The enactment of the Insolvency and Bankruptcy Code (IBC) in 2016 represents one of the most significant economic reforms in modern India. Prior to the IBC, the framework for resolving corporate debt was fragmented, relying on a patchwork of laws like the Sick Industrial Companies Act (SICA), the Recovery of Debts Due to Banks and Financial Institutions Act (RDDBFI), and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act. These mechanisms were notoriously time-consuming, with recovery often taking several years, resulting in a substantial erosion of asset value and a crippling Non-Performing Asset (NPA) crisis for the banking sector.
The IBC was conceived with a clear and ambitious mandate: to consolidate the law relating to reorganisation and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner for value maximisation. This nine-year performance review (2016–2025) examines the Code’s transformative impact, focusing on recovery rates, landmark judicial precedents, and the fundamental systemic shift it has ushered in.
1. Recovery Rates and the Paradigm Shift
The IBC’s success is best measured by its effectiveness in recovering debt for creditors, particularly financial institutions. The Code marked a critical paradigm shift from a “debtor-in-possession” to a “creditor-in-control” regime.
A. The Deterrent Effect and Pre-Admission Settlement4
Perhaps the IBC’s most profound impact is the change in borrower behaviour—the “threat of insolvency.” The credible risk that defaulting promoters will lose control of their company, an insolvent firm, has compelled corporate debtors to settle dues before the case even reaches the National Company Law Tribunal (NCLT), the adjudicating authority under the IBC.
Indirect Resolution: As of March 2025, over 30,000 cases involving an underlying default of approximately ₹14 lakh crore have been settled, withdrawn, or otherwise closed before formal admission into the Corporate Insolvency Resolution Process (CIRP). This indirect resolution is a testament to the Code’s deterrent effect, often resulting in near-100% recovery for the creditor.
B. Recovery through CIRP and Comparative Analysis
For cases admitted under the CIRP, the recovery rate, while subject to considerable haircuts, is significantly higher than under previous laws like the Debt Recovery Tribunals (DRT).
By March 2025, the overall recovery rate for financial creditors in resolved cases stood at approximately 32–35% of the admitted claims. While creditors incur a haircut of about 65–70% of their claims, this must be viewed in the context of:
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Late Entry: Most companies enter the IBC process at a very late stage of distress when asset value has already been substantially eroded.
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Liquidation Value: More importantly, the recovery is consistently high relative to the liquidation value (the estimated value if the company were to be immediately sold off). Financial creditors have realised over 170% of the liquidation value in resolved cases, demonstrating that the IBC successfully facilitates the sale of the corporate debtor as a going concern, thereby maximising value.
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| Mechanism (Pre-2016 vs. Post-2016) | Average Recovery Rate | Average Time Taken |
| Debt Recovery Tribunals (DRT) | ~7% | Years |
| SARFAESI Act | ~22% | Years |
| Insolvency and Bankruptcy Code (IBC) | ~35% (of admitted claim) | ~713 days (Current average) |
C. The Challenge of Timelines
The fundamental challenge remains the resolution timeline. Despite the legislative goal of a 180-day resolution (extendable to a maximum of 330 days), the average time taken for resolved cases has stretched to over 713 days by 2025. This delay is primarily attributed to:
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Judicial Bottlenecks: A shortage of NCLT benches, vacant judicial positions, and the heavy backlog of cases.
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Frivolous Litigation: Frequent appeals and counter-litigations filed by erstwhile promoters or unsuccessful bidders to delay the process.
2. Landmark Cases and Judicial Clarification
The Indian judiciary, particularly the Supreme Court of India, has played a crucial role in establishing the IBC’s authority, clarifying its provisions, and shielding the process from external interference. These landmark judgments have shaped the Code into a robust legal framework.
A. Primacy of Financial Creditors and CoC’s Commercial Wisdom
The core principle of the IBC—the primacy of the Committee of Creditors (CoC)—was firmly established in major rulings:
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Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors. (2020): This seminal judgment cemented the “commercial wisdom” of the CoC. The Supreme Court ruled that the NCLT and NCLAT have a limited scope of judicial review; they can only check if the resolution plan violates the IBC’s provisions. They cannot sit in appeal over the commercial decision of the CoC, even if the approved plan involves significant haircuts to creditors. This ruling ensured the finality of the resolution process.
