Clipped from: https://www.thehindubusinessline.com/opinion/ibc-the-halting-march-towards-efficacy/article70389746.ece
After a promising start, the IBC ecosystem is grappling with shortage of qualified and honest Insolvency Professionals and lack of an efficient investigative mechanism
The IBC’s efficacy in resolving NPAs remains far from optimal. The total recovery rate has been on a downtrend spiral | Photo Credit: peshkov
The introduction of the Insolvency and Bankruptcy Code, 2016 (IBC) marked a turning point in India’s pursuit of a comprehensive and efficient insolvency resolution framework. Conceived as a panacea to the ever-pervasive problem of non-performing assets (NPAs) that had afflicted the banking sector, the IBC replaced India’s disjointed and lengthy insolvency and company winding up frameworks with a cohesive, time-bound and expeditious process that restricted undue court interventions.
In this article, we lay out the present framework of the IBC with a closer look at the regulatory gaps and challenges.
Positives of current regime
There is no doubt that when compared to the earlier regime, the IBC has shown positive results. But, as the Economic Survey 2024-25 shows, this promise is fulfilled only partially. So far, the journey has been one of uneven progress, punctuated by formidable hurdles. As such, the IBC deserves a strategic recalibration as India hopes for a sustained 7-8 per cent annual economic growth over the next 10 years. Fundamentally, the IBC is aimed at striking a balance between the rights of debtors and creditors. Prior to its enactment, the insolvency and restructuring framework in India were skewed in favour of debtors, with the debtors being in control of troubled companies even during the restructuring process. The IBC, as it had been originally envisioned, was meant to challenge this dynamic by providing for a time-sensitive, creditor-in-control resolution process.
For its part, the Economic Survey highlights the transformative effects of the IBC by examining its influence on India’s debtor-creditor relationships at the macro level along with improvements in credit culture and the mechanism’s effectiveness across different sectors. The Survey underscores the versatility of the IBC in managing distress in diverse industries including steel and cement alongside real estate and media. The quantitative impact has been substantial: the IBC has emerged as the dominant recovery mechanism for banks, accounting for 48 per cent of all bank recoveries in FY 2023-24, compared to 32 per cent via SARFAESI, 17 per cent through Debt Recovery Tribunals, and merely 3 per cent via Lok Adalats.
The gross non-performing asset (NPA) ratio of scheduled commercial banks fell dramatically from double-digits in 2017-18 (around 11.2 per cent) to just 2.7 per cent by March 2024. By end-2024, over 8,175 Corporate Insolvency Resolution Processes (CIRPs) had been initiated. Its sector-agnostic efficiency is evidence of the IBC’s strong foundation and its capacity to solve long-standing issue of NPAs afflicting India’s banking system. The IBC’s emphasis on value maximisation is yet another key strength.
The problems
The average resolution time, however, has surged to 582 days, much more than the 270-day statutory timeline. Even more concerning, operational creditors had an average wait of 650 days simply for case admission — a startling deviation from the prescribed 14-day period. Institutional bottlenecks, particularly the overwhelming backlog at the National Company Law Tribunal (NCLT), exacerbate the problem. As of July 2024, the NCLT had 2,593 cases awaiting admission and 4,723 pending post-admission. Recent data from the Insolvency and Bankruptcy Board of India (IBBI) also reveals that the IBC’s efficacy in resolving NPAs remains far from optimal. The total recovery rate has been on a downtrend spiral, decreasing from 43 per cent in Q1 FY20 to a meagre 31.4 per cent in Q3 FY25.
The IBC’s promise of swift resolution has been hampered by practical impediments. While the NCLT’s bench strength is simply insufficient to handle the mammoth workload, a deeper problem is that the NCLT is embedded in procedural complexities and judicial processes unsuitable for the special demands of insolvency law. In practice, cases routinely get derailed by endless litigation, largely frivolous challenges by promoters who seek to regain control. Further, as noted, even in cases where resolution plans succeed, the outcomes are often sub-optimal, with financial creditors to some extent and operational creditors to a larger extent taking haircuts — a steep price that inevitably affects the viability of the banking ecosystem.
The IBC ecosystem is also grappling with a severe shortage of qualified and honest Insolvency Professionals (IPs). As per the Parliamentary Standing Committee Report for 2023-24, out of the 203 IPs against whom disciplinary proceedings were initiated since 2016, action has been undertaken against 61 per cent of them by the Insolvency Professional Agencies (IPAs) and IBBI. This points to deficiencies in the regulatory oversight of IPs and the need for a more robust framework for their selection, monitoring, and accountability.
Pertinently, under the current framework IPs are enrolled and regulated by multiple IPAs, which are responsible for their training, certification, monitoring, and grievance redressal. However, this decentralised model of professional oversight has several shortcomings. Having multiple IPAs overseeing the functioning of their member IPs, instead of a single unified regulator, is not optimal. This fragmented approach could not only lead to inconsistencies in standards and practices across IPAs but also could create a potential conflict of interest between their regulatory and competitive goals.
The problems caused by the lack of integrity and efficiency are accentuated by the lack of an effective mechanism to place checks on IPs. Beyond corruption, the IBC faces structural challenges that compound its inefficiencies. There have been instances where promoters have deliberately plunged their companies into insolvency and purchased the company back debt free indirectly. The lack of an efficient investigative mechanism renders the existing statutory safeguards prohibiting related parties from bidding for insolvent companies ineffective.
The malaise is today deep rooted due to the level of discretion the system provides the IPs subject to the approval by the committee of creditors. Mandatory stipulations that increase objectivity of the IPs’ actions will help arrest the slide. This needs to be coupled with better infrastructure and assistance to the IPs. The IBC is a legislation whose success is premised on efficient and honest IP. A carrot and stick mechanism for IPs is the need of the hour.
The writers are Advocates, Madras High Court
Published on December 13, 2025
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