‘Persistent & Systemic Challenges’ Undermine IBC’s Full Potential: Parliamentary Committee

IBC's Stalled Promise: What's Blocking India's Insolvency Reform?

As of December 2025, resolution cases under India's Insolvency and Bankruptcy Code (IBC) average 713 days—a glaring deviation from its mandated 330-day timeline. This delay isn't just administrative sluggishness; it's symptomatic of deeper systemic flaws identified by the Parliamentary Standing Committee on Finance, which recently warned that India's mechanism for resolving corporate insolvency remains far from efficient despite its original promise of time-bound resolutions.

Consider this: creditors recover an average of 32.8% of admitted claims under IBC today—down from over 43% in 2019. Meanwhile, asset deterioration caused by delays leads to massive “haircuts” for creditors, most starkly illustrated by the Videocon Group resolution, where creditors recovered merely 4.7% of their dues. These statistics expose the harsh reality of overburdened judicial mechanisms and patchy implementation, undermining meaningful financial recovery and systemic discipline.

The Institutional Canvas: How Is IBC Structured?

The Insolvency and Bankruptcy Code, enacted in 2016, was a legislative effort to reverse rampant NPAs threatening India’s banking ecosystem. It replaced ineffective recovery frameworks, such as the Sick Industrial Companies Act (SICA), with a creditor-led model led by financial institutions. The Code outlined four objectives: resolution of distressed entities, maximizing the value of assets, fostering entrepreneurship by providing efficient exits, and enhancing liquidity in financial markets via timely reintegration of assets.

At the center of implementation lies the Insolvency and Bankruptcy Board of India (IBBI), supported administratively by the National Company Law Tribunal (NCLT). The NCLT adjudicates insolvency applications, while insolvency professionals work under its purview to oversee restructuring or liquidation processes. Despite significant achievements, such as resolving 1,194 distressed cases and recovering over 170% liquidation value, the institutional framework suffers from crippling capacity constraints. The Parliamentary Committee highlights that nearly 50% of NCLT benches remain vacant, leading to case backlogs stretching years.

Structural Delays and Their Fallout: A Policy Disequilibrium

The Standing Committee’s critique of procedural inefficiencies demands close scrutiny. Frivolous litigation—often initiated by unsuccessful bidders or promoters seeking to retain control—frequently stalls proceedings during both the admission phase and subsequent hearings. Worse yet, valuation methodologies employed during asset restructuring prioritize liquidation potential over enterprise reusability, curtailing creditors’ recovery.

Take the PSU banking sector, which classifies IBC recoveries into "haircuts." Over 70% of cases resolved involve a haircut exceeding 80%, weakening creditor confidence while also eroding fiscal discipline among borrowers. Videocon was certainly not an isolated casualty—it’s a precedent in a series of suboptimal resolutions driven by prolonged judicial inefficiency and procedural uncertainty.

The Committee rightly underscores a critical design flaw: companies often enter the IBC framework too late, pushed to insolvency after years of asset bleeding. By then, any restructuring or market reintegration mechanism becomes largely symbolic, benefitting neither creditors nor any potential acquirer.

Another layer of structural tension lies between resolution professionals, commercial creditors, and the overseeing Committee of Creditors (CoC). Transparency on decision-making metrics—such as evaluation of resolution plans or determination of liquidation thresholds—is alarmingly scarce. This institutional opacity has created opportunities for both vested interests and administrative friction, further deteriorating outcomes.

What India Can Learn From The UK’s "Pre-Pack Framework"

An instructive contrast can be found in the United Kingdom's streamlined implementation of pre-packaged insolvency resolutions. Unlike India, where pre-packs remain restricted to MSMEs (threshold default limited to ₹1 crore), the UK has established pre-pack frameworks across sectors. The debtor negotiates terms directly with creditors even before formal insolvency processes are triggered. This averts asset depreciation during long legal battles and enables faster financial recovery.

India’s adoption of pre-packs under the 2021 amendment remains narrow in scope, leaving large corporate debt—likely to benefit from pre-emptive restructuring—out of the reform’s ambit. Additionally, unlike the UK, India has yet to integrate pre-pack negotiations into its broader insolvency strategy, missing an opportunity to reduce litigation volume significantly.

Capacity Lag: Is This Fixable?

What is severely under-discussed is the chronic underfunding of key pillars within IBC’s institutional framework—particularly NCLT benches and IBBI operational infrastructure. The Parliamentary Committee called for expedited recruitment to address the 50% vacancy rate across tribunal staff. However, as successive Union Budgets allocate underwhelming sums to insolvency institutions, the gap remains untouched.

A glaring omission is the lack of modern digital infrastructure that complements IBC goals. Despite plans for an Integrated Technology Platform (iPIE) for case management, its deployment has faced perpetual delays. Without automation in both filing and resolution-tracking processes, even the Committee’s recommendations for strict adherence to a 30-day admission rule remain unrealistic.

The irony here is that the government touts IBC as a cornerstone reform but has yet to match aspirations with sufficient institutional support. This is bureaucratic overreach, not reform.

Forward Outlook: Measuring Success Beyond Recovery Rates

Can IBC deliver on its promise of systemic financial discipline? Much will depend on both structural changes and recalibrated metrics. For instance, measuring recovery rates based on actual asset valuation at the entry stage would present a fairer picture instead of focusing solely on claim percentages. Institutional watchdogs like the IBBI must enhance oversight over CoCs and insolvency professionals to ensure transparency in resolution plans.

Success would mean an average resolution timeline closer to the mandated 330 days, expanded use of pre-packs across all sectors, and a recovery rate exceeding international insolvency benchmarks, such as the US’s 60% recovery under its Bankruptcy Code. India's insolvency framework cannot afford further stagnation, especially as mounting NPAs loom in post-pandemic economies.

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