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Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India (2019): The constitutional validity of the IBC was upheld. The court clarified the differential treatment between financial creditors (who have a direct say in the CoC as they are essentially investors in the company’s financial health) and operational creditors (like suppliers and employees), holding that this difference is based on a reasonable classification essential for the quick and effective resolution of the company.
B. Eligibility of Resolution Applicants (Section 29A)
To prevent defaulting promoters from re-acquiring control of the very companies they ran into the ground, the IBC introduced Section 29A.
ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta & Ors. (2018): This judgment provided an expansive interpretation of Section 29A, setting a high bar for eligibility. It ensured that individuals or entities who are corporate defaulters or associated with them cannot participate in the bidding process. This ruling was critical for maintaining the integrity and moral authority of the resolution process.
C. Homebuyers as Financial Creditors
The Code also addressed the complex issues in the real estate sector.
Jaypee Infratech Ltd. v. NBCC (India) Ltd. & Ors. (2020): The Supreme Court upheld the amendment classifying homebuyers as financial creditors, thus giving them a representation in the CoC. This was a crucial social and legal milestone, ensuring that the interests of a large, vulnerable class of stakeholders are safeguarded during the insolvency of real estate developers.
3. Systemic Impact and Reforms
The IBC’s effect extends far beyond the number of cases resolved; it has fundamentally altered India’s credit ecosystem and corporate governance landscape.
A. Improved Ease of Doing Business
The IBC played a pivotal role in boosting India’s global ranking on the World Bank’s ‘Ease of Doing Business’ index, specifically on the ‘Resolving Insolvency’ parameter. The introduction of a predictable, time-bound framework for corporate exit and resolution has significantly enhanced investor confidence, both domestic and foreign. The shift away from a system where defaulting firms could languish indefinitely to one where a resolution is mandatory has instilled greater discipline.
B. Strengthening the Credit Ecosystem
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Risk Pricing: With a clearer path to debt recovery, financial institutions are better positioned to price credit risk accurately. The reduction in the number of days loan accounts remain in the ‘overdue’ category before being resolved is a key indicator of improved credit culture.
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Corporate Governance: The fear of losing control under the IBC has compelled promoters to improve financial transparency, corporate governance, and debt management practices to avoid crossing the default threshold.
C. Institutional Pillars and Future Reforms
The IBC established a new institutional infrastructure:
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Insolvency and Bankruptcy Board of India (IBBI): The regulator overseeing the entire process.
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Insolvency Professionals (IPs): Licensed professionals who manage the CIRP.
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Information Utilities (IUs): Repositories of financial debt information.
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National Company Law Tribunal (NCLT): The specialised adjudicating authority.
To address the persistent challenges, the government and the IBBI continue to introduce reforms, notably the proposed Insolvency and Bankruptcy Code (Amendment) Bill, 2025, which aims to:
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Expedite Timelines: By strengthening the NCLT and streamlining procedures.
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Pre-packaged Insolvency Resolution Process (PPIRP): Introduced for Micro, Small, and Medium Enterprises (MSMEs), the PPIRP is a debtor-in-possession model that allows the corporate debtor and creditors to agree on a resolution plan before judicial intervention, promising faster, less adversarial, and more cost-effective resolution.
Conclusion
The Insolvency and Bankruptcy Code, 2016, has successfully transitioned India from an outdated ‘debtor’s paradise’ to a modern, globally competitive ‘creditor-in-control’ regime.
In its nine-year performance review (2016-2025), the IBC stands out as a transformative law. It has achieved a significantly higher average recovery rate—around 35% versus 7% under the old Debt Recovery Tribunal system, and, critically, has driven massive pre-admission settlements. Landmark judgments have created a robust legal architecture, solidifying the primacy of the Committee of Creditors’ commercial wisdom and protecting various stakeholders. While challenges like the protracted resolution timelines and excessive haircuts persist, ongoing reforms, including the PPIRP, are geared toward addressing these operational bottlenecks.
The IBC’s true legacy is the systemic change in corporate India’s debt culture. It has fostered financial discipline, promoted the maximisation of asset value, and established a clear, credible mechanism for corporate failure and resurrection, symbolising the potential for distressed assets to rise, like the mythical Phoenix, into a new, viable form.
