Authors– Tanuj Sud and Akanksha Mathur
- Introduction
A decade ago, India’s macroeconomic landscape was weighed down by a fragmented and inefficient insolvency regime. Before the adoption of the modern framework, the country’s debt recovery architecture was marked by chronic delay, overlapping statutes, and pervasive moral hazard.
- The legislative ethos shift
Prior to the enactment of the Insolvency and Bankruptcy Code, 2016, India’s insolvency framework was unwieldy and disjointed, as comprised in various laws, such as the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debts Due to Banks and Financiers Act, 1993, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and the winding up provisions under the Companies Act. Until now, there was no central or universal insolvency regime, leading to mix-ups of jurisdictions, poor efficiency in the resolution of financial distress and extended periods of ambiguity in the resolution process. At the same time, there was an unprecedented rise in the bad loans faced by the country’s banking sector, severely undermining creditors’ trust. In light of the same, the Reserve Bank of India was constrained to introduce a number of schemes for the stressed assets, which include Corporate Debt Restructuring (CDR), Strategic Debt Restructuring (SDR), Joint Lenders’ Forum (JLF), 5/25 refinancing scheme and Scheme for Sustainable Structuring of Stressed Assets (S4A).
In practice, these mechanisms, however, struggled to deliver effective and timely resolution for the most part because of the lack of coordination by creditors, debt restructurings of unsustainable debt and the lack of an encompassing framework on legal and statutory level. Since the outdated insolvency laws were in need of a revised scheme and adoption of a modern, uniform and aligning with the global standards. The Government established the Bankruptcy Law Reforms (BLR) Committee, the recommendations of which culminated in the promulgation of the Code. The Code was designed not just as a recovery legislation but as a resolution framework, ensuring a fast-track insolvency mechanism to resolve companies’ distress and optimise the value of distressed assets while fostering business activities and credit availability for all companies involved on a holistic and institutional framework.
Furthermore, the philosophical foundation of the Code was to place the creditors at the center of the resolution process and to conduct the insolvency process in a transparent, competitive, and strictly time-bound manner, administered before its dedicated adjudicating authority being the National Company Law Tribunal (“NCLT”).
- Impact of the Code
The most significant legacy of the Code is its transformation of India’s corporate credit culture. Having replaced the fragmented archaic laws, the Code has effectively established a creditor-in-control model, and shifted the legislative objective from piecemeal liquidation to collective resolution, making preservation of the distressed entity as a going concern the first and preferred course, with liquidation reserved as a measure of last resort.
Quantitatively, the impact of Code has been mostly optimistic. Statistics suggest that the average annual recovery rate improved from approximately 23% in the earlier years to about 32% in more recent years, with creditors realizing roughly Rs. 4 lakh crores across about 1,300 resolved cases. In addition to the recovery numbers, the Code has spelt a change in credit culture in India – away from the control of the defaulting promoter to the creditor, and envisaged enhancement of financial discipline among borrowers. Enhancing the parity between debt and equity service will signal to the promoters that they should endeavour for the timely debt payment and settlement in order to secure the management control under the creditor-in-control framework, including the alignment between the creditor and the debtor. A shift in the ethos of promoter accountability has been further cemented by the Hon’ble Supreme Court in the case of Arun Kumar Jagatramka v. Jindal Steel & Power Ltd., (2021) 7 SCC 474., which highlighted the aim to prevent the defaulting promoters from reclaiming control of the companies running distress situations indirectly. Thus, the Code has given a major boost to the discipline of credit and reformed the debtor-creditor relationship in India. At the same time, it has been noted that average resolution timelines remain stretched at around 597 days, and that value erosion becomes more evident as cases move beyond the 330-day threshold[1].
- Iterative evolution of Code
The survival and efficacy of the Code have depended heavily on judicial support. One of the first major challenges was its constitutional validity. In Swiss Ribbons (P) Ltd. v. Union of India[2], the Hon’ble Supreme Court upheld the constitutional validity of the Code and recognized the intelligible differentia between financial creditors and operational creditors. That decision gave the Code the constitutional legitimacy necessary for its effective implementation.
