The Insolvency and Bankruptcy Code (IBC), launched in 2016, is India’s key law to handle bankrupt companies and individuals. It helps businesses either recover or close down quickly. This makes the economy stronger by saving jobs and reducing bad loans. IBC is managed by the Insolvency and Bankruptcy Board of India (IBBI). In this article, you will get a complete guide on the insolvency and bankruptcy code.
What is the Insolvency and Bankruptcy Code?
The Insolvency and Bankruptcy Code (IBC) is a law passed in 2016 by the Indian government to deal with financial distress. It helps companies and individuals who are unable to repay their debts. IBC creates a clear and fast process to either restructure the debt or liquidate assets fairly. This helps banks recover their money and protects the interests of employees and creditors. It replaces older, slower laws and brings all cases under one system. The IBC is regulated by the Insolvency and Bankruptcy Board of India (IBBI). It has improved India’s business environment by making debt recovery faster and more transparent.
Key Components of the Insolvency and Bankruptcy Code
The following details include the key components of the insolvency and bankruptcy code:
1. Unified Legal Framework
IBC, introduced in 2016, combines all past laws on debt recovery into a single system. It covers companies, individuals, and partnership firms, replacing scattered old laws like SICA, SARFAESI, and others.
2. Time?Bound Resolution
Corporate Insolvency Resolution Process (CIRP) – For Regular Companies:
- Governed by the Insolvency and Bankruptcy Code (IBC), 2016.
- 180 days: Initial resolution period from the date of admission by the NCLT (National Company Law Tribunal).
- 90-day extension: Permitted only once, with NCLT approval.
- Maximum duration: 330 days (including time taken for litigation).
- Introduced through the IBC (Amendment) Act, 2019 to prevent endless delays and ensure timely outcomes.
- Helps creditors recover dues faster and brings financial certainty to businesses.
Fast-Track Insolvency Process – For Startups & Small Businesses:
- Applies to startups, small companies, and unlisted firms with total assets not exceeding ?1 crore.
- Timelines set under Sections 55 to 58 of IBC.
- 90 days: Total resolution period.
- 45-day extension: Allowed in exceptional cases by NCLT.
- Maximum limit: 135 days.
- Designed to ease compliance for smaller firms and avoid lengthy insolvency battles.
3. Adjudicating Authorities (Tribunals)
- NCLT manages insolvency cases for companies and LLPs.
- DRT handles cases for individuals and partnerships.
Appeals go from NCLT to NCLAT, then to the Supreme Court.
4. Moratorium Period
Once a case starts, a "calm period" begins where no creditor can take legal action or sell assets. This pause helps in reworking the business without disruptions.
5. Insolvency Professionals (IPs)
Licensed experts take charge of managing the debtor’s affairs during the process. They act fairly between the debtor and the creditors.
6. Committee of Creditors (CoC)
This group, which are mainly lenders, makes key decisions like choosing a resolution plan. Approval needs at least 66%–75% in voting power.
7. Insolvency and Bankruptcy Board of India (IBBI)
The IBBI (set up in October 2016) regulates the entire IBC ecosystem—including IPs, tribunals, and information units. It ensures processes are clean and fair.
8. Information Utilities (IUs)
IUs act like trusted data centres, storing loan details and bills. They help with quick verification and reduce disputes.
9. Resolution vs. Liquidation
- Resolution first: The goal is to resolve the debt through new plans or restructured payments.
- Liquidation: If no plan is found, assets are sold, and proceeds are shared among creditors in a clear order.
10. Priority of Claims
If liquidation happens, secured creditors (like banks) are paid first, then others as per the rules, ensuring fairness and transparency.
The Role of Key Stakeholders in the IBC Process
Let us discuss the role of the key stakeholders in the IBC process:
1. Adjudicating Authorities (NCLT & NCLAT)
- The National Company Law Tribunal (NCLT) decides if an insolvency case begins, places a “moratorium” (a pause on creditor actions), and appoints an Interim Resolution Professional (IRP)
- If anyone disagrees with NCLT's decisions, they can appeal at the National Company Law Appellate Tribunal (NCLAT)
2. Insolvency Professionals (IPs)
Trusted and licensed by the Insolvency and Bankruptcy Board of India (IBBI), these experts manage and guide the insolvency process. Their roles:
- Interim Resolution Professionals (IRP): Take charge when the case starts until full-time IPs take over.
- Resolution Professionals (RP): Work with lenders, prepare all documents, run the process, and present plans
- Liquidators: If no deal works, they sell assets fairly and share proceeds among creditors.
3. Committee of Creditors (CoC)
This group, made up mostly of banks and financial lenders, holds the power to:
- Approve or reject resolution plans and any important decisions.
