{"id":60629,"date":"2025-12-04T20:31:14","date_gmt":"2025-12-04T15:01:14","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=60629"},"modified":"2025-12-05T14:01:01","modified_gmt":"2025-12-05T08:31:01","slug":"insolvency-and-bankruptcy-code-2","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/04-12-2025\/insolvency-and-bankruptcy-code-2","title":{"rendered":"\u2018Persistent &amp; Systemic Challenges\u2019 Undermine IBC\u2019s Full Potential: Parliamentary Committee"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Recently, the Parliamentary Standing Committee on Finance, in its report <em>\u2018Review of Working of Insolvency and Bankruptcy Code and Emerging Issues\u2019<\/em>, warned that <strong>systemic inefficiencies and structural delays<\/strong> are undermining <strong>India\u2019s Insolvency and Bankruptcy Code (IBC) <\/strong>effectiveness.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>About Insolvency and Bankruptcy Code (IBC)<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>It was enacted in 2016, at a time when <strong>mounting non-performing assets (NPAs)<\/strong> and <strong>ineffective recovery mechanisms <\/strong>\u2014 such as <strong>SARFAESI, Lok Adalats, and Debt Recovery Tribunals <\/strong>\u2014 were weakening the banking system.<\/li>\n\n\n\n<li>It <strong>replaced the older <\/strong><strong><em>debtor-in-possession<\/em><\/strong><strong> model<\/strong> like the <strong>Sick Industrial Companies Act (SICA) <\/strong>with a <strong><em>creditor-in-control<\/em><\/strong><strong> approach<\/strong>, ensuring that financial creditors lead the resolution process.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Purpose and Objectives of the IBC<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The IBC serves as a <strong>time-bound mechanism<\/strong> to resolve insolvency and bankruptcy cases in a structured manner. Its key objectives, as outlined by the <strong>Insolvency and Bankruptcy Board of India (IBBI)<\/strong>, are:\n<ul class=\"wp-block-list\">\n<li><strong>Resolution:<\/strong> Revive viable businesses through restructuring or ownership change.<\/li>\n\n\n\n<li><strong>Maximization of Asset Value:<\/strong> Prevent further value erosion.<\/li>\n\n\n\n<li><strong>Promotion of Entrepreneurship and Credit Flow:<\/strong> Encourage risk-taking by providing an efficient exit mechanism.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large is-resized\"><img data-dominant-color=\"d3dcdd\" data-has-transparency=\"false\" loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"559\" src=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/image-18-1024x559.png\" alt=\"\" class=\"not-transparent wp-image-60630\" style=\"--dominant-color: #d3dcdd; aspect-ratio:1.8319362093641383;width:545px;height:auto\" srcset=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/image-18-1024x559.png 1024w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/image-18-300x164.png 300w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/image-18-768x419.png 768w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/image-18-1536x838.png 1536w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/image-18.png 1600w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<h2 class=\"wp-block-heading\"><strong>IBC\u2019s Achievements Since Its Enactment<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>IBC has resolved <strong>1,194 companies<\/strong> through the <strong>Corporate Insolvency Resolution Process (CIRP).<\/strong>\n<ul class=\"wp-block-list\">\n<li>Creditors have recovered <strong>over 170% of the liquidation value<\/strong> and <strong>93% of the fair value<\/strong> of these companies, reflecting the Code\u2019s impact on financial discipline and creditor confidence.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Pre-Packaged Insolvency for MSMEs: <\/strong>The IBC was <strong>amended in 2021<\/strong> to introduce the <strong>Pre-Packaged Insolvency Resolution Process (PIRP)<\/strong>, specifically for <strong>Micro, Small, and Medium Enterprises (MSMEs)<\/strong>.\n<ul class=\"wp-block-list\">\n<li>It allows out-of-court settlements between debtors and creditors.<\/li>\n\n\n\n<li>The debtor retains control of business operations.<\/li>\n\n\n\n<li>Applicable to defaults <strong>not exceeding \u20b91 crore<\/strong>.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Concerns &amp; Issues Highlighted in Parliamentary Standing Committee\u2019s Report<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Slow Processes and Delayed Resolutions: <\/strong>The report underscored that <strong>slow admission of insolvency applications<\/strong> has become a major barrier to quick value realisation, resulting in asset deterioration.\n<ul class=\"wp-block-list\">\n<li>The average duration for completing CIRP stands at <strong>713 days<\/strong>, more than <strong>double the mandated 330 days<\/strong> under the Code.<\/li>\n\n\n\n<li><strong>Key Reasons Behind the Delays: <\/strong>The Committee attributed the delay in resolution to several structural issues:\n<ul class=\"wp-block-list\">\n<li><strong>Shortage of NCLT benches<\/strong> and <strong>vacant judicial positions<\/strong>.<\/li>\n\n\n\n<li><strong>Administrative staff gaps<\/strong> hampering tribunal efficiency.<\/li>\n\n\n\n<li><strong>Frequent and frivolous litigation<\/strong>, often initiated by promoters or unsuccessful bidders, eroding asset value.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Concerns Over Low Recovery Rates: <\/strong>The <strong>overall recovery<\/strong> remains at <strong>32.8% of admitted claims<\/strong>, revealing a substantial shortfall, while creditors recover <strong>about 170% of liquidation value.<\/strong>\n<ul class=\"wp-block-list\">\n<li>According to the <strong>Insolvency and Bankruptcy Board of India (IBBI),<\/strong> the average recovery rate has dropped to around 32% from over 43% in 2019.<\/li>\n\n\n\n<li>It is largely due to companies entering the IBC process <strong>too late<\/strong>, when their assets are already heavily stressed.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Issues in Asset Valuation and Resolution: <\/strong>The Committee found that asset valuation often reflects <strong>liquidation potential<\/strong> rather than <strong>enterprise value<\/strong>, leading to lower recovery.\n<ul class=\"wp-block-list\">\n<li>It cited concerns about a <strong>limited pool of quality resolution applicants<\/strong> and a <strong>lack of transparency and accountability<\/strong> in the valuation process.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Excessive Haircuts: <\/strong>Creditors face massive losses in many cases. Average <strong>haircut <\/strong>is <strong>80%<\/strong> of claims in over <strong>70% of cases<\/strong>.\n<ul class=\"wp-block-list\">\n<li>Example: <strong>Videocon Group<\/strong> resolution saw a <strong>95.3% haircut<\/strong>, meaning creditors recovered less than 5% of their dues.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Capacity Constraints:<\/strong> The NCLT and the IBBI are under-resourced. The committee emphasized the need for more benches, better infrastructure, and enhanced training for insolvency professionals.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Recommendations to Improve Efficiency<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Expedite establishment of additional NCLT benches<\/strong> to reduce case backlogs.\n<ul class=\"wp-block-list\">\n<li>NCLT should admit insolvency cases within <strong>30 days<\/strong>.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Accelerate operationalisation of the Integrated Technology Platform (iPIE)<\/strong> for centralised digital case management.<\/li>\n\n\n\n<li><strong>Introduce deterrents for frivolous appeals<\/strong>, including:\n<ul class=\"wp-block-list\">\n<li>Mandatory <strong>upfront deposits<\/strong> by unsuccessful resolution applicants filing appeals.<\/li>\n\n\n\n<li>Substantially <strong>increased penalties<\/strong> for vexatious or frivolous applications.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Strengthening Institutional and Judicial Capacity:<\/strong> Expanding the NCLT\u2019s bench strength and improving case management systems to expedite admissions and hearings.\n<ul class=\"wp-block-list\">\n<li>Address <strong>50% vacancy<\/strong> in NCLT benches and recruit proactively.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Pre-Pack Framework for All Sectors:<\/strong> Encouraging the use of pre-packaged insolvency resolutions beyond MSMEs to reduce litigation and improve efficiency.<\/li>\n\n\n\n<li><strong>Improved Monitoring and Transparency:<\/strong> Enhancing oversight of resolution professionals and Committee of Creditors (CoC) to ensure fair and transparent decision-making.\n<ul class=\"wp-block-list\">\n<li>Specialized <strong>IBC Benches <\/strong>can handle insolvency cases efficiently.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Revised Haircut Metrics<\/strong>: IBBI suggests measuring haircuts based on <strong>actual asset value at entry<\/strong>, not on the original loan value, to present a more realistic picture of recoveries.<\/li>\n\n\n\n<li><strong>Data-Driven Oversight:<\/strong> Leveraging technology and data analytics to monitor delays, identify bottlenecks, and improve accountability.<\/li>\n<\/ul>\n\n\n\n<p><a href=\"https:\/\/www.thehindu.com\/business\/Industry\/persistent-and-systemic-challenges-undermine-ibcs-full-potential-parliamentary-committee\/article70348919.ece\" target=\"_blank\" rel=\"noopener\">Source: TH<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p><strong>Context<\/strong><\/p>\n<li class=\"ms-5\">Recently, the Parliamentary Standing Committee on Finance, in its report \u2018Review of Working of Insolvency and Bankruptcy Code and Emerging Issues\u2019, warned that systemic inefficiencies and structural delays are undermining India\u2019s Insolvency and Bankruptcy Code (IBC) effectiveness.<\/li>\n<p><\/p>\n<p><strong>About Insolvency and Bankruptcy Code (IBC)<\/strong><\/p>\n<li class=\"ms-5\">It was enacted in 2016, at a time when mounting non-performing assets (NPAs) and ineffective recovery mechanisms \u2014 such as SARFAESI, Lok Adalats, and Debt Recovery Tribunals \u2014 were weakening the banking system.<\/li>\n<li class=\"ms-5\">It replaced the older debtor-in-possession model like the Sick Industrial Companies Act (SICA) with a creditor-in-control approach, ensuring that financial creditors lead the resolution process.<\/li>\n<p><a href=\"https:\/\/www.nextias.com\/ca\/current-affairs\/04-12-2025\/insolvency-and-bankruptcy-code-2\" class=\"btn btn-primary btn-sm float-end\">Read More<\/a><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-60629","post","type-post","status-publish","format-standard","hentry","category-current-affairs"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/60629","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=60629"}],"version-history":[{"count":2,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/60629\/revisions"}],"predecessor-version":[{"id":60632,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/60629\/revisions\/60632"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=60629"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=60629"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=60629"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}