The Insolvency and Bankruptcy Code, 2016 was enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner for the purpose of maximization of the value of assets and balance the interests of all the stakeholders.
The Ministry of Corporate Affairs has emphasized the continuous refinement of the Insolvency and Bankruptcy Code to address future challenges in corporate restructuring. Further, suggesting that the Planned amendments, including a creditor-led resolution framework and group insolvency mechanism, aim to keep the IBC dynamic and responsive to evolving business landscapes.
Challenges in the IBC
The IBC has played a very vital role, the code has been subjected to various challenges from time to time. “One of the challenges faced is judicial delay,” said Alay Razvi, Managing Partner, Accord Juris. He explains that the code says to complete the process in 270 days, however, there is a huge backlog of pending cases and the process can go beyond 270 days.
Adv. Amir Bavani, Founder, AB Legal, Hyderabad highlights the issues and the vulnerability of the Operational Creditors suggesting that the same must be taken into consideration as more often than not their interests are outrightly neglected by the sitting CoC members which comprised of only the financial creditors.
He suggests a re-look on the justiciability of the commercial wisdom of the CoC for ensuring appropriate checks and balances which are anticipated to keep the CoC’s unilateral commercial wisdom under control. “The concept of settlement and withdrawal post initiation of insolvency process requires a major reform as the stage at which the same can be considered lacks clarity coupled with a question of casting of responsibility and onus for the work carried out by the Resolution Professional/Liquidator till the time of such withdrawal,” explains Amir Bavani.
Rohan Taneja, Senior Associate, Kred Jure states the challenge in regular reforms/amendments in the IBC leading to issues concerning the prospective/retrospective of the said amendment. “The Government is required to have a far-sighted approach and clarify its position with regard to the applicability of the provision in the amendment itself,” said Rohan Taneja.
Experts argue that frequent amendments are essential to adapt the IBC to a complex and evolving financial landscape. Anindya Mazumdar, Partner, Singhania & Co. suggests that regular updates would make the IBC more agile in responding to changes in corporate and economic conditions.
The challenges he suggests are Delays in Resolution, Lack of Institutional Capacity, and Complex Processes for SMEs.
He highlights that improvements in the IBC can make the law function more effectively as a cornerstone of India’s financial infrastructure, addressing both creditor and debtor concerns while promoting a streamlined and transparent insolvency process.
Sandeep Bajaj, Advocate, Supreme Court of India notes that the current Insolvency Resolution Process is often hindered by procedural bottlenecks and legal complexities leading to significant delays that undermine investor confidence. “While IBC has enhanced overall recovery rates compared to previous mechanisms, creditors still face substantial “haircuts” on outstanding claims,” explains Sandeep Bajaj.
Megha Sharma, Lawyer, Delhi High Court sums up the challenges to Judicial Delays, Quality of Resolution Professionals, Lack of Awareness, Coordination Among Stakeholders, Regulatory Framework, Asset Valuation Issues, Limited Success in Restructuring, Fraud and Misuse, and Post-Resolution Issues.
Reforms in the IBC
Alay Razvi, Managing Partner, Accord Juris suggests more Tribunals to adjudicate matters without causing any further delay and also considering cross-border insolvency which may help in recovering the assets during the insolvency process.
Introducing a Pre-Packaged Insolvency Resolution Process (PPIRP) for Corporate Debtors apart from MSMEs will incentivize the promoters to constructively engage with the creditors, possibly even before the occurrence of any default event. This would facilitate swift and smoother resolutions, avoiding unnecessary adversarial litigations, explains Govind Rishi, Founder Partner, Acumen Juris
Overall, this could be a win-win situation for both creditors and debtors. Once this perception is established, there could be a greater acceptance of this mechanism for larger corporate debtors as well, as and when the statutory enablers are in place.Govind Rishi, Founder Partner, Acumen Juris
He further suggests creating a secondary market for stressed assets as the lack of a vibrant market for stressed assets limits the number of potential resolution applicants.
Adv. Amir Bavani, Founder, AB Legal, Hyderabad suggests the introduction of group insolvency, an Appropriate and clear mechanism for judicial intervention upon the decision of the CoC, Tweaking of pre-packaged insolvency for streamlining the procedure to de-clog the NCLTs, revamping the concept of the moratorium.
On pre-packaged insolvency, Shimpy Arman Sharma, partner, Anand Sharma & Associates suggests that Pre-Packaged Solutions must be promoted as the same can provide a faster and more flexible framework for resolving corporate distress, offering a viable alternative to traditional processes.
The development of infrastructure is the need to strengthen the institution. Rishabh Gandhi, Managing Partner, Rishabh Gandhi and Advocates underline three major revisions urgently needed in the IBC framework such as: Enhancing NCLT Capacity and Case Management, Implementing a Digital Case Management System, and Standardizing Valuation Guidelines.
With the ever-developing nature of the current economy, it is significantly important that economic laws like IBC are regularly amended and updated to suit the economic market.Shashank Agarwal, Advocate, Delhi High Court
the creation of a centralized, digital IBC platform linking stakeholders like the NCLT, Information Utilities, and Insolvency Professionals. “This platform would help streamline claim filing, improve data transparency, and minimize processing times using AI and automated notices, potentially expediting resolutions and improving outcomes,” he adds.
Conclusion
The Insolvency and Bankruptcy Code (IBC) has been a significant reform in India’s financial landscape. The government, along with the Insolvency and Bankruptcy Board of India (IBBI), has played a crucial role in its successful implementation. “The Government as well as IBBI have aided the success of IBC by making swift interventions to ensure that the Code evolves to address the legal and practical challenges in its implementation,” said Madhav Kanoria, Partner, Cyril Amarchand Mangaldas.
“Some imperative changes that are need of the hour include amendments to make admission process automatic by relying on records of Information Utilities to determine default making it mandatory for NCLT to admit a petition where that has been established,” he adds.
The time has come for the Government to scrutinize the payment mechanisms for Operational Creditors within the Corporate Insolvency Resolution Process (CIRP) framework under the Insolvency and Bankruptcy Code (IBC). While the IBC has been a significant reform, there is a pressing need to address the concerns of Operational Creditors and ensure their rights are effectively protected. “The time has come when the Government examine the issue of payment made to Operational Creditor in CIRP and make necessary amendments in IBC as to give real and effective redressal to the rights of Operational Creditors,” said Saurav Agrawal, Advocate, Delhi High Court
“There needs to be better balancing between FC and OC, presently it’s very lopsided towards FCs and OCs get token amount only,” he adds.
Thus, a significant reform requires continuous refinement. While it has addressed many challenges, issues like judicial delays, low recovery rates for operational creditors, and complex procedures persist. To enhance its effectiveness, reforms such as increased NCLT capacity, pre-packaged insolvency for larger corporates, and a stronger focus on operational creditor rights are crucial. By addressing these challenges and implementing necessary reforms, the IBC can further solidify its position as a cornerstone of India’s financial infrastructure.
