INTRODUCTION

The Insolvency and Bankruptcy Code, 2016 (hereinafter “IBC” or “the Code”) represents a
transformative development in India’s legal and economic architecture. It was enacted at a
time when India’s financial ecosystem was burdened by rising levels of non-performing
assets (NPAs), prolonged debt recovery procedures, and a fragmented insolvency regime. The
inadequacies of the previous legal framework hindered the timely resolution of financial
distress and discouraged both domestic and international investment. [^1] Recognizing the
urgency of reform, the IBC was introduced as a consolidated and comprehensive statute
aimed at overhauling the country’s insolvency and bankruptcy processes.

Prior to the enactment of the IBC, insolvency-related matters were governed by multiple
legislations such as the Companies Act, 1956, the Sick Industrial Companies (Special
Provisions) Act, 1985 (SICA), the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 (RDDBFI), and the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI).[^2] Each of these laws addressed
only specific aspects of insolvency and operated independently, often leading to inconsistent
outcomes, legal uncertainty, and jurisdictional conflicts. The absence of a unified, time-bound
mechanism severely eroded asset value and prolonged the survival of unviable firms at the
cost of creditors and the broader economy.[^3]

In this context, the Government of India constituted the Bankruptcy Law Reforms Committee
(BLRC) in 2014, under the chairmanship of Dr. T.K. Viswanathan, to examine the prevailing
legal framework and propose a new insolvency regime. The Committee’s report, submitted in
November 2015, laid the foundation for the Code, recommending a shift from a debtor-in-
possession model to a creditor-in-control approach, supported by a professional insolvency
ecosystem and strict timelines for resolution.[^4] The IBC was enacted in May 2016 and
came into effect in a phased manner from December 2016.

The objectives of the IBC extend beyond mere debt recovery. As reflected in its preamble, the
Code seeks to promote entrepreneurship, ensure the availability of credit, and balance the
interests of all stakeholders while maximizing the value of assets.[^5] By introducing a
streamlined process for insolvency resolution and liquidation, the Code seeks to preserve
economic value and promote business continuity wherever possible. It also incorporates
international best practices, such as the prioritization of resolution over liquidation and the
creation of a specialized institutional framework comprising the Insolvency and Bankruptcy
Board of India (IBBI), Insolvency Professionals (IPs), Information Utilities (IUs), and
adjudicating authorities such as the National Company Law Tribunal (NCLT) and the Debt
Recovery Tribunal (DRT).[^6]

In the years following its enactment, the IBC has significantly influenced India’s credit
ecosystem. It has improved the bargaining power of creditors, enhanced recovery rates, and
contributed to India’s rise in the World Bank’s Ease of Doing Business rankings, particularly
in the “Resolving Insolvency” parameter.[^7] However, the Code has also faced criticism for
procedural inefficiencies, interpretive ambiguities, and delays in resolution, particularly at the
adjudicatory level. The COVID-19 pandemic further exposed structural weaknesses, leading
to the temporary suspension of fresh insolvency proceedings and necessitating the
introduction of pre-packaged insolvency schemes for Micro, Small and Medium Enterprises
(MSMEs).[^8]

This legislative commentary undertakes a comprehensive analysis of the Insolvency and

Bankruptcy Code, 2016. It begins by tracing the historical evolution of insolvency laws in
India, followed by an examination of the salient features of the Code. The commentary then
delves into the evolving judicial interpretations that have shaped its application and concludes
with a critical assessment of the Code’s effectiveness, along with reform-oriented
suggestions. Through this analysis, the paper aims to evaluate whether the IBC has achieved
its legislative intent and how it can be strengthened to meet the dynamic needs of India’s
growing economy.
HISTORICAL BACKGROUND OF IBC

The evolution of insolvency law in India has been shaped by the country’s broader economic
transformation and the increasing need for a robust mechanism to deal with financial distress.
Prior to the enactment of the Insolvency and Bankruptcy Code, 2016 (IBC), India’s
insolvency regime was notoriously inefficient, fragmented across various statutes, and riddled
with procedural delays. The absence of a unified legal framework severely undermined
creditor confidence and contributed to a systemic build-up of non-performing assets (NPAs),
which in turn stifled economic growth.

