A Critical Study on the Role of IBC in Reforming India’s Banking and Corporate Debt Resolution Regime

The Insolvency and Bankruptcy Code, 2016 (IBC) is one of the most important legal and economic reforms in India since liberalisation of the Indian economy. Before the enactment of this Act, there was no single statute to address the issues of insolvency, with various laws being enacted to address the issue, such as the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), the Recovery of Debts Due to Banks and Financial Institutions Act 1993 (RDDBFI) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI). The debtor-centric procedural delays, conflicts among the regimes, low recovery rates, and overall inefficiency of the regimes resulted in the building up of non-performing assets (NPAs) in the banking sector. The Code created an institutional mechanism comprising of the National Company Law Tribunal (NCLT), the Insolvency and Bankruptcy Board of India (IBBI), Insolvency Professionals and Information Utilities. The IBC has effectively changed the debt resolution landscape in India by moving away from defaulting promoters and towards the creditors where the Committee of Creditors (CoC) stands.The IBC has fundamentally redefined the debt resolution landscape in India by shifting the control of debt resolution from the defaulting promoters to the creditors under the Committee of Creditors (CoC). The article also outlines the continuing issues with the effectiveness of the IBC, especially regarding the substantial haircuts that financial creditors are willing to accept, delays stemming from litigation and institutions' capacity limitations, poorly developed distressed assets markets, and the lack of an extensive cross-border insolvency regime. Besides, it also reviews the pending reforms in the Code, including the Pre-Packaged Insolvency Resolution Process (PPIRP) for Micro, Small and Medium Enterprises (MSMEs) and the incomplete implementation of the individual insolvency scheme provisions in the Code. The study finds that the IBC has hugely streamlined and made the insolvency regime more credible in India, but it will be important for the system to continue to be refined through further legislation, increased judicial capabilities, the better working of the cross-border mechanisms and a further strengthening of the distressed asset resolution system as a whole.