- Change the Resolution Professional if they feel one is not doing well
4. Insolvency and Bankruptcy Board of India (IBBI)
IBBI is the main regulator that:
- Licenses IPs, approves Information Utilities, and sets the rules.
- Offers training, updates, and circulation of best practices
5. Information Utilities (IUs): Think of IUs as trusted record-keepers who store loans and financial details. Their goal is to make data-checking fast and reduce disputes about who owes what.
6. Debtor (Company or Individual): The debtor starts the process by returning their financial records and helping the RP. They join in court proceedings and can suggest people for the RP role. Their cooperation is key to a smooth process.
7. Financial Creditors: These are lenders (like banks) who often fund most of the debt. They get a big say in the CoC and affect important decisions, like approving plans and choosing the RP.
8. Operational Creditors: These include suppliers, employees, and others who are owed money. While they don’t control the CoC, their claims are recognised and they receive payments alongside others during liquidation.
9. Employees and Shareholders: Employees are considered operational creditors and receive payments early in liquidation. Shareholders are last in line but still part of the process.
Time Limits and Procedural Timelines in IBC
Here are the time limits and procedural timelines in IBC:
- Time Limits Under IBC: The Corporate Insolvency Resolution Process (CIRP) begins with the filing of an application. From the date it is admitted, the tribunal (NCLT) has 180 days to complete the process
- Extension Option: The Committee of Creditors (CoC), with at least 66% voting share, can vote to extend this by up to 90 more days. It can be applied only once
- 330-Day Cap: A 2019 amendment introduced a 330-day maximum window. This covers the 180-day core period, the 90-day extension, and any extra time spent in legal disputes. If the resolution is still not complete, the case must move to liquidation.
- Legal Time Gaps: Periods when CIRP is delayed by court cases, IRP not yet appointed, or other legal reasons can be excluded from the 330-day count
- Court’s Recent Ruling: On 2 May 2025, the Supreme Court emphasised strict compliance, as the full 330 days, including litigation periods, are now mandatory, with only very limited exceptions.
Key Amendments to the Insolvency and Bankruptcy Code
Here are the key amendments to the Insolvency and Bankruptcy Code:
1. Amendment Act 2017
- Section 29A: Promoters, willful defaulters, and ineligible persons are barred from bidding during the resolution to prevent misuse.
- Section 235A: Penalties introduced for anyone violating the IBC rules.
2. Amendment Act 2018
- Homebuyers as creditors: Homebuyers are recognised as financial creditors under Section?7.
- Voting thresholds: Lowered core decision support from 75% to 66%, and routine decisions to 51%.
- Section 12A: Allows withdrawal of applications with 90% approval from CoC.
3. Amendment Act 2019
- 330-day limit: CIRP must be completed within 330 days (inclusive of litigations).
- Recording reasons: If the NCLT fails to admit or reject an insolvency application within the 14-day deadline, it must now record written reasons for the delay. This ensures transparency, accountability, and timely action in the insolvency process.
- Section?32A: Assets and new management are protected from being prosecuted for prior offences if the plan is approved.
- Binding on governments: Approved plans must be accepted by central, state, and local governments.
4. Amendment Act 2020
- Covid?19 relief: Section?10A paused new insolvency cases from March 2020 to the end of 2020.
- License protection: Moratorium protects essential licenses, permits, and utilities during CIRP.
5. Ordinance/Amendment Act 2021
- Pre-pack insolvency for MSMEs: Fast-track process with a “pre-pack” plan managed by creditors and debtors before formal CIRP.
6. Amendment Act 2022–2024 (Selected)
- Cross-border cases: A new framework, based on UNCITRAL, supports international insolvency.
- MSME self-resolution: A simpler, quicker insolvency path for SMEs with debtor-in-possession models.
- Individual insolvency: A process for individuals and partnerships, including a fresh start and debt settlement.
- Pre-proceeding mediation: Encourages settlements before formal CIRP begins.
Importance of the Insolvency and Bankruptcy Code for Business
Let us discuss the importance of the insolvency and bankruptcy code for business:
Strengthens Business Health
- Fast & clear process: Before IBC, bankruptcy took years. The Code sets time-bound processes—from start to resolution or liquidation, which brings speed and certainty to distressed businesses.
- Helps revive companies: IBC focuses on rescuing viable firms. By March 2023, nearly 2,500 businesses were saved through successful resolution plans. This preserves jobs, keeps suppliers paid, and protects creditors.
Builds Creditor & Investor Confidence
- Better recovery for lenders: Banks recover much more under IBC than old laws. That cleans up bad loans (NPAs), freeing up funds for new lending.
- Boosts private & foreign investment: A clear, predictable process attracts investors. India climbed in the global Ease of Doing Business rankings thanks to the IBC.
Powers Growth & Innovation
- Promotes risk?taking: Knowing failure won’t ruin you encourages entrepreneurs. The Code’s focus on resolution gives confidence to test ideas.
- Frees up capital: When non-viable firms are liquidated fast, assets become available to better-run companies, improving resource efficiency.
Strengthens Financial System
- Cleans bank balance sheets: IBC helps banks remove bad loans quickly, bolstering their health and allowing more credit flow.
- Improves credit discipline: Its mere presence encourages early settlements. By end-2024, 30,000 cases (?13.78 lakh crore) were resolved before formal insolvency began.
Supports Long-Term Economy
- Improves business ecosystem: With a strong insolvency law, the market becomes fairer: creditors know they will get paid, firms know they can exit, and new players can enter.
- Aligns with global standards: IBC introduced cross-border insolvency and adopted international practices. This integrates India with global markets.
Impact of IBC on the Economy
The details below include the impact of the insolvency and bankruptcy code on the economy:
Faster Clean-Up of Bad Loans
- Massive loan recoveries: By 2019–20, the IBC helped recover ?1.05 lakh crore, and about 61% of all recoveries that year, which brought India’s gross NPA ratio to a decade-low by March 2023.
- Banking health restored: This progress has strengthened banks’ balance sheets, enabling them to lend more and take calculated risks.
Speed & Efficiency
- Quicker resolution than old laws: The average IBC case wraps up in about 394 days, compared to over 4 years under older systems.
- Preemptive settlements: Over 30,000 cases totalling ?13.78?lakh?crore were settled even before formal IBC steps, showing strong creditor discipline.
Boost to Business & Investment
- Improved business ease: India’s ranking for “ease of resolving insolvency” surged from 111th in 2017 to 47th in 2021, also climbing in the World Bank’s “Ease of Doing Business” index.
- Foreign investment confidence: The clarity and predictability of IBC boosted investor trust and foreign direct investment.
Economic Growth & Job Protection
- Reviving firms: Companies revived under IBC saw their market value jump from ?2 lakh crore to ?6 lakh crore, with sales up by 76%, assets up 50%, and capital. spending rising 130% within 3 years. This recovery protected hundreds of thousands of jobs and kept suppliers operating.
Resource Efficiency
- Better capital use: IBC helps filter out non-viable companies quickly, allowing capital and assets to shift toward stronger, growing businesses.
- Restructuring focus: By emphasising recovery and restructuring, it maintained firms rather than shutting them down.
Trust & Transparency
- Creditor certainty: Knowing debts can be recovered under the IBC encourages banks and investors to lend and invest more freely.
- Reduced legal friction: Structured resolution has cut down on court cases and eased the burden on the justice system.
Common Challenges in the Insolvency and Bankruptcy Process
Here are some common challenges in the insolvency and bankruptcy process:
1. Time Delays & Staffing Shortages
- Court congestion: Many IBC cases exceed the legal limit (330 days), averaging 560–716 days in recent years. This slows down value recovery and erodes assets
- Thin benches & staff: Courts like NCLT and NCLAT are understaffed—55 of 63 judges seated, with limited support staff, causing slow hearings
2. Institutional & Coordination Issues
- Lack of specialisation: Tribunal members often lack the financial or technical know-how for complex insolvency cases
- Overlapping jurisdictions: Handling both company and insolvency matters burdens tribunals, slowing decision-making
- Poor coordination: Multiple stakeholders, like debtors, creditors, professionals, and courts, must collaborate. Miscommunication often leads to delays
3. Legal Complexity & Litigation
- Frequent appeals: Parties often drag cases into costly and time-consuming appeals, causing further delay
- Unclear rules: Ambiguities in sections of the IBC have resulted in inconsistent rulings, lengthening the process
4. Recovery & Value Challenges
- Low repayment: Some resolution plans return as little as 1% of the debt, raising questions about their effectiveness. RBI reports show recoveries dropped to 32–28% in recent years
- Asset erosion: Delayed resolution reduces a company's market value, hurting creditors
5. Investor Concerns & Confidence Risks
- Deal reversals: The recent JSW Steel–Bhushan Power deal was scrapped by India’s Supreme Court due to procedural flaws, even years after approval. This has shaken investor confidence
- Uncertain finality: Investors fear their bids may be reversed long after completion, even if they followed all norms.
The Insolvency and Bankruptcy Code (IBC) is the backbone of India’s financial recovery system, saving businesses, protecting jobs, and boosting investor confidence. While challenges remain, it is clear that the time-bound process has transformed the way India handles financial distress. With continuous improvements, IBC stands as a strong pillar for economic growth and a healthier business environment (IBBI). This article provided a complete guide on the insolvency and bankruptcy code. To learn more about it, visit Online Legal India and get in contact with their professional experts.