Suggested Reforms at the Insolvency and Bankruptcy Code, 2016 (IBC) Tribunals
The bottleneck of time taken at national company law tribunal (NCLT)/ national company law appellate tribunal (NCLAT) has to be addressed. The Supreme Court has held that judicial timelines are directory, not mandatory. Recording reasons for delay by NCLT, as proposed in IBC 2025 Amendment Bill, will not solve the problem. Reforms at NCLT/ NCLAT must include:
• Prescribed timelines for the pleadings (replies, rejoinders, etc.) by parties and curtailing the powers of the NCLT/ NCLAT to give an unlimited extension for completing the pleadings. Similar provisions exist in the case of an appeal under Sections 61 and 62 of the IBC.
• Limited time for arguments after pleadings by the NCLT/ NCLAT, as recently proposed by the Supreme Court.
• Increasing the number of benches with proper infrastructure. The reliance on contractual staff at NCLT has increased corruption.
• Regular training of NCLT members. Some members of NCLT are not even aware of the provisions of Section 424 of the Companies Act, 2013 giving wide powers to NCLT/ NCLAT.
Without these reforms, delays will persist, regardless of new frameworks.
The Real Need: Regulatory Accountability
India’s insolvency framework is regressing. There is no accountability for regulatory inaction that is the main cause of the continuous failure of IBC. IBC was meant to promote entrepreneurship, not create opportunities for third parties to snatch businesses from genuine promoters.
Promoters, fearing loss of control, often divert assets to frustrate proceedings soon after insolvency proceedings are initiated. The avoidance mechanism, intended to claw back avoidance transactions, has proved ineffective as discussed in “
The Avoidance Mechanism Under India’s Insolvency Code: A System in Crisis”. Pending avoidance applications now involve amounts more than the total recoveries under the IBC.
Genuine promoters typically settle their dues before the commencement of CIRP, while fraudulent cases that cannot be resolved enter CIRP. In such scenarios, the C-IIRP adds no real value, much like CIRP itself. In cases of genuine business failure, the risk of third-party bidding may incentivise even genuine promoters to adopt fraudulent practices such as running businesses through proxies to frustrate banks soon after the C-IIRP process is initiated, as often happens under CIRP. This, in turn, heightens the risk of pushing even companies with genuine business failure into liquidation, leaving creditors unable to recover diverted assets even under the C-IIRP. The fundamental problem of IBC lies not only in delays at NCLT but also in the recovery of diverted assets, which requires decisive action by the IBBI. Yet, if the IBBI remains reluctant to act and the government is content with such inaction, the systemic failures of the IBC will persist indefinitely.
If the promoter diverts business soon after initiation of C-IIRP as happens under CIRP, it will have a prolonged legal battle wherein after running the business for years, the promoter might be required to transfer the business back. But this litigation period delays the process and promoters divert significant money without paying anything to the creditors. The reason for such an incentive is that criminal action is rarely taken by IBBI which is the main reason for such diversions and, in most cases, the only asset left is immovable property which can’t be sold due to a mortgage in favour of the lenders.
IBC contains both civil and criminal provisions. The intent behind such provisions is that the person willing to pay the civil penalties must be sent to jail and monetary penalties must be recovered from people who are willing to go to jail. This is how the fear of punishment under the law makes human beings respect the law, especially in economic laws. This is where the Indian government must learn from jurisdictions like the United States of America. However, the trend in India is reversing and the non-use of the criminal provisions in economic laws like the IBC is failing, which is causing more damage to the nation as evident from the increasing amount involved in the avoidance transactions under the IBC.
IBBI wants everyone, including NCLT, to act in a timely manner, but there are no timelines for the performance of duties on BBI, which is supposed to invoke the criminal provisions of IBC to ensure that promoters comply with the provisions of IBC and the order of NCLT. This is causing maximum problems to the creditors and recoveries under IBC and turning IBC into a washing machine for white-collar crimes. Notably, without the timely performance of duties by IBBI, no number of NCLTs will achieve the objectives of the IBC.
IBBI's convenient borrowing from foreign jurisdictions adds no value. For allowing non-individuals to act as insolvency professionals under IBC, it relied on Austria, the Czech Republic, Hungary, Slovakia, Spain, Lithuania, Romania and Switzerland for best international practices. For the C-IIRP, it leaned on the United Kingdom, the United States of America, Singapore, Australia and Germany. Neither approach is suited to India’s requirements.
Conclusion: The Cost of Endless Experimentation
India’s insolvency framework is at a crossroads. IBC was designed to be a time-bound, value-maximising system that promoted entrepreneurship and balanced stakeholder interests. IBBI, instead of performing its duties to achieve the objectives of the IBC, is merely running experimental schemes. Notably, even after admitting that pre-packs are inappropriate for MSMEs, the Indian government has proposed the C-IIRP which is also based on the pre-packs scheme and failed the RBI 2019 framework.
Like pre-packs, the C-IIRP opens the door to third-party bidding, discouraging genuine promoters and eroding entrepreneurship which is one of the main objects of the insolvency law. And it risks becoming lengthier than CIRP itself, with frequent conversions back into the very process it sought to replace.
The issue at hand is the regulatory failure to arrest the massive delays and diversions of assets. Instead of rectifying these failures, the C-IIRP has been proposed with the assumption that it will eradicate delays and that there will be no diversion of assets. The C-IIRP is not a solution but another diversion by IBBI, an admitted experiment, but an impractical one that risks further value destruction and continued asset diversion under the IBC. The true test of insolvency law lies in its ability to deliver timely, fair, and effective outcomes. On that measure, the C-IIRP is unlikely to succeed.
From the perspective of operational creditors, as noted from the expert committee report, the possible reason to implement the RBI 2019 framework through IBC is to make it binding on all the creditors after taking NCLT approval which is not the case in the case of the existing RBI 2019 framework. This will result in further setbacks to the recovery of operational creditors under IBC and amounts to yet another fraud on operational creditors.
The governing board of the IBBI includes the representatives of the Reserve Bank of India (RBI) too. Therefore, another open question that remains unanswered is whether RBI is going to abolish its RBI framework after the enactment of the C-IIRP under IBC!
The way forward for the betterment of the IBC is not more experimentation but reform of fundamentals: strengthening NCLT infrastructure, enforcing strict timelines, ensuring independence of resolution professionals, making IBC in line with the objective of insolvency law to promote entrepreneurship, and holding the regulator accountable. Only then can IBC fulfil its original promise of promoting entrepreneurship, maximising value, and restoring confidence in India’s insolvency ecosystem.
As Oliver Wendell Holmes Jr. reminded us: “The life of the law has not been logic; it has been experience.” India’s experience with pre-packs and now the C-IIRP shows that experiments without accountability are costly distractions. IBC must embrace realism, not rhetoric. Otherwise, insolvency reform will remain a revolving door of failed schemes, each promising efficiency but delivering disappointment, while the true stakeholders - creditors, entrepreneurs, and the economy - pay the price.
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(Jitender Kumar Jain is a Mumbai-based advocate with over two decades of practice in corporate and commercial laws, including insolvency law.)
The fundamental issue is massively breached timelines. Rectify this. Half-naked adjunct like CIIRP will only add insult to the injury.