In a significant milestone, creditors in India have recovered approximately ₹3.55 lakh crore through the resolution of 1,068 cases under the Insolvency and Bankruptcy Code (IBC) as of September 2024. This achievement underscores the IBC’s pivotal role in reshaping India’s approach to corporate insolvency and debt recovery.
The Genesis and Evolution of the IBC
Enacted in 2016, the IBC was designed to consolidate and amend laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals. Its primary objective is to facilitate a time-bound resolution process, thereby maximizing the value of assets and promoting entrepreneurship. Over the years, the IBC has undergone six amendments to strengthen its framework and address emerging challenges.
Recovery Metrics and Performance
Since its inception, the IBC has facilitated the recovery of ₹3.55 lakh crore for creditors, with 1,068 cases resolved by September 2024. This figure represents a substantial portion of the non-performing assets (NPAs) that plagued the Indian banking sector, which had peaked at around ₹12 to ₹13 lakh crore. The recovered amount has significantly bolstered the lending capacity of financial institutions, enabling them to sanction further loans and support economic activities.
Challenges in Timely Resolutions
Despite its successes, the IBC’s implementation has faced hurdles, particularly concerning adherence to stipulated timelines. As of September 2024, out of 1,963 ongoing Corporate Insolvency Resolution Processes (CIRPs), 1,388 have exceeded the 270-day limit prescribed by the IBC. Delays are often attributed to legal challenges, procedural complexities, and the overburdened capacity of the National Company Law Tribunal (NCLT).
Enhancing Recovery Through Avoidance Transactions
A notable development in the IBC’s framework is the focus on avoidance transactions—deals made by corporate debtors before insolvency that are deemed preferential, undervalued, or fraudulent. By pursuing these transactions, creditors have the potential to enhance recoveries by approximately 10%. As of September 2024, 1,326 applications involving ₹3.76 lakh crore have been filed, with 338 cases settled, resulting in a clawback of about ₹7,516 crore.
Pre-Adjudication Settlements: A Positive Trend
The IBC has also influenced debtor behavior positively. Over 27,500 applications for initiating CIRPs, involving defaults of ₹9.74 lakh crore, were withdrawn before admission, indicating that debtors are increasingly resolving distress at early stages to avoid the consequences of the resolution process.
Global Comparisons and Future Outlook
When compared globally, India’s recovery rate under the IBC has shown improvement but still lags behind some developed economies. Continuous efforts to streamline processes, reduce litigation-induced delays, and enhance the capacity of adjudicating authorities are essential. The government’s commitment to refining the IBC framework, as evidenced by multiple amendments and regulatory updates, reflects an ongoing endeavor to align with global best practices.
Conclusion
The Insolvency and Bankruptcy Code has been instrumental in transforming India’s insolvency landscape, facilitating substantial recoveries for creditors and promoting a culture of financial discipline. While challenges persist, particularly concerning timely resolutions, the IBC’s evolution and the proactive measures undertaken by stakeholders indicate a robust framework poised to support India’s economic growth and financial stability in the years to come
