Why I worry about the IBC’s future
I have followed India’s insolvency reforms for years. When the Insolvency and Bankruptcy Code (IBC) was born it promised a simple trade: speed for value preservation. The latest figures — a backlog approaching 30,600 cases at the National Company Law Tribunal (NCLT) and average resolution times that have ballooned well past the statutory 330 days — tell a different, worrying story The Tribune.
The Economic Survey and recent coverage show the same paradox I have observed before: the law is sound in design, but institutions and processes are failing to keep pace. Where the Code once promised to unlock value quickly, delays are now converting recoverable businesses into shells — customers leave, assets deteriorate, contracts fray, and employee morale collapses. The upside of the IBC — stronger creditor discipline, higher recoveries, cleaner bank balance sheets — risks being eroded unless we fix the machinery that delivers it.
What the numbers mean, in practice
- Backlog ~30,600 cases at the NCLT; at current disposal rates this could take nearly a decade to clear.[1]
- Average CIRP durations have stretched far beyond 330 days (official figures cited in recent coverage report averages of 700+ days, and in some reported measures 713–853 days for different cohorts).
- Pre-packaged routes designed for smaller firms have barely been used — a sign that process design and awareness still lag.
These are not just statistics. They are companies with employees, suppliers, and communities. Time is the most destructive force in insolvency: every extra month corrodes value.
Where the system is weakest (and what I’d focus on)
I see five immediate, practical priorities:
- Expand and specialise judicial capacity
- Increase NCLT benches and create dedicated insolvency verticals so IBC matters are not swamped by routine company law litigation.
- Fix post-approval logjams
- Too many plans stall after Committee of Creditors approval because appellate or implementation processes are slow. Fast-track mechanisms for finality (without compromising fairness) are essential.
- Reboot the Pre-Pack and MSME pathways
- Pre-pack was introduced to be quicker and cheaper for small firms. But procedural complexity, low awareness, and trust deficits have kept uptake negligible. Simplify steps, lower up-front costs, and run awareness pilots linked to public credit facilities.
- Strengthen and scale the RP pipeline
- We need more qualified, multidisciplinary resolution professionals with active authorisation, supported by training and enforced accountability.
- Coordinate regulators where laws collide
- Parallel enforcement actions (for example, asset attachments under other statutes) can undermine resolution. Clear inter-agency processes and timebound forensic audits will reduce uncertainty for bidders.
A note about incentives and behaviour
One reason the IBC initially worked was behavioural: creditors and promoters changed behaviour because the law made outcomes credible and predictable. If delays become the new normal, that deterrent fades. Banks will hesitate to trigger insolvency, investors will demand steeper discounts, and informal evergreening can reappear. Restoring speed and certainty is therefore not just an operational goal — it's foundational to market discipline.
What worries me most
If we treat the IBC as a legal fix alone, we will lose the broader economic benefits it promised. The Code was as much about creating an expectation of timely enforcement as it was about rules on paper. Without timely disposal, recoveries fall, credit costs rise, and the system drifts back toward the old, costly ways of dealing with distress.
Small reforms with big leverage
- Digitise case pipelines and standardise filings (shorter, standard templates reduce admission delays).
- Pilot “pre-pack clinics” for MSMEs — one-stop support for drafting, valuation and creditor outreach.
- Timebound rules for parallel agency actions in insolvency (so attachments and investigations don’t automatically freeze sales).
- Incentivise active RP registrations with outcome-linked measures and capacity-building grants.
Why I remain cautiously hopeful
Despite the backlog, the IBC has delivered real gains in recoveries and credit culture. The law works when the system around it works. The Economic Survey’s diagnosis is blunt and useful: the next phase must focus on operational fixes and scaling capacity. If we get that right, the policy gains of the last decade can be preserved and amplified.
Where I’ve written on these themes before
I have long argued for transparency and stronger incentives in how we handle defaults — small ideas that nudge larger systems. See my earlier reflections on transparency and enforcement practices here.
References
[1] "India’s Insolvency & Bankruptcy Code struggling to deliver as backlog nears 30,600 cases: Economic survey" — The Tribune: https://www.tribuneindia.com/news/india/indias-insolvency-bankruptcy-code-struggling-to-deliver-as-backlog-nears-30600-cases-economic-survey/
Regards,
Hemen Parekh (hcp@recruitguru.com)
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