What Happened
- The Finance Ministry has advised public sector banks to adopt a more strategic and coordinated approach to speed up insolvency resolution under the Insolvency and Bankruptcy Code (IBC), 2016.
- Twenty high-value accounts have already been resolved under the IBC framework as part of a focused initiative, but delays at various NCLT benches continue to hamper recovery timelines.
- The Department of Financial Services (DFS) has urged banks to reduce delays in filing applications and to collaborate on joint filing strategies for consortium lending accounts.
- The DFS Secretary M. Nagaraju in January 2026 called IBC "a game-changer that transformed the insolvency landscape by fostering transparency, accountability and efficiency."
- Key outstanding challenges include: NCLT capacity constraints, prolonged litigation, and value deterioration of assets during extended resolution periods.
Static Topic Bridges
Insolvency and Bankruptcy Code (IBC), 2016: Framework and Process
The IBC, 2016 is India's consolidated law for resolving insolvency of companies, LLPs, partnership firms, and individuals. It was a landmark reform replacing the fragmented earlier regime (SICA, RDDBFI Act, SARFAESI Act for different cases).
- Enacted: May 28, 2016; came into force in phases from December 2016.
- Adjudicating authorities: NCLT (National Company Law Tribunal) for companies and LLPs; DRT (Debt Recovery Tribunal) for individuals and partnerships.
- Section 7: Financial creditors (banks, NBFCs, bondholders) can initiate Corporate Insolvency Resolution Process (CIRP) when a default exceeds ₹1 crore (threshold raised from ₹1 lakh in 2020 to prevent frivolous filings).
- Section 9: Operational creditors (suppliers, employees, government dues) can also trigger CIRP.
- CIRP timeline: 180 days (extendable by 90 days with NCLT approval); outer limit 330 days including legal proceedings.
- Resolution Professional (RP): Appointed by NCLT; takes over management of the corporate debtor during CIRP.
- Committee of Creditors (CoC): Comprises financial creditors; has voting rights on resolution plans (75% threshold for approval, later reduced to 66%).
- Hierarchy of resolution: Resolution → Liquidation. Liquidation order triggers asset sale; waterfall mechanism prioritises: CIRP costs → secured creditors → workmen dues → unsecured creditors → equity shareholders.
Connection to this news: The Finance Ministry's intervention targets the weakness in Section 7 filings — banks are sometimes slow to file jointly, especially in consortium lending, which delays admission and prolongs the resolution timeline.
NCLT and NCLAT: Role in IBC Ecosystem
The National Company Law Tribunal (NCLT) is a quasi-judicial body established under the Companies Act, 2013, which also serves as the adjudicating authority for IBC proceedings.
- NCLT benches: 16 principal benches across India (including Delhi, Mumbai, Chennai, Kolkata, Hyderabad, Bengaluru, Ahmedabad, Chandigarh, etc.).
- NCLT handles: CIRP admissions, approval of resolution plans, liquidation orders, Section 29A disqualifications (barring promoters from bidding for their own stressed companies).
- NCLAT (National Company Law Appellate Tribunal): Appellate body for NCLT decisions; further appeals lie with the Supreme Court.
- Key bottleneck: NCLT has chronic backlog — as of 2025, over 13,000+ pending cases. Average resolution time has exceeded the 330-day outer limit in many high-value cases.
- IBC amendment 2021: Introduced pre-packaged insolvency for MSMEs (faster out-of-court resolution with minimum court intervention).
- Insolvency and Bankruptcy Board of India (IBBI): Regulator for insolvency professionals, information utilities, and insolvency professional agencies; established under IBC 2016.
Connection to this news: The Finance Ministry's push comes directly from the recognition that NCLT capacity is a systemic constraint — coordinated bank filing and early engagement can reduce pre-admission delays.
NPA Resolution and IBC's Track Record
The Non-Performing Asset (NPA) crisis of 2015-18 was the primary driver for IBC enactment. Banks had over ₹10 lakh crore in gross NPAs at the peak.
- IBC's recovery rate for financial creditors: Approximately 32-33% of admitted claims (as per IBBI data, up to 2024); much higher than pre-IBC recovery under SARFAESI (~25%) and DRT (~5%).
- Total resolution under IBC (cumulative to FY25): Over 800+ CIRP cases resolved, recovering approximately ₹3.3 lakh crore.
- Haircuts: On average, creditors take a 65-70% haircut (i.e., recover 30-35% of claims) — this is often criticised but is still superior to liquidation value.
- 12 largest NPA accounts (referred to as "Dirty Dozen" under RBI's S4A scheme in 2017) were the first wave pushed through IBC — including Bhushan Steel (acquired by Tata Steel), Essar Steel (acquired by ArcelorMittal), and Alok Industries (acquired by JM Financial + Reliance).
- Finance Ministry currently targets 20 more high-value accounts for resolution — following the "Dirty Dozen" playbook of coordinated bank action.
Connection to this news: The directive to banks to "work together" on high-value accounts mirrors the 2017 strategy when RBI listed specific large accounts for mandatory IBC reference — showing that coordinated regulatory pressure remains the key to unlocking IBC's full potential.
Key Facts & Data
- IBC enacted: May 28, 2016; effective from December 2016
- Section 7: Financial creditors can initiate CIRP; minimum default threshold ₹1 crore
- CIRP timeline: 180 days + 90-day extension + litigation period; outer limit 330 days
- Resolution plan approval: 66% CoC vote (reduced from 75% in 2019 amendment)
- Recovery rate under IBC: ~32-33% of admitted claims (vs ~25% SARFAESI, ~5% DRT)
- NCLT benches: 16 across India; adjudicating authority for companies/LLPs
- NCLAT: Appellate body; further appeal to Supreme Court
- IBBI: Regulator for insolvency professionals and IPs; established under IBC 2016
- Gross NPAs at peak (2018): Over ₹10 lakh crore in banking system
- Cumulative IBC resolutions (to FY25): 800+ CIRP cases; ~₹3.3 lakh crore recovered
- High-value accounts targeted for resolution currently: 20 accounts
- IBC 2021 amendment: Pre-packaged insolvency for MSMEs introduced