Pre-IBC Regime: A Fragmented Framework

Before the IBC, insolvency and bankruptcy processes were governed by an assortment of
laws, each dealing with specific aspects or categories of stakeholders:

1. Companies Act, 1956 / 2013: Corporate insolvency was primarily addressed

through the winding-up provisions under these Acts. The process was time-consuming,
largely liquidation-centric, and lacked a focus on revival or resolution. [^1]

2. Sick Industrial Companies (Special Provisions) Act, 1985 (SICA): Enacted to

detect and revive sick industrial companies, SICA established the Board for Industrial and
Financial Reconstruction (BIFR). However, it soon became a haven for debt-laden companies
seeking to delay creditor actions under the guise of rehabilitation. [^2]

3. Recovery of Debts Due to Banks and Financial Institutions Act, 1993

(RDDBFI Act): This statute enabled banks and financial institutions to recover dues through
Debt Recovery Tribunals (DRTs), but did not provide for collective insolvency resolution.
[^3]

4. Securitisation and Reconstruction of Financial Assets and Enforcement of

Security Interest Act, 2002 (SARFAESI): SARFAESI empowered secured creditors to
enforce their security interests without court intervention, but focused primarily on
enforcement, not resolution. [^4]

The multiplicity of laws and forums led to jurisdictional overlaps, prolonged litigation, and
inconsistent outcomes. The average time for resolving insolvency exceeded four years, and
recovery rates were abysmally low.[^5] This not only discouraged investment but also
clogged judicial forums and diminished the effectiveness of the financial sector.

Economic Liberalization and the Need for Reform

With the liberalization of the Indian economy in the 1990s, the need for a modern, coherent
insolvency framework became increasingly apparent. Global investors and international
financial institutions highlighted the inadequacy of India’s insolvency laws as a major barrier
to doing business. [^6] The global financial crisis of 2008 and the rise in corporate defaults
further exposed the inefficiencies of the existing regime.

Bankruptcy Law Reforms Committee (BLRC), 2014

In response to the growing crisis of bad loans and investor concerns, the Government of India
established the Bankruptcy Law Reforms Committee (BLRC) in August 2014 under the
Ministry of Finance. Chaired by Dr. T.K. Viswanathan, the BLRC was tasked with
recommending a comprehensive framework for insolvency resolution and liquidation.

The Committee’s final report, submitted in November 2015, became the foundational
document for the IBC. The BLRC emphasized:

1. The need for a time-bound and predictable insolvency resolution process,

2. The importance of shifting control from the debtor to the creditors once default
occurs,
3. The creation of a professional cadre of insolvency professionals to manage the
process,
4. Institutional infrastructure such as adjudicatory authorities, information utilities,
and a regulatory board (now the IBBI),
5. The integration of all stakeholders—creditors, debtors, professionals, regulators—
under a common legal umbrella.[^7]

The Committee’s recommendations were aligned with global best practices, including the
UNCITRAL Legislative Guide on Insolvency Law.[^8]
Enactment of the Insolvency and Bankruptcy Code, 2016

Based on the BLRC’s recommendations, the Insolvency and Bankruptcy Code was
introduced in the Lok Sabha in December 2015 and enacted in May 2016. It came into effect
in phases starting from December 2016. The IBC consolidated laws relating to insolvency
and bankruptcy of individuals, partnerships, and companies into a single comprehensive
framework.[^9] It introduced a creditor-in-control model, imposed strict timelines (180–270
days) for resolution, and prioritized revival over liquidation.

It also established a new institutional ecosystem comprising:

1. Insolvency and Bankruptcy Board of India (IBBI) as the regulator,

2. Insolvency Professionals (IPs) to manage the resolution process,
3. Information Utilities (IUs) to collect and authenticate financial information,
4. Adjudicating Authorities: NCLT for companies and LLPs, DRT for individuals
and partnerships.

Post-Enactment Developments and Amendments

Since its enactment, the IBC has undergone multiple amendments to address practical
challenges and judicially identified gaps. Notable developments include:

1. 2018 Amendment: Recognized homebuyers as financial creditors; clarified

eligibility criteria under Section 29A.[^10]
2. 2019 Amendment: Introduced a mandatory timeline of 330 days for completion of
the Corporate Insolvency Resolution Process (CIRP); clarified rights of financial
and operational creditors.[^11]
3. 2021 Amendment: Introduced the pre-packaged insolvency resolution process
(PPIRP) for Micro, Small and Medium Enterprises (MSMEs).[^12]
4. Judicial interventions by the Supreme Court and National Company Law
Appellate Tribunal (NCLAT) have significantly shaped the interpretation of the
Code.[^13]