India’s insolvency framework has undergone a major transformation over the past decade through the Insolvency and Bankruptcy Code (IBC), 2016, which replaced a fragmented and delay-ridden system with a unified, creditor-driven and time-bound mechanism for resolving financial distress.
The reform, considered one of India’s most significant financial sector overhauls, was introduced at a time when Indian banks were grappling with mounting bad loans and insolvency proceedings often stretched for years across multiple legal forums. The earlier framework frequently resulted in erosion of asset value, weak recoveries for creditors and low investor confidence, while financially stressed companies continued operating without resolution for prolonged periods.
From fragmented recovery laws to a unified insolvency system
Before the IBC, companies facing financial distress were dealt with under multiple legal frameworks, including the Companies Act, the Sick Industrial Companies Act (SICA), debt recovery tribunals and SARFAESI proceedings. These mechanisms functioned through different institutions and forums, often leading to overlapping jurisdiction, lengthy litigation and poor coordination between creditors and borrowers.
Resolution and recovery proceedings frequently took six to eight years, by which time the value of distressed businesses had significantly deteriorated. In several cases, companies became financially unviable before any meaningful resolution could take place.
The IBC consolidated these frameworks into a single law and established a structured Corporate Insolvency Resolution Process (CIRP) for companies, partnership firms and individuals. One of the biggest shifts introduced by the Code was the transfer of control from defaulting promoters to financial creditors through the Committee of Creditors (CoC), fundamentally changing the balance of power in insolvency proceedings.
The law also introduced strict timelines aimed at preserving the value of stressed assets and ensuring quicker decision-making.
Under the framework, insolvency cases are handled by the National Company Law Tribunal (NCLT), with appeals going to the National Company Law Appellate Tribunal (NCLAT). The Insolvency and Bankruptcy Board of India (IBBI) regulates the ecosystem, including insolvency professionals responsible for managing distressed entities during the resolution process.
How the IBC changed debt recovery and corporate resolution in India
Since the Code came into force in 2016, a total of 8,987 CIRPs have been admitted till March 2026, while 7,102 cases have reached closure. Of these, 1,419 corporate debtors were resolved through approved resolution plans, while 3,003 companies went into liquidation.
Around 58 per cent of closed cases resulted in rescue, settlement, withdrawal or review, highlighting the Code’s role in reviving financially distressed companies. Nearly 42 per cent of companies resolved under approved plans had earlier remained stuck before the Board for Industrial and Financial Reconstruction (BIFR) or had become defunct.
According to government data, creditors have realised more than ₹4.32 lakh crore through approved resolution plans till March 2026. Recoveries under the IBC accounted for nearly 52.4 per cent of total recoveries made by Scheduled Commercial Banks through various channels during 2024-25, surpassing mechanisms such as SARFAESI, Debt Recovery Tribunals and Lok Adalats.
The government said the framework has also strengthened credit discipline among borrowers. More than 30,000 cases filed before the NCLT were resolved before admission through settlements and withdrawals involving nearly ₹14 lakh crore, reflecting the deterrent effect of the Code on defaults.
What the numbers show after 10 years of the Insolvency and Bankruptcy Code
Studies by the Indian Institutes of Management (IIMs) Ahmedabad and Bangalore have highlighted significant post-resolution improvements in resolved firms.
According to the studies, resolved companies recorded sharp increases in sales, profitability, capital expenditure, market valuation and liquidity after resolution under the IBC framework. Aggregate market valuation of resolved listed firms reportedly rose from nearly ₹2.8 lakh crore to about ₹9 lakh crore over five years.
The studies also found improved repayment behaviour among borrowers. The average number of days that loan accounts remained overdue reportedly declined from 248–344 days in the pre-IBC period to 30–87 days after implementation of the Code.
The Reserve Bank of India’s Report on Trends and Progress of Banking in India noted that the gross non-performing asset ratio of banks declined from nearly 11.8 per cent in 2017 to 2.1 per cent in September 2025, with the IBC playing a major role in improving recoveries and repayment behaviour.
India’s insolvency regime also received an upgrade from S&P Global Ratings, which moved the country’s insolvency framework from ‘Group C’ to ‘Group B’, citing improvements in resolution efficiency and recovery mechanisms.
Why delays and litigation remained a challenge under the IBC
Despite these gains, implementation challenges continued to persist, particularly delays in resolution timelines and prolonged litigation.
While the Code envisaged completion of CIRP within 180 days, extendable up to 330 days, several cases exceeded the prescribed limit due to court challenges, procedural delays and disputes over interpretation of legal provisions.
Ambiguities around concepts such as security interests, avoidance transactions and fraudulent trading also led to extensive litigation, affecting predictability and slowing down resolution proceedings in several high-profile cases.
Concerns were also raised in some sectors over low recovery values in certain large insolvency cases and the heavy burden on tribunals such as the NCLT, which faced mounting case backlogs over the years.
These operational challenges eventually prompted the government to revisit the framework after nearly a decade of implementation.
What key changes have been introduced through the IBC Amendment Act, 2026
To address these concerns, the government introduced the Insolvency and Bankruptcy Code (Amendment) Act, 2026, aimed at improving procedural clarity, reducing delays and strengthening creditor oversight.
The amendment introduces clearer definitions for terms such as “service provider”, “security interest”, “avoidance transaction” and “fraudulent or wrongful trading”, areas that had earlier triggered litigation due to interpretational ambiguity.
It also mandates that the adjudicating authority decide insolvency applications within 14 days and formally record reasons in cases of delay, introducing greater accountability in admission proceedings.
The amended law restricts withdrawal of insolvency cases after key stages of the process to prevent disruption once resolution plans are invited. It further strengthens the moratorium provisions by clarifying that guarantees cannot be used to bypass insolvency protection.
How the amendment seeks to strengthen creditor control and speed up resolutions
The amendment expands the role of creditors during liquidation proceedings, allowing them to supervise liquidation and replace liquidators where necessary. It also enables continuation of proceedings related to fraudulent transactions and wrongful trading even after completion of resolution or liquidation.
Another significant reform allows inclusion of guarantor assets in the resolution process under specified conditions, widening the asset base available for recovery in complex corporate structures.
The amendment also introduces provisions to make approved resolution plans more workable by protecting licences, permits and regulatory approvals needed for revival of businesses. It permits phased implementation of plans and clarifies treatment of past liabilities.
In a major structural change, the amendment introduces a creditor-initiated insolvency mechanism for specified categories of debtors, reducing dependence on lengthy admission stages before tribunals.
What the reforms could mean for banks, businesses and investors
The government expects the changes to improve recovery outcomes, reduce procedural uncertainty and make insolvency proceedings more predictable for lenders and investors.
A stronger and faster resolution mechanism is also expected to improve credit discipline further by encouraging early settlement of defaults and preserving enterprise value before businesses deteriorate financially.
Analysts say the reforms could strengthen investor confidence in India’s financial system by reducing delays that have historically weakened recoveries and increased litigation risks.
At the same time, the effectiveness of the reforms will depend heavily on faster judicial processes, institutional capacity and the ability of tribunals to handle rising insolvency cases within prescribed timelines.
The road ahead for India’s insolvency ecosystem
A decade after its introduction, the Insolvency and Bankruptcy Code remains one of India’s most consequential economic reforms, reshaping the relationship between borrowers, lenders and distressed businesses.
The 2026 amendment marks the next phase of that evolution, with the government seeking to build a more efficient, creditor-driven and resolution-oriented insolvency framework aligned with the broader goal of achieving Viksit Bharat 2047.
As India’s economy expands and corporate financing becomes increasingly complex, the evolution of an efficient insolvency ecosystem is expected to remain central to maintaining banking stability, improving investor confidence and supporting long-term economic growth.
