Insolvency and Bankruptcy Code 2016

The Insolvency and Bankruptcy Code, 2016 (IBC) is a comprehensive legislation enacted by the Parliament of India to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner. The Code seeks to maximise the value of assets, promote entrepreneurship, improve the availability of credit, and balance the interests of all stakeholders, including creditors and debtors. Since its enforcement, the IBC has undergone several amendments and regulatory updates to address practical challenges and evolving economic needs.

Background and Legislative Context

Prior to the enactment of the IBC, India’s insolvency framework was fragmented across multiple laws such as the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the Companies Act, 2013. These laws suffered from delays, overlapping jurisdictions and weak enforcement. The IBC replaced this regime with a unified insolvency law, introducing a creditor-in-control model and strict statutory timelines.
The Code came into force in December 2016 and has since become a central pillar of India’s financial and corporate legal architecture.

Objectives and Key Principles

The IBC is founded on certain core principles that guide its implementation:

• Time-bound resolution of insolvency to preserve economic value.
• Creditor-driven process, primarily through financial creditors.
• Maximisation of asset value rather than mere recovery of dues.
• Promotion of credit discipline by deterring wilful default.
• Balancing stakeholder interests, including operational creditors, employees and shareholders.

Institutional Framework under the IBC

Insolvency and Bankruptcy Board of India

The Insolvency and Bankruptcy Board of India (IBBI) is the regulatory authority established under the Code. It oversees insolvency professionals, insolvency professional agencies and information utilities, and frames regulations for effective implementation.

Adjudicating Authorities

• National Company Law Tribunal (NCLT): Adjudicating authority for corporate insolvency and liquidation.
• Debt Recovery Tribunal (DRT): Adjudicating authority for insolvency of individuals and partnership firms.

Insolvency Professionals

Insolvency professionals play a crucial role as interim resolution professionals, resolution professionals and liquidators. They manage the debtor’s affairs during insolvency proceedings and conduct the resolution or liquidation process.

Corporate Insolvency Resolution Process (CIRP)

The Corporate Insolvency Resolution Process is the most prominent mechanism under the IBC.

Initiation of CIRP

CIRP may be initiated by:

• Financial creditors
• Operational creditors
• Corporate debtors themselves

A default above the prescribed threshold (currently ₹1 crore for corporate debtors) is required for initiation.

Process and Timelines

The CIRP must ordinarily be completed within 180 days, extendable to 330 days including litigation periods. Upon admission:

• A moratorium is imposed on recovery actions.
• Management of the corporate debtor is vested in the resolution professional.
• A Committee of Creditors (CoC) is constituted, comprising financial creditors.

Resolution Plan

Resolution applicants submit plans to revive the corporate debtor. Approval requires at least 66% voting share of the CoC. If no viable plan is approved within the stipulated time, the company proceeds to liquidation.

Liquidation under the Code

Liquidation is initiated when:

• No resolution plan is approved, or
• The CoC decides to liquidate the corporate debtor.

The liquidator realises and distributes assets according to the statutory waterfall mechanism, which prioritises insolvency costs, secured creditors, employees, unsecured creditors and government dues.

Insolvency Resolution for MSMEs and Pre-Pack Framework

Recognising the unique challenges faced by Micro, Small and Medium Enterprises (MSMEs), the Code permits promoters of MSMEs to submit resolution plans. Additionally, a pre-packaged insolvency resolution process was introduced for MSMEs, allowing faster and less disruptive resolution with debtor participation, subject to creditor oversight.

Insolvency of Individuals and Personal Guarantors

The IBC also provides a framework for insolvency resolution of individuals and partnership firms, though its implementation has been phased. Provisions relating to personal guarantors to corporate debtors are operational, enabling creditors to proceed simultaneously against companies and their guarantors. This has strengthened credit enforcement and accountability.

Major Amendments and Updates

Early Amendments (2017–2019)

Initial amendments clarified eligibility of resolution applicants, notably through the introduction of section 29A, which disqualifies wilful defaulters and related persons from regaining control of stressed assets.

Amendments during the COVID-19 Period

To mitigate pandemic-related stress:

• The minimum default threshold was increased to ₹1 crore.
• Fresh initiation of CIRP was temporarily suspended for defaults arising during the notified period.These measures were aimed at protecting viable businesses from insolvency triggered by external shocks.

Insolvency and Bankruptcy Code (Amendment) Act, 2021

This amendment formally introduced the pre-packaged insolvency resolution process for MSMEs and strengthened the legal framework for efficient resolution.

Insolvency and Bankruptcy Code (Amendment) Act, 2023

Recent legislative changes have focused on:

• Improving coordination between the IBC and other laws.
• Strengthening the framework for insolvency of individuals.
• Enhancing the role and accountability of insolvency professionals.

Regulatory Amendments by IBBI (2023–2024)

The IBBI has issued multiple amendments to CIRP, liquidation and information utility regulations, addressing:

• Faster admission and claim verification processes.
• Greater transparency in resolution plans.
• Streamlining of timelines and reporting requirements.

These regulatory updates aim to reduce delays and improve predictability in insolvency outcomes.

Judicial Interpretation and Evolving Jurisprudence

Judicial pronouncements by the Supreme Court and appellate tribunals have played a significant role in shaping the IBC. Courts have consistently emphasised:

• Primacy of the Committee of Creditors’ commercial wisdom.
• Strict adherence to timelines.
• The objective of resolution over liquidation.

Such interpretations have provided clarity on contentious issues such as distribution of proceeds, treatment of government dues and rights of operational creditors.

Significance and Impact

Since its introduction, the IBC has transformed India’s insolvency landscape by:

• Improving recovery rates compared to earlier regimes.
• Enhancing credit discipline among borrowers.
• Strengthening India’s ranking in ease of doing business indicators related to insolvency resolution.

Despite challenges such as delays in adjudication and capacity constraints, the Code remains a dynamic and evolving legislation, continually refined through amendments and regulatory updates to meet economic realities and policy objectives.