Why in News?
- As of 2024, creditors have realised ₹3.89 lakh crore under IBC with a recovery rate of 32.8% (IBBI data).
- The IBC is now a major instrument for corporate debt resolution and economic discipline.
Background
- Enacted in 2016 as India’s first comprehensive bankruptcy law.
- Objective: Provide a time-bound, creditor-driven resolution process for insolvency.
- Resolution timeline capped at 330 days, beyond which liquidation follows.
Role in Debt Recovery
- IBC = 48% of all bank recoveries (FY24) – RBI Trends & Progress Report 2024.
- Preferred over SARFAESI, Lok Adalats, and DRTs.
Key Impacts
- Credit Culture Shift: Debtors now more disciplined in repayments.
- Improved Credit Allocation: IIM Bangalore study indicates:
- Decline in Gross NPAs from 11.2% (Mar 2018) → 2.8% (Mar 2024).
- Cost of debt for distressed firms down by 3% post-IBC.
- Corporate Governance Reforms: More independent directors on resolved firms’ boards.
- Early Distress Resolution: Significant pre-admission settlements.
Key Challenges
| Area | Details |
|---|---|
| Judicial delays | NCLT backlog delays resolution despite CoC approval. |
| Post-resolution uncertainty | Implementation risks discourage investor bids. |
| Bhushan Steel verdict | SC review of a closed transaction threatens commercial certainty. |
| Infrastructure gaps | Insufficient benches, lack of trained professionals. |
| Future-readiness | Unclear treatment of IPRs, employee dues, and tech continuity. |
Suggestions for Reform
- Strengthen NCLT/NCLAT infrastructure and expand benches.
- Pre-packaged insolvency for faster, informal resolution (especially for MSMEs).
- Legal sanctity of approved resolution plans to avoid post-facto judicial reversals.
- Codify commercial wisdom protection to avoid excessive litigation.
- Update valuation, workforce, and IP treatment frameworks.
