Amend the IBC: Let new pathways speed up insolvency resolution

Legislation of this kind calls for careful deliberation, an opportunity for stakeholders to present their views to lawmakers and for the latter to arrive at a balanced view of the statutory proposals. That we need to amend the working of the corporate insolvency resolution process (CIRP) under the IBC is beyond dispute.

Also Read: IBC reforms: Let’s strengthen the Code as a key growth enabler

The number of IBC cases pending before the National Company Law Tribunal (NCLT) stood at over 12,000 in 2024. The recovery of dues was only a third of the claims made—that too, thanks to a few large resolutions that yielded high levels of it. The time taken for a case to be resolved has been far in excess of what the law stipulates (180 days plus 90 days and yet another 60 days for extensions and legal proceedings, adding up to 330 days from the start of the process). The average time taken exceeded 600 days and 700 days respectively in 2022-23 and 2023-24.

Moreover, finality has been elusive. Approvals given by the NCLT have often been challenged at the appellate tribunal, while the Supreme Court has undone some high-profile resolutions.

Also Read: India needs a way to resolve cross-border insolvency cases

One major reform proposed in the amendment bill is a new provision for what it awkwardly calls ‘creditor-initiated insolvency resolution,’ as if most usual bankruptcy proceedings are not initiated by creditors. What is striking about this proposal is that it allows for out-of-court negotiations and even action towards a resolution, potentially giving the process speed and flexibility.

The bill also seeks to facilitate paths out of complex cases involving business groups and overseas assets. Also, the bill seems to give legal backing for the exclusion of leased assets, such as an airline’s aircraft, from the assets that are frozen once the firm that has taken them on lease goes into bankruptcy. This would explicitly align India with a global treaty signed to keep such planes unchained, without which leasing costs spike for a country’s air carriers.

Importantly, the bill aims to end delays in resolution plea admission by making a credit default sufficient ground for CIRP initiation. The bill also strengthens the regulatory powers of the Insolvency and Bankruptcy Board of India (IBBI), even if not to an extent that would be desirable. All this is welcome.

Also Read: JSW-Bhushan case: Time to rewrite India’s insolvency code?

So is the bill’s provision—for ‘creditor-initiated’ cases—that would let a corporate debtor’s board of directors stay in place and run the company, albeit under the guidance of a resolution professional (RP).

So far, RPs have taken charge of IBC admittees and their role has rarely met expectations. In too many instances have RPs seemed to get in the way of resolution efficiency. The out-of-court avenue could move things along faster by keeping lenders and the board engaged in talks. Even if this part is enacted, though, it seems unlikely that the incumbent management of a company unable to service its debt would be entitled to a grace period free of repayment obligations while it makes a last-ditch effort to stay in business, as in the case of Chapter 11 bankruptcy in the US.

The Parliamentary panel could also consider concurrent CIRP monitoring by the IBBI and legal norms that forbid the Supreme Court from interfering with the process without sufficient evidence of miscarriage of justice. Apart from opening new pathways, we may also need to smoothen those in existence further.