Introduction:
The Insolvency and Bankruptcy Code (IBC), 2016, was introduced as a comprehensive legal framework aimed at resolving corporate insolvencies in a structured and time-bound manner. By streamlining the insolvency process, IBC seeks to reduce the burden of non-performing assets (NPAs), promote financial discipline, and enhance recovery for creditors. However, while the IBC has made notable progress in addressing corporate financial distress, the process still faces numerous challenges, including delays, procedural inefficiencies, and sector-specific issues.

Current Status of Insolvency Resolution in India
The IBC has been instrumental in addressing insolvency cases, with over 6,000 cases admitted since its implementation. As of 2024, the Insolvency and Bankruptcy Board of India (IBBI) reported that around 20% of cases have successfully led to resolution plans.
The code has contributed to reducing NPAs in the banking sector, with banks recovering approximately INR 3.16 lakh crore through various resolutions. One notable example of successful resolution is the Essar Steel case, where ArcelorMittal acquired the company and cleared INR 42,000 crore in dues for financial creditors.
While the system has seen success in sectors like steel, the average resolution time for insolvency cases has increased to 716 days in FY 2023-24, which is well above the mandated 330 days under the IBC. This indicates a growing backlog and delays in the process, with the Jet Airways insolvency case taking more than four years to resolve.

Challenges in Insolvency Resolution:
Delays and Procedural Inefficiencies– The growing caseload at NCLT and NCLAT has led to significant delays in insolvency resolution. The average time for resolution is often much longer than the mandated period. This issue is compounded by frequent requests for extensions and delays in scheduling hearings, which contribute to procedural inefficiency.
Favoritism Toward Financial Creditors– The IBC process has often been criticized for prioritizing financial creditors over operational creditors, leading to disputes and legal challenges. Operational creditors, who are frequently sidelined in the resolution process, find their interests neglected, which creates conflicts and hampers a fair and equitable resolution.
Lack of Sector-Specific Expertise– The tribunals often do not have sector-specific expertise, resulting in decisions that may not fully consider the nuances of specific industries. Incorporating subject matter experts into the insolvency process could significantly enhance decision-making quality.
Inadequate Infrastructure and Manpower– The NCLT and NCLAT suffer from a shortage of judges and insufficient infrastructure to handle the growing volume of insolvency cases. This leads to delays, case backlogs, and reduced effectiveness of the resolution process.
Conflicts with Other Legal Frameworks– There are legal conflicts with other frameworks such as the SARFAESI Act and the DRT Act, creating procedural overlaps. Harmonizing these laws with the IBC could simplify the resolution process and reduce legal conflicts.

Measures for Improvement:
Strengthening Institutional Capacity– Increasing the strength of NCLT and NCLAT, enhancing their infrastructure, and improving case management systems are essential to reduce delays and streamline the resolution process. Appointing sector-specific experts to the tribunals could help in making more informed and efficient decisions.
Promoting Pre-Packaged Insolvency (PIRP)– Expanding the adoption of pre-packaged insolvency resolution processes (PIRP) can help expedite resolutions, particularly for MSMEs. These processes offer a faster and more streamlined resolution mechanism, reducing litigation and time delays.
Enhancing Transparency and Reducing Political Influence– There have been allegations of favoritism and political influence in the insolvency process. Transparent, independent oversight bodies should be established to ensure fairness and accountability in the resolution process.
AI and Digital Integration– The integration of AI-driven case management systems can help reduce processing times, schedule hearings efficiently, and ensure greater transparency. Digitization of case records and hearings would reduce delays caused by manual processes.
Expanding Alternative Dispute Resolution (ADR)– Promoting arbitration and mediation mechanisms could help resolve disputes outside the formal IBC process, reducing the burden on the tribunals and accelerating resolutions for smaller cases.
Public Awareness and Training– Regular training programs for tribunal members, legal professionals, and businesses can help improve decision-making and raise awareness of the IBC’s provisions, leading to better compliance and participation.

Conclusion
While the Insolvency and Bankruptcy Code has significantly reformed India’s insolvency landscape and has been instrumental in reducing NPAs, challenges like delays, procedural inefficiencies, and imbalances in creditor prioritization remain. By strengthening the institutional framework, promoting alternative resolution methods, and increasing transparency, the insolvency process can be further optimized. With strategic reforms and a more robust implementation framework, IBC can serve as an effective tool for economic revival, boosting investor confidence, and reducing the burden of bad debts in the Indian financial system.

Recent Datas
Essar Steel Case: The resolution of Essar Steel is one of the most significant successes under the IBC, with ArcelorMittal acquiring the company and clearing INR 42,000 crore in dues to financial creditors. This case highlights the potential of IBC in achieving large-scale recoveries.
DHFL Resolution: Another successful case was the resolution of Dewan Housing Finance Corporation Limited (DHFL), where Piramal Group acquired the company, ensuring a smooth settlement for creditors. This case set a benchmark for resolving large-scale insolvency cases effectively.
NCLT Caseload: As of June 2024, there were over 20,000 cases pending before the NCLT. The backlog highlights the need for immediate reforms to enhance the tribunal’s capacity and speed up the resolution process.
Recovery Rate: The recovery rate for corporate insolvency under IBC has fluctuated, standing at around 32.9% in recent years, which is below global benchmarks. Efforts to improve forensic audits and asset tracking mechanisms can enhance recovery rates.)

https://www.thehindu.com/opinion/op-ed/recasting-insolvency-resolution/article69115872.ece#:~:text=Above%20all%2C%20India’s%20insolvency%20regime,a%20bold%20reimagining%20is%20now.

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