Explained: Is the Insolvency and Bankruptcy Code losing its relevance?

Admissions under the Insolvency and Bankruptcy Code (IBC) fell to a five-year low in FY26, the weakest year since the law came into force in 2016, excluding the pandemic years when fresh proceedings were suspended. With just 665 corporate insolvency resolution processes (CIRPs) admitted during the year, experts say the decade-old insolvency framework is increasingly being viewed as a bothersome option by both lenders and investors because of mounting delays, falling recoveries and prolonged litigation.

 

Realisations through the IBC declined from around 190 per cent of liquidation value in the early years to 167 per cent in FY26. As a percentage of total claims, the amount realised by financial creditors has also dropped to around 30 per cent from over 40 per cent in its initial years.

 

“The incentive to use the IBC for stress resolution is steadily weakening. The returns to creditors, measured either as a percentage of liquidation value or as a percentage of admitted claims, have been declining over time, while the time taken to conclude the resolution process has been increasing. Unless these trends are arrested as a matter of priority, the Code risks losing its credibility and effectiveness as the preferred mechanism for resolving corporate distress,” said M S Sahoo, the first chairperson of the Insolvency and Bankruptcy Board of India (IBBI), which oversees the implementation of the IBC.

 

In a recent order, the Supreme Court noted that 363 resolution applications (for approving plans) were pending at NCLT benches, with delays ranging from 48 to 738 days. Noting that the picture highlighted is “extremely…dismal”, the top court in its order stated that the reason for this delay is lack of adequate infrastructure resulting in half day sittings of the Benches and large pendency of objections to resolution plans filed by various parties and stakeholders.

 

The average time taken to close a CIRP stood at 744 days as of March 31, 2026, against the 330 days mandated by the Code. The prolonged timelines have also dampened bidder interest. A resolution applicant (RA) may spend considerable time and resources in preparing a resolution plan, only to find that, after the committee of creditors approves it, the plan remains tied up in litigation for years before receiving judicial approval. 

 

“By the time approval comes market conditions, asset values, and business prospects may have changed materially, making implementation of the plan commercially unviable. Yet, once the plan has been approved by the committee of creditors, the RA cannot simply withdraw from the process. This asymmetry, where the applicant bears prolonged uncertainty without a corresponding right to reconsider its own commitment, is eroding the willingness of credible investors to participate in the resolution process,” Sahoo said.

 

The majority of the companies that are now pushed into IBC, experts said, have no real assets or meaningful business left for any acquirer to consider. “If there are possibilities of revival then companies pursue the path of raising private credit which helps them revive the company out of default without pursuing the IBC scenario,” said Anshul Jain, national leader, regulatory, PwC India.

 

Out of the total 8,987 CIRPs undertaken so far, as many as 3,003 have gone to liquidation and 1,419 resulted in a resolution plan.

 

“While it's a great piece of legislation, the complex process of acquiring a company or asset through NCLT, delays in the entire process and then dealing with multiple state and central regulators post-acquisition makes the entire process a huge concern which is resulting in fading interests of acquisitions through the IBC process. The biggest banks ask us “koi aur tareeka batao (show us an alternative),” a senior industry executive who did not wish to be named said.

 

Many other modes of resolution, experts said, do come into play, including recovery through the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), one-time settlements, the Reserve Bank of India’s prudential frameworks, debt refinancing, and inter-creditor agreements.

 

Recovery over resolution

 

Not only have the total admissions under IBC hit the lowest point, the number of resolutions have also lagged behind to a three-year-low. FY26 saw approvals granted to 233 resolution plans, compared with 259 in FY25 and 258 in FY24.

 

“While the stated objective of the IBC is resolution and revival of the company, in all situations, banks are only keen to pursue their recoveries. Plans with highest and fastest recoveries get preference in IBC resolutions,” the senior executive added.

 

Stakeholders are hoping that the latest set of amendments to the IBC would address several issues which contribute to delays to a great extent. For instance, the automatic admission by CIRPs filed by the financial creditors is expected to do away with litigation over the default itself. The penalty for frivolous litigation, which till now had no cost to it, may also bring down the pile-up of cases in insolvency matters.

 

Practical challenges, however, still remain. For instance, some IBC practitioners said that the ministry of corporate affairs has no process to remove the old directors for a company acquired through the IBC. While in the usual course of business, a director is removed through shareholder approval, a senior executive handling mergers and acquisitions said that, for the IBC this often gets done at the backend by the registrar of companies.

 

“There are issues, where promoters are not providing data, not vacating the premises. Data is missing. The resolution professional (RP) cannot make the information memorandum properly,” Siddharth Srivastava, partner — banking, finance and insolvency, Khaitan & Co said.

 

Insolvency proceedings involving personal and corporate guarantors becoming entangled in technical objections has become another growing challenge under the IBC, Sonam Chandwani, managing partner, KS Legal and Associates said. “While the law must undoubtedly safeguard genuine legal rights, it should not permit procedural objections to become a tool for frustrating legitimate recovery efforts,” she said.

 

Citing the example of Go First airline which went into insolvency in May 2023, Chandwani said that the success of the IBC depends as much on speed as it does on the legal framework itself.

 

“By the time liquidation became the only practical course, much of the enterprise value that the IBC seeks to preserve had already diminished for the airline. Cases such as Go First reinforce the need for greater procedural efficiency and strict adherence to timelines if the insolvency regime is to continue inspiring confidence among financial creditors,” she added.

 

In the insolvency proceedings of Jet Airways the process lasted five years starting in 2019. The resolution plan was approved in 2021, but a dispute between lenders and the successful resolution applicant delayed implementation. During this time the aircraft remained grounded, air slots were lost and the brand value deteriorated. The Supreme Court finally ordered the airline's liquidation in 2024.

 

For Videocon Industries as well, the resolution process took three years, with extensive litigation, leading to a deterioration of manufacturing assets and a recovery of less than 5 per cent for creditors.

 

An evolving Code

 

IBC lawyers feel that creditors have become more pragmatic in using IBC. Over the last few years, delays in the resolution process, prolonged litigation, and the erosion of asset value have made stakeholders think twice before initiating insolvency proceedings.

 

“I don't think the IBC is losing relevance. If a faster and commercially viable settlement is possible outside the IBC, many lenders are understandably choosing that route, ” said Vidya K, partner, King Stubb & Kasiva Advocates and Attorneys.  

 

Faster timelines, stronger institutional capacity, and reducing procedural delays, Vidya said, will go a long way in restoring credibility among both creditors and investors.

 

Despite these challenges, practitioners argue that the Code remains India’s most effective insolvency framework. They contend that the focus now should be on improving implementation through faster approvals, stronger tribunal capacity and fewer procedural bottlenecks, rather than questioning the law itself.

 

“IBC gives you the cleanest form of company compared with any other mode, devoid of old liabilities and legacy issues. The law is stronger now and addresses interpretations made by courts,” Ashish Chhawcharia, partner, Grant Thornton Bharat said.

 

The IBC’s biggest success may lie outside formal admissions — in its deterrent effect. More than 30,000 cases filed before the National Company Law Tribunal were resolved at the pre-admission stage through withdrawals in the last ten years, involving a total amount estimated at nearly ~14 trillion.

 

As Sahoo put it: “Ironically, what continues to make the Code work is Section 29A (disqualifies defaulting promoters from regaining control of their companies), which prevents ineligible promoters from regaining control of their companies. The possibility of losing control remains the IBC’s most powerful deterrent. The fear of the Code, rather than the efficiency of its processes, is increasingly what drives timely settlements and resolutions.”