What Happened
- Opposition members in the Lok Sabha raised pointed criticism of the Insolvency and Bankruptcy Code (IBC), 2016, arguing it has failed to fulfil its core purpose of timely and value-maximising resolution of distressed assets.
- Key criticism: the National Company Law Tribunal (NCLT), which adjudicates insolvency cases, is severely understaffed and overburdened, with over 30,000 IBC cases pending as of early 2025.
- Members alleged the code has become a tool for asset-stripping by acquirers rather than genuine business revival.
- As per data up to September 2025, nearly three-fourths of ongoing Corporate Insolvency Resolution Process (CIRP) cases have exceeded the 270-day statutory timeline.
- The government has proposed amendments (Insolvency and Bankruptcy Code Amendment Bill, 2025) to address procedural delays, group insolvency, and cross-border insolvency — but critics argue the amendments do not tackle the fundamental NCLT capacity problem.
Static Topic Bridges
The Insolvency and Bankruptcy Code (IBC), 2016: Architecture and Purpose
The IBC was enacted to replace a fragmented, inefficient insolvency regime spread across multiple laws (the Companies Act, SICA, Presidency Towns Insolvency Acts, etc.). Its primary objective was to resolve insolvency in a time-bound, creditor-friendly manner, thereby improving the ease of doing business and reducing the volume of non-performing assets (NPAs) in the banking system.
- IBC consolidated laws governing insolvency of companies, limited liability partnerships, and individuals into a single unified code
- The Corporate Insolvency Resolution Process (CIRP): triggered by financial creditors, operational creditors, or the corporate debtor itself; must be completed within 180 days (extendable to 270 days, with a hard cap of 330 days including litigation periods)
- The Committee of Creditors (CoC) drives resolution; it evaluates resolution plans and approves the winning resolution applicant
- The Insolvency and Bankruptcy Board of India (IBBI) is the apex regulatory body overseeing insolvency professionals and the process
- National Company Law Tribunal (NCLT) adjudicates CIRP cases; National Company Law Appellate Tribunal (NCLAT) handles appeals
Connection to this news: The entire architecture of IBC presupposes timely judicial resolution, but with 30,000+ pending cases and NCLT operating far below required capacity, the 180/270-day framework is routinely breached.
NCLT Capacity Crisis: The Structural Bottleneck
The NCLT was established under the Companies Act, 2013 to adjudicate corporate law matters including insolvency. However, it was not resourced adequately for the volume of IBC cases that followed post-2016. The tribunal has a limited number of benches and members, creating chronic backlogs. According to ICRA analysis, at current NCLT capacity, it would take more than a decade to clear the existing backlog.
- Average time for CIRP resolution has stretched to approximately 677 days for financial creditors — more than double the 270-day legal limit
- 68% of CIRPs have missed the 270-day deadline
- Financial creditors recover only 33.8% of admitted claims on average — far below global benchmarks
- Even when resolution occurs, the recovery rates are substantially eroded by delays, legal costs, and asset deterioration
- The IBC Amendment Bill, 2025 proposes stricter mandatory admission timelines and expanded CoC authority but does not expand NCLT benches or judicial strength
Connection to this news: Opposition members' criticism that IBC has become a tool for asset-ripping reflects this structural reality — prolonged processes degrade asset values, favouring strategic acquirers over creditors seeking maximum recovery.
Non-Performing Assets (NPAs) and the Role of IBC
The IBC was partly designed as a tool to address the twin balance sheet problem — stressed corporate borrowers carrying unsustainable debt and banks holding large volumes of non-performing assets. Prior to IBC, recovery under the SARFAESI Act and Debt Recovery Tribunals was slow and recovery rates were poor. IBC introduced a collective, time-bound process with stronger creditor rights.
- Before IBC, average resolution time was 4.3 years; post-IBC it improved to about 340 days in early years (though has since risen again)
- SARFAESI Act (2002) allows banks to enforce security interests without court intervention but applies mainly to secured assets
- Debt Recovery Tribunals (DRTs) handle debt recovery above ₹20 lakh — another forum suffering from similar capacity constraints
- IBC has resolved cases involving over ₹3.3 lakh crore in admitted claims since its inception, but recovery rates remain below 35%
Connection to this news: The debate in Lok Sabha reflects a broader policy question: is IBC delivering on its promise to improve credit markets and reduce NPAs, or has procedural overload negated its design advantages?
Cross-Border Insolvency and Group Insolvency: The Road Ahead
The IBC Amendment Bill, 2025 proposes frameworks for group insolvency (coordinated resolution of related entities) and cross-border insolvency (recognition of foreign proceedings). India has not yet adopted the UNCITRAL Model Law on Cross-Border Insolvency, which most advanced economies use to manage insolvency of multinational entities.
- Group insolvency is critical for conglomerate failures (e.g., IL&FS, Videocon) where multiple related entities must be resolved together
- Cross-border insolvency involves coordination between Indian NCLT and foreign courts when a debtor has assets or creditors in multiple jurisdictions
- UNCITRAL Model Law provides a framework for recognition and cooperation; India's eventual adoption would align it with global standards
- The Insolvency Law Committee (2018) and subsequent expert committees have recommended adopting cross-border insolvency provisions
Connection to this news: The proposed amendments address these structural gaps, but without also expanding NCLT infrastructure, even well-designed procedural reforms risk being choked at the tribunal level.
Key Facts & Data
- IBC enacted in 2016; statutory CIRP timeline: 180 days (extendable to 270, hard cap 330 days)
- 30,000+ IBC cases pending before NCLT as of March 2025
- 68% of CIRPs have exceeded the 270-day deadline
- Average actual resolution time: approximately 677 days for financial creditors
- Financial creditors' average recovery rate: 33.8% of admitted claims
- IBC Amendment Bill, 2025 introduced in Lok Sabha on August 12, 2025
- IBBI is the apex regulatory body; NCLT adjudicates; NCLAT hears appeals
- At current NCLT capacity: estimated 10+ years to clear existing backlog