IBC reset needed: Delays in the resolution process must be addressed

As reported by this newspaper, the Parliamentary Standing Committee on Finance, in a meeting last week, discussed the possibility of establishing a dedicated National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) to expedite the resolution of insolvency cases under the Insolvency and Bankruptcy Code (IBC). Since the government is expected to introduce amendments to the IBC in the upcoming monsoon session of Parliament, the committee would do well to take this discussion forward and make suitable recommendations. The implementation of the IBC is seen as one of the most significant reforms in recent decades. For a large market economy like India, it is crucial that the IBC functions as intended and provides a smooth and timely exit to firms.  However, that has not been the case, largely because of delays in the resolution process. The Supreme Court’s judgment in the Bhushan Power and Steel case, which set aside the resolution plan, has added another layer of complication which also needs to be addressed. 

 

The NCLT was established to administer company law and now has the additional responsibility of adjudicating IBC matters without much improvement in capacity. Thus, delays in IBC matters should not surprise anyone. However, now with eight years of experience, the government must address the gaps. One way to address the delay is to establish a dedicated NCLT and an appellate tribunal, as reportedly discussed by the committee. The other and more straightforward solution is to increase the capacity of the NCLT and NCLAT quickly. The government should also thoroughly look at other reasons for delays in the process. The IBC aims to resolve insolvencies at the earliest, with a maximum period of 330 days. However, as the latest quarterly newsletter of the Insolvency and Bankruptcy Board of India showed, 1,194 corporate insolvency resolution processes (CIRPs) that yielded resolution plans till March 2025 took an average of 597 days. Further, 2,758 CIRPs that ended up in liquidation took an average of 508 days.

 

While there is a need to address delays, the IBC has nonetheless had a positive impact on the banking system and credit culture in the country. As of March 2025, a total of 8,308 cases had been admitted, and 6,382 had been closed. In close to 1,200 cases that resulted in a resolution plan, creditors recovered about 33 per cent of the admitted claims, translating into roughly 170 per cent of the liquidation value. In terms of impact on credit culture, the NCLT data shows that over 30,000 cases were settled prior to admission till December 2024. Further, a study by the Indian Institute of Management Bangalore showed that the IBC had prompted borrowers to adhere to the loan schedule, and there had been a significant reduction in loan accounts termed “overdue”.  Improving credit culture was one of the objectives of the IBC. Promoters now have the real fear of losing control of their companies.

 

Therefore, to further improve outcomes, insolvency cases must be admitted and resolved in a timely manner. The government has been working on improving the ease of doing business, and a smooth exit for firms is a significant part of the process. Thus, weaknesses in this area must be addressed immediately. Besides, the law also needs to be amended to provide more certainty to the process. If resolution plans can be set aside years later, it undermines the credibility of the insolvency process and raises questions about the very foundations of the Code. This cannot be allowed to persist.