IBC (Insolvency and Bankruptcy Code)
The Insolvency and Bankruptcy Code, 2016 (IBC) consolidated India's fragmented insolvency laws into a single unified framework, establishing a time-bound Corporate Insolvency Resolution Process (CIRP) with a 330-day maximum timeline and a Committee of Creditors to oversee resolution.
Before IBC, insolvency proceedings in India were governed by the Companies Act 1956 (winding up), SICA 1985 (sick companies), SARFAESI 2002 (secured creditor enforcement), and the DRT Act 1993 — a fragmented landscape where proceedings dragged on for an average of 4.3 years with recovery rates below 25 cents on the dollar according to World Bank data. IBC collapsed these multiple frameworks and established a single entry point through the National Company Law Tribunal (NCLT).
The trigger for CIRP can come from three sources: a financial creditor (bank, bond investor) with a default of at least Rs 1 crore; an operational creditor (vendor, employee) following a 10-day notice; or the corporate debtor itself. The default threshold was originally Rs 1 lakh, was temporarily raised to Rs 1 crore during Covid-19, and retained at Rs 1 crore thereafter.
Once NCLT admits the CIRP application, a moratorium under Section 14 is immediately triggered, freezing all legal proceedings, enforcement actions, asset transfers, and dividend payments. An Interim Resolution Professional (IRP) is appointed within three days to manage the company's affairs, subsequently replaced by a Resolution Professional (RP) confirmed by the Committee of Creditors (CoC).
The CoC consists of financial creditors — banks, financial institutions, and bondholders — who vote on the resolution plan. Operational creditors (suppliers, employees, government) are represented but do not have voting rights in the CoC except in certain threshold situations. Decisions within the CoC require 51 percent vote for most matters and 66 percent for approval of the resolution plan.
The resolution plan must be approved by 66 percent of the CoC (by value) and then confirmed by the NCLT. The approved plan is binding on all creditors and stakeholders. The IBC also introduced the concept of a 'clean slate' for the successful resolution applicant: the approved acquirer takes over the company free of prior liabilities (with some exceptions for fraud under Section 29A), which significantly improved the attractiveness of distressed M&A in India.
India's IBC produced early landmark resolutions — Bhushan Steel acquired by Tata Steel, Essar Steel resolved after protracted litigation, Videocon Group resolved. Recovery rates under IBC improved to approximately 40–45 cents on the dollar by 2022, well above the pre-IBC average, though the timeline target of 270 days (later 330 days including litigation time) was frequently breached due to judicial delays and appeals. The IBC framework continues to evolve through amendments, with the pre-packaged insolvency framework for MSMEs introduced in 2021 adding a new resolution pathway.