The effectiveness of India’s Insolvency and Bankruptcy Code is being undermined by procedural delays and an overburdened NCLT, where excessive litigation under Section 60(5) has pushed resolution times to over 700 days, necessitating urgent structural reforms.
Copyright infringement not intended
Picture Courtesy: TELEGRAPHINDIA
The Economic Survey for 2025-26 highlighted that the effectiveness of the Insolvency and Bankruptcy Code (IBC), 2016 in achieving rapid, time-bound corporate distress resolution is at risk due to the substantial backlog of pending cases at the National Company Law Tribunal (NCLT).
It is a quasi-judicial body established under Section 408 of the Companies Act, 2013, on the recommendations of the Justice Eradi Committee.
The NCLT functions as a "one-stop shop" for corporate dispute resolution, replacing the Company Law Board (CLB) and the Board for Industrial and Financial Reconstruction (BIFR).
Key Functions and Powers
Insolvency Adjudication: It is the adjudicating authority for corporate insolvency resolution processes (CIRP) and liquidation under the Insolvency and Bankruptcy Code (IBC), 2016.
Corporate Restructuring: It has the power to approve mergers, demergers, amalgamations, and the reduction of share capital.
Dispute Resolution: It handles cases related to corporate oppression and mismanagement, protecting the rights of minority shareholders and depositors.
Company Administration: The tribunal can order investigations into a company's affairs, freeze assets during investigations, and approve the conversion of a public company into a private one.
Deregistration: It has the authority to cancel the registration of companies found to be incorporated through fraudulent means.
Structure and Appeals
Composition: Each bench consists of both Judicial Members (retired judges) and Technical Members (experts in finance, accounting, or law) to ensure specialized knowledge in commercial matters.
Benches: The NCLT has multiple regional benches across India, with a Principal Bench located in New Delhi.
Appellate Process: Decisions made by the NCLT can be appealed to the National Company Law Appellate Tribunal (NCLAT). Further appeals against NCLAT orders can be filed in the Supreme Court.
The NCLT operates according to the principles of natural justice and is not strictly bound by the Code of Civil Procedure, though it holds powers equivalent to a civil court for enforcing its orders.
|
Positive Developments |
Ongoing Challenges |
|
Upgraded Global Rating: S&P Global Ratings has upgraded India’s insolvency regime from 'Group C' to 'Group B', acknowledging its improved creditor-friendly approach. Improved Recovery Rates: The average recovery rate for creditors under IBC has improved to 36.6% in FY25, jumping from the pre-IBC era's 15-20%. (Source: Economic Survey 2025-26). High Rescue Rate: As of September 2025, 57% of closed insolvency cases resulted in the business being rescued as a going concern through resolution plans or settlements. (Source: Economic Survey 2025-26). |
Crippling Delays: Average time taken for a resolution is now 716 days, more than double the statutory limit of 330 days. (Source: Ministry of Corporate Affairs) Litigation over Resolution: A high number of cases are withdrawn or settled after prolonged appeals, suggesting that the process is so delayed that settlement becomes a preferred outcome out of exhaustion, not efficiency. |
While a shortage of NCLT benches and members is a factor, the core problem is a fundamental design flaw in the IBC that encourages excessive litigation.
Section 60(5) of the IBC
Original Intent: Section 60(5) was intended to give the NCLT exclusive jurisdiction over all matters related to a corporate debtor's insolvency. This was meant to create a single, specialized forum to avoid conflicting rulings from multiple courts.
Unintended Consequence: This broad interpretation has turned the NCLT from a supervisory body into an all-purpose commercial court, forcing it to hear every dispute even remotely connected to the debtor, from contracts to trademarks.
Litigation as a Delay Tactic: Sophisticated litigants exploit a flaw by filing numerous applications to deliberately stall resolution, exhausting smaller creditors and defeating the IBC's purpose.
Pre-Packaged Insolvency (PPIRP)
The failure of the Pre-Packaged Insolvency Resolution Process (PPIRP) for MSMEs shows how institutional logjams can derail well-intentioned reforms.
Purpose: Introduced in 2021, PPIRP was designed as a faster, debtor-in-possession model to reduce the NCLT's caseload.
Miserable Uptake: Extremely low utilization (only 13 cases by 2025) shows that even efficient alternative frameworks fail when the primary adjudicating body is overwhelmed.
Socio-Economic Challenges
The excessive delays are not just procedural issues; they raise fundamental questions about justice and fairness.
Denial of Justice (Article 21): Right to procedural fairness (Article 21) requires timely resolution; a process delayed by years instead of months constitutes a denial of justice.
Violation of Equality (Article 14): Operational creditors (often MSMEs) lack the resources to withstand prolonged litigation and are systematically disadvantaged compared to large institutional creditors.
Redefine NCLT's Function
The NCLT's role must be re-read to function as a supervisory body that ensures procedural integrity, not as a court of first instance for all commercial disputes.
Strengthen Out-of-Court Mechanisms
Promote pre-insolvency negotiations and reform frameworks like PPIRP to make them more accessible and effective
Implement Committee Recommendations
Swiftly implement proposals from the Insolvency Law Committee, such as mandating the submission of records from Information Utilities to establish default and reduce admission delays.
Impose Strict Timelines for Adjudication
While the IBC has an overall timeline, specific and mandatory deadlines are needed for different stages of adjudication within the NCLT to prevent procedural delays.
Learn from Global Best Practices
India can learn from international models that prioritize commercial wisdom and limit the court's adjudicatory role.
|
Country/Model |
Key Feature |
Lesson for India |
|
United States |
A "debtor-in-possession" model that emphasizes pre-negotiated plans to reduce time spent in court. The court's role is primarily supervisory. |
Limit the court's role to supervision and approval, and empower creditors and insolvency professionals to make commercial decisions. This aligns with the Supreme Court's "commercial wisdom" doctrine (K. Sashidhar vs Indian Overseas Bank, 2019). |
|
United Kingdom |
An insolvency practitioner takes control to achieve a swift resolution, often through a pre-packaged sale of the business with minimal court intervention. |
The IBC, a crucial reform for debt resolution, has improved creditor rights and recovery but is plagued by systemic delays. To restore its effectiveness, the government must structurally reform the NCLT, shifting its role from an adjudicator to an efficient supervisor, ensuring swift and fair resolution.
Source: TELEGRAPHINDIA
|
PRACTICE QUESTION Q. With reference to the Insolvency and Bankruptcy Board of India (IBBI), consider the following statements: 1. It is a statutory body established under the Insolvency and Bankruptcy Code, 2016. 2. It regulates insolvency professionals, insolvency professional agencies, and information utilities. 3. It acts as the adjudicating authority for corporate insolvency cases. Which of the statements given above are correct? A) 1 and 2 only B) 2 and 3 only C) 1 and 3 only D) 1, 2 and 3 Answer: A Explanation: Statement 1 is correct: IBBI was established as a statutory body under the Insolvency and Bankruptcy Code, 2016. Statement 2 is correct: It functions as a unique regulator overseeing insolvency professionals (IPs), insolvency professional agencies (IPAs), and information utilities (IUs). Statement 3 is incorrect: The National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) are the adjudicating authorities for corporate insolvency cases, not the IBBI. |
The IBC seeks to provide a unified, time-bound framework for resolving corporate distress. Its goals include maximizing the value of assets, promoting entrepreneurship, and balancing the interests of all stakeholders, including both creditors and debtors.
The standard timeline for completing the CIRP is 180 days from the date of admission. A one-time extension of up to 90 days may be granted by the adjudicating authority, though the total process (including extensions and legal delays) is generally capped at 330 days.
The CoC consists of all financial creditors of the corporate debtor. It is the supreme decision-making body during the resolution process, responsible for approving or rejecting resolution plans and deciding whether the company should be restructured or liquidated.
© 2026 iasgyan. All right reserved
