling economic activity, and assets became worthless with no maintenance.


The IBC introduced a unified and time-bound process for insolvency resolution, providing a clear roadmap for stakeholders. The primary goal of the Insolvency and Bankruptcy Code, 2015, is to unify and revise the laws concerning the reorganization and resolution of insolvency for corporate entities, partnership firms, and individuals within a specified timeframe, with the aim of maximizing the value of their assets

The establishment of the Insolvency and Bankruptcy Board of India (IBBI) brought expertise and efficiency to insolvency proceedings. The Ld. NCLT acts as the Adjudicating Authority, ensuring fair and transparent resolution processes, while the IBBI serves as the regulatory body overseeing the implementation of the IBC. Appointing a dedicated person known as “Resolution Professional” ensures that the process is conducted in the most organized manner.

Revival of corporate debtor
One of the key features of the IBC is the emphasis on reviving viable businesses rather than liquidating them. The introduction of the corporate insolvency resolution process (CIRP) aims to balance the interests of all the stakeholders and creditors. A Resolution Professional takes control of the distressed company's affairs in the shadow of the committee of creditors and invites the Prospective Resolution Applicants for the Corporate Debtor to formulate a Resolution Plan, seeks approval from the Creditors' Committee, and places it before the Ld. Adjudicating Authority for its approval as per IBC. Pertinently, the responsible persons who have put the Corporate Debtor in the situation of insolvency are barred from being a resolution applicant, if they are disqualified under section 29A of the IBC.

The IBC prioritizes the maximization of the value of assets and encourages participation from potential investors and buyers through a transparent bidding process. This has led to increased interest from domestic and international investors, who see opportunities in acquiring and turning around financially distressed companies. By revival of viable businesses, the IBC has preserved jobs, protected creditors’ interests, and injected fresh capital into the economy.

The implementation of the IBC has brought about substantial changes to India's position in the World Bank's Ease of Doing Business Index. Through the streamlining of the insolvency resolution process, the IBC has yielded several positive outcomes. It has strengthened creditor rights, reduced the average duration required for resolution, and improved recovery rates. As a result, investors now perceive India as a more appealing destination for conducting business. Furthermore, the IBC has also facilitated India's integration into the global business landscape. The IBC's clear guidelines and predictability have also provided support for the growth of businesses including startups and Micro, Small, and Medium Enterprises.

Based on the data provided by IBBI as of March 31, 2023, there have been a total of 6,571 Corporate Insolvency Resolution Processes (CIRPs) initiated since 2016. Out of these, 4,515 CIRPs have been closed. Among the closed cases, 2,485 resulted in the successful rescue of the Corporate Debtors, 959 were closed due to appeal, review, or settlement, and 848 were withdrawn. Additionally, 678 CIRPs were concluded with the approval of Resolution Plans, while 2,030 cases resulted in orders of liquidation.

It is not wrong to mention that even though 2030 cases resulted in liquidation, there were also many cases where there was nothing to preserve or revive for. Further, the others who resulted in liquidation at least got to a meaningful conclusion instead of being in the helm of litigation or stuck in no way zone. Many companies have even been acquired as going concern during the liquidation process even though no revival plan by way of resolution was achieved during the CIRP.

Previously, the business suffered its demise due to a burdensome, time-consuming process. However, with the introduction of the I&B Code, the efficient and rapid procedures have motivated prominent corporate houses and investors to step forward as resolution applicants, seeking to revive distressed companies.

The Insolvency and Bankruptcy Code (IBC) has indeed been a significant development for India's insolvency landscape, but it does face certain challenges that need to be addressed for its continued effectiveness and efficiency. One of the major challenges is the growing caseload of Ld. Adjudicating Authority for corporate insolvency cases under the IBC.

To address this challenge, it is important to increase the number of benches and appoint more members of Ld. Adjudicating Authority. Another aspect of the resolution process is that it is a tad tilted in favor of the financial creditors than operational creditors. The National Company Law Appellate Tribunal has also opined that some minimum entitlement to the operational creditors should be examined by the Government and the IBBI, based on the amount realized in the resolution plan over and above the liquidation value.

In conclusion, the IBC has been a game-changer for India's economic landscape. It has created a conducive environment for entrepreneurship, enhanced creditor rights, and fostered a culture of responsibility and good governance. The legislation has not only facilitated the resolution of distressed assets but has also attracted investments, revived businesses, and injected liquidity into the economy. With further reforms and continuous efforts to strengthen the insolvency ecosystem, the IBC will continue to be a catalyst for India's economic expansion and unlock its immense economic potential.

Daizy Chawla is Senior Partner, and Himanshu Dubey is Designated Partner at S&A Law Offices.