The Code’s development has been marked by iterative amendments responding to both market realities and judicial interventions. The introduction of section 29A in the Code in 2018 addressed the moral hazard of defaulting promoters seeking to regain control of distressed assets. Similarly, the recognition of homebuyers as financial creditors, upheld in Pioneer Urban Land and Infrastructure Ltd. v. Union of India[3], expanded the scope of creditor participation and protection. The Code also demonstrated flexibility during exogenous shocks by the suspension of insolvency filings under section 10A of the Code during the COVID-19 pandemic and the introduction of the Pre-Packaged Insolvency Resolution Process for MSMEs, which reflect its adaptive capacity. Additionally, the extension of insolvency proceedings to personal guarantors has reinforced promoter accountability and weakened the protective shield of limited liability.
Further, the Jaypee Infratech insolvency saga represents a critical turning point, culminating in Chitra Sharma v. Union of India[4] and catalysing the legislative recognition of homebuyers as financial creditors. Through extensive reliance on its powers under Article 142[5], the Hon’ble Supreme Court addressed the socio-economic fallout affecting thousands of allottees, while also shaping key jurisprudence on creditor voting, state-backed resolution, and the balance between statutory timelines and equitable relief. The proceedings of Jaiprakash Associates Limited (JAL) and Jaypee Infratech Limited (JIL) fundamentally changed the nature and scope of insolvency law by moving beyond a purely creditor- driven model to a more balanced and consumer friendly approach as laid out in the Code. The proceedings in the case of Anuj Jain (RP) v. Axis Bank Limited & Ors. Civil Appeal Nos. 8512-8527 of 2019 also reinforced the avoidance law under sections 43, 45, 49 and 66 of the Code. Hence, the Jaypee cases are considered as benchmarks which significantly changed the philosophical, institutional and socio-economic course of the Code.
- Institutional and Jurisprudential Challenges in Insolvency Resolution
Despite its many achievements, the Code continues to suffer from a persistent failure of time. In Essar Steel (India) Ltd. Committee of Creditors v. Satish Kumar Gupta[6], the Hon’ble Supreme Court held that the 330-day timeline was directory rather than mandatory, thereby diluting the statutory discipline originally built into the Code. As a result, resolution timelines have continued to stretch well beyond the intended framework, with the under-resourced NCLT remaining the principal bottleneck coupled with litigants taking advantage of the same and filing frivolous and vexatious applications. This problem has been compounded by recent jurisprudential developments that have introduced greater uncertainty into the insolvency ecosystem. In Vidarbha Industries Power Ltd. v. Axis Bank Ltd.[7], the Hon’ble Supreme Court held that admission of a section 7 petition is discretionary even where default is undisputed, unsettling the predictability that the Code was designed to secure. But the wide implications of the ruling were limited in subsequent review and interpretation and in court, where it was pointed out that the ratio in Vidarbha applied to the specific facts and circumstances before it, especially the fact that there was an arbitral award in favour of the corporate debtor which was also substantial and realizable. In this regard, later decisions have looked at Vidarbha as an exception rather than a rule applicable to the admissions of section 7, bringing back the creditor-certainty and predictability that were key to the Code.
Similarly, the case of State Tax Officer v. Rainbow Papers Ltd.[8] raised concern by appearing to elevate tax authorities to the position of secured creditors, thereby placing pressure on the Code’s waterfall mechanism. The Supreme Court, in particular, in Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Private Ltd, 2023 SCC OnLine SC 842, restricted the scope of application of Rainbow Papers only in their facts and held that the waterfall mechanism takes precedence over the Rainbow Papers under section 53. Similarly, in cases like Ghanshyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd., (2021) SCC Online SC 313, and subsequent cases based on its“clean slate” principle, it had been established that statutory dues that are not included in an approved resolution plan are deemed to be extinguished on approval of the resolution plan. As such, despite the initial ambiguity in relation to the status of government dues under the Code regime, subsequent decisions have significantly clarified the position and added more coherence to the priority regime in Code. More complex cases have further exposed structural gaps, particularly in cross-border and group insolvency scenarios. The GLAS Trust Co. LLC v. BYJU Raveendran[9] proceedings highlighted the difficulty of