Insolvency Resolution Under IBC
The Insolvency and Bankruptcy Code (IBC), enacted in 2016, provides a time-bound, creditor-friendly mechanism for resolving corporate insolvency in India, with outcomes measured by recovery rates for creditors, NCLT timeline adherence, and the extent of haircuts taken by financial and operational creditors.
Before the IBC, India had a fragmented, debtor-friendly insolvency regime spread across multiple laws — SICA, SARFAESI, RDDBFI Act — which gave debtors significant ability to delay resolution for years, sometimes decades. The average recovery rate for creditors under the old regime was under 26 cents on the dollar, and proceedings routinely stretched beyond 10 years.
The IBC introduced a 330-day outer time limit (subsequently revised from the original 180+90 days) for completion of the Corporate Insolvency Resolution Process (CIRP), failing which the company was to proceed to liquidation. A Resolution Professional (RP) takes over management of the corporate debtor, the board is suspended, and a Committee of Creditors (CoC) — composed of financial creditors — votes on resolution plans submitted by prospective resolution applicants.
Data from the Insolvency and Bankruptcy Board of India (IBBI) through FY25 showed that cases admitted under IBC had recovery rates ranging widely — from near-full recovery for large, asset-rich corporates to single-digit recoveries for deeply stressed accounts. Aggregate realisation for financial creditors stood at approximately 30-35% of admitted claims, a significant improvement over the pre-IBC era but still representing substantial haircuts. The IBC saw landmark resolution cases including Bhushan Steel (acquired by Tata Steel, creditors recovered ~63%), Essar Steel (ArcelorMittal, creditors recovered ~92%), and Binani Cement.
Timeline adherence has been a persistent challenge. By FY24, the average CIRP duration for resolved cases had stretched well beyond 400 days, partly due to litigation by promoters and operational creditors challenging the process. The NCLT, which handles IBC proceedings, faced significant capacity constraints, leading to delays. Supreme Court rulings — particularly in the Essar Steel case in 2019, which upheld the CoC's commercial wisdom and the primacy of financial creditors — helped clarify the hierarchy of claims.
Operational creditors (vendors, employees) receive lower priority than financial creditors in the waterfall, which has been a source of significant hardship. The pre-packaged insolvency scheme introduced for MSMEs in 2021 provided a faster track for smaller companies. For bank investors, IBC resolution of large NPA accounts provided clarity on recovery timelines and reduced the uncertainty premium that markets were pricing into NPA-laden bank stocks.