The Insolvency and Bankruptcy Code, 2016 (IBC), enacted in December 2016 was an epoch-making legislation, not merely for consolidation of various credit recovery and insolvency laws, but also to provide a time-bound resolution process that offered value maximisation and kept debtors out of decision-making. Having grappled with ineffective and failed credit recovery legislations since independence, the banking fraternity was excited at the possibility of optimised credit recovery and timely adjudication in 180 to 270 days as mandated in the IBC.
The Insolvency and Bankruptcy Board of India’s (IBBI) quarterly newsletter for April-June 2025 says that 4,095 corporate debtors (CDs) entered insolvency in the 8½ years till June 2025. Of these, only 1,258 cases (31%) were resolved while 2,824 went into liquidation. The average realisation through resolution was 32.6% of the admitted claims and no recovery data is available for cases that went into liquidation.
The reported 32.6% recovery for resolved cases reflects committed and anticipated recoveries spread over several years, not immediate returns. If this amount is distributed over a typical four-year resolution plan and discounted at 10% per annum—with the optimistic assumption of full recovery—the present value drops to 20.8%. Realistically, actual recoveries will be lower, likely under 20%, and would decrease further when accounting for poor outcomes from liquidations.
As against the mandated resolution period of 180 days (or extended 270 days), the average corporate insolvency resolution process (CIRP) period was 724 days. The liquidation period, after its commencement, was 512 days. These delays further reduced the present value (PV) of credit recovery. As a result, over the past 8½ years, CIRP performance seems to be regressing to the levels seen under older regimes like the Recovery of Debt and Bankruptcy Act, 1993 and the SARFAESI Act, 2002.
The government of India has recognised the urgent need to strengthen the IBC to achieve its core objectives—speedy resolution, improved credit recovery, and maximised asset value. Drawing on experience from the past 8½ years, the IBC (Amendment) Bill, 2025 was introduced on 12th August to address these challenges.
Experience so far indicates that the most critical issue is extreme adjudication, compounded by excessive litigation, which delays resolution and leads to low credit recovery. The persistently low recovery rates from non-performing assets (NPAs) of public sector banks (PSBs) have existed for a long time and cannot be blamed on the IBC. In fact, the IBC has demonstrated better recovery outcomes than the Recovery of Debts and Bankruptcy Act (RDBA) and SARFAESI. Thus, the primary flaw lies in the IBC’s sluggish adjudication process. This note, therefore, analyses the impact of the major amendment proposed on the speed of adjudication, followed by some other hits and misses.
Mitigation of Delays
The IBC currently mandates strict timelines for admitting creditors’ applications for CIRP, disposing resolution plans and handling other related petitions. However, these timelines have been grossly violated by incessant adjournments both at the admission stage and during adjudication. To accelerate CIRP admissions, the proposed amendment seeks to delete Section 7(4), removing the adjudicating authority’s discretionary power to admit or reject CIRP applications. Instead, the presence of debt and default would be established solely through the creditors’ application and records from the information utility, potentially speeding up admission. Yet, it is important to note that many Section 7 applications remain pending for months or years, not because of disputes over ascertaining the existence debt or default, but due to the indifference of the adjudicating authority’s (AA) administrative machinery.
The proposed amendment requires the AA to record in writing the reasons for the delay in disposing of the application beyond 14 days. A similar proviso is proposed to be added to Section 9 applications for CIRP by the operational creditors. Experience shows that such a proviso in the RDBA and SARFAESI Acts has not helped; hence, this amendment may have limited impact.
Delay at admission is only a small part of the problem; the bigger hurdle is the delay in the completion of the CIRP. This is proposed to be rectified by the following amendments:
- The amendment to Section 3(31) redefines secured interest by excluding security created by operation of law, which is expected to significantly reduce litigation initiated by government authorities. Additionally, introducing group insolvency under the new chapter V-A will eliminate delays caused by multiple applications and benches, thereby enhancing procedural efficiency.
- The proposed amendment to Section 30, which allocates to dissenting financial creditors the lower of the liquidation value or the resolution amount as per Section 53(1) waterfall, is a positive development. This change will prevent any financial creditor with veto power (over 34% vote share) from opposing a resolution plan solely because his share is less than the liquidation value, thereby reducing related litigation.
- The insertion of a new Section 64A, with imposing a penalty of up to Rs2 crore for frivolous or vexatious proceedings, will deter such applicants and save CIRP time.
- Section 235A, which addresses penalties for violations not covered elsewhere in the IBC, has been strengthened by increasing fines to three times the amount of loss caused or unlawful gain made, or Rs5 crore if such amounts are unquantifiable. This will deter successful resolution applicants and promoters from violating provisions of the IBC and resolution plans. However, the literal interpretation of the amendments covers even IPs who may justifiably feel threatened and withdraw.
- The delays are also due to the deluge of CIRPs, litigations against the RP/ COC decisions, actions by government authorities and others, u/s 60(5) of the IBC. Subtle non-cooperation by the promoters and the reluctance of the RPs to move Section 19 applications due to incessant delays in adjudications are also a causal factor.
- There are examples where indefinite stays are managed from the High Court (HC). For example, in one CIRP, the influential promoter filed a writ petition in an HC under Articles 14, 19(1) and 21 of the Constitution, and got a stay which continues even after two years. Meanwhile, the bank has kept the CIRP standstill despite the AA’s order that the HC stay is on the 'precipitate action' by the creditor and not on the CIRP.
So the real remedy can come only from:
- Enhancing the physical and human infrastructure of adjudicating and appellate authorities so that they can maintain timelines. In the Surendra Trading Company versus Juggilal Kamalpat Jute Mills Company Ltd & Others it was stated that the time-related provisions are procedural in nature and the timelines are discretionary, not mandatory. Such precedents need to be nullified by effective amendments.
- Strict enforcement of adjudication timelines is essential. Simply requiring the adjudicating authority (AA) to provide written reasons for delays is insufficient. Why not restrict breach of timelines with reasons in writing to no more than three times and a pecuniary loss for breaching such a limit? Why not implement e-governance requiring FIFO for the cause list with not more than say 5% wild card entries in the cause list? Why not create a separate AA for IBC with a cadre of well-paid AAs, apart from pecuniary incentives and disincentives?
Hits and Misses
The proposed amendment of Section 33 will extend the Section 14 moratorium to liquidation phase, thereby protecting the corporate debtor’s assets during liquidation.
Further, the proposed amendment to Section 33 allowing up to 120 additional days for fresh CIRP is fine for the real estate/ PPP sectors but not for others, especially when the liquidation as a going concern provides creditors an opportunity to rectify the missed chance in CIRP. This is likely to become a necessary evil and extend the CIRP period to 390 days (180+90+120), and induce delays.
The resolution plan approval u/s 31 will be done in two phases: the first stage covering approval and the second stage for distribution in 30 days. This is impractical since, without the distribution figures in the resolution plan, no bank will be able to vote for the plan.
Liquidation
The proposed amendments to Section 34, 34A and 35 and deletion of Sections 38 to 42 will help obviate the duplication of claim invitation and processing and empower the CoC to supervise the liquidation and replace the liquidator. This will ensure effective oversight. However, it will not be fair to the operational creditors, workmen, employees, and government who will lose their right to vote in the stakeholders’ committee meetings.
The proposed amendments to Sections 43, to 49 will result in the start of the look-back period on the CIRP commencement date and will enhance the effectiveness of identifying the avoidance transactions. Further expressly allowing the creditors also to file avoidance applications will obviate the need to invoke the omnibus section 60(5) and prod the RP and liquidator to be more responsive. This is positive even for CIRP. However, not fixing mandatory timelines for disposing of avoidance applications is a big miss.
The proposed amendment in section 53 to restrict the government dues to the past two years is unlikely to have practical implications since the dues of the secured financial creditors generally exceed the asset values. However, it will force the tax and other government authorities to set their house in order.
Amendment to section 54 will bring down the liquidation period to 180 days or to an extended period of 270 days. However, with the time-consuming liquidation process from the IBBI-mandated portal and the games that the bidders tend to play, this timeline will be difficult to achieve.
Creditor-initiated Insolvency Resolution Process
Chapter IV-A has been added for the creditor-initiated insolvency resolution process (CIIRP) which is different from the existing creditor-initiated CIRP under Sections 7 and 9 of the IBC. Spread over 11 Sections from section 58A to 58K, the amendment elaborates the broad process which essentially mimics the CIRP process in abridged form and limits the process period to 150 days extendable by 45 days. Though the AA will have a limited role in CIIRP, since the resolution plan under the CIIRP must be approved by the AA u/s 31, this process is also likely to drag like the CIRP process. Instead, this should have involved the debt restructuring passed by the lenders for approval by the AA in the form of an enforceable consent decree.
Group Insolvency
Chapter V-A has been added for group insolvency (GI) against two or more corporate debtors that form part of a group. This will involve the common bench of the AA, a common RP, and a COC comprising the creditors of the group entities under CIRP. This is a good move and it is hoped that the regulations will be formulated in a manner which will facilitate speedy resolutions in businesses like real estate and PPP projects which are often taken up by single project-specific companies.
Automation
In terms of the proposed new Sections 240B and 240C, the government of India will start an electronic portal for the insolvency and bankruptcy processes and conduct cross-border insolvency proceedings. This move can potentially induce efficiency in the CIRP and the evolution of the cross-border bankruptcy framework.
Epilogue
The proposed amendments will enhance the insolvency resolution and liquidation processes to some extent. While certain changes are likely to save time, others may nullify these gains, resulting in only a moderate overall improvement in the IBC’s effectiveness. Overall, the amendments fall short of meeting the mandated timelines, which is a big miss.
The amendments have missed the valuable features of liquidation as a going concern which could have been refined to address legal/ regulatory risks as partially done under Section 32A and the proposed amendment to Section 31(5), and implemented as a first step before initiating CIRP if necessary. This approach was preferable because a lump sum payment for acquiring the corporate debtor eliminates prolonged monitoring challenges—where breaches often go unpunished and processes are gamed despite formal compliance.
Liquidation as a going concern resembles acquisitions under the Companies Act, 2013, where the acquisition price is paid upfront in cash or kind. Unless acquisitions under the IBC happen in one lump sum payment in cash and/ or kind, some gaming in CIRP will continue.
Liquidation as a going concern could have easily led to the development of the distressed assets funds and hedge funds which could buy CDs for upfront cash. These could also have opened the market for large CD acquisitions as exists in Sweden where the firms under bankruptcy are mandatorily auctioned. The government should test this with Bhushan Steel and Power Limited instead of attempting an expensive CIRP again.
While the IBC has tried to incorporate measures to streamline insolvency proceedings, it does not fully bridge the gap between intention and impact. Unless decisive changes are made to ensure strict enforcement of timelines, meaningful accountability, and leverage innovations like liquidation as a going concern, India’s insolvency regime may continue to fall short of global best practices and stakeholders' expectations.
(Dr Rajendra M Ganatra, ex-MD&CEO of an ARC & an insolvency professional, has over four decades of experience in industry & financial services. CA Devang Sampat is a practising chartered accountant & an insolvency professional in Mumbai.)
