Recasting insolvency resolution

Context: The Insolvency and Bankruptcy Code, 2016 (IBC) is one of India’s most significant economic reforms, introduced to address the challenges of insolvency resolution in a structured and time-bound manner. At the time of its introduction, the IBC was seen as an important tool that would help India’s standing in the business world and bring bad borrowers and big defaulters to book. Yet, as the law matured, certain issues have cropped up that demand attention, particularly

regarding institutional capacity and procedural efficiency.

Key points

• Overview: The recent Supreme Court of India judgment in Jet Airways (State Bank of India & Ors. vs The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr.) has laid bare the many structural infirmities that are plaguing India’s insolvency regime.

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• Insolvency and Bankruptcy Code 2016 (IBC 2016): Insolvency and Bankruptcy Code is a legislation enacted in 2016 based on the ‘T.K Vishwanathan Committee Report’. It consolidates various laws pertaining to the resolution of insolvency of businesses and firms. It establishes streamlined and expedited insolvency procedures to assist creditors, such as banks, in recovering dues and mitigating bad loans, which are a significant burden on the economy. It is also known as the exit law of India.
• Insolvency – Insolvency refers to a situation where individuals or companies cannot repay back their outstanding debt obligations.
• Bankruptcy – Bankruptcy refers to a legal status declared by a court of competent jurisdiction for a person or entity that is insolvent i.e. unable to pay off debts.
• Insolvency and Bankruptcy (Amendment) Act, 2021: The Insolvency and

Bankruptcy (Amendment) Act, 2021 introduced an alternate insolvency resolution

process for Micro, Small and Medium Enterprises (MSMEs) with defaults up to ₹1

crore called the Pre-packaged Insolvency Resolution Process (PIRP).

• Some achievements of Insolvency and Bankruptcy Code: Improved Legal Provision
• Insolvency and Bankruptcy Code (IBC Code) is a vast improvement on the

two earlier laws for recovering bad loans.

Ease of Doing Business (EoDB) - Post introduction of the Insolvency and Bankruptcy

Code (IBC Code), many business entities can be seen paying up front before

being declared insolvent. Moreover, many cases have been resolved even before

it was referred to NCLT.

• Challenges: Lack of operational NCLT benches - Most of the single and division benches of NCLT

remain non-operational or partly operational on account of a lack of adequate

support staff and proper infrastructure.

Low approval rate of resolution plans - As per the Insolvency and Bankruptcy Board of

India’s data, only 60% of the cases have been closed, and most of the cases

have been closed through liquidation, only a few cases have been closed due to

resolution.

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• Conclusion: The Insolvency and Bankruptcy Code (IBC) has led to significance improvements in India’s insolvency landscape, providing a robust framework for the resolution of distressed assets. By fostering a culture of credit discipline, promoting entrepreneurial ventures, and ensuring the efficient use of resources, it has set the stage for a more resilient and dynamic economy. Ongoing efforts to

refine and strengthen the code will be crucial for managing the complexities of insolvency and bankruptcy in the future.

As a Junior Researcher myself simran is passionately engaged in scientific inquiry and discovery. I hold a PhD in Research from Banaras Hindu University, where I have developed a strong foundation on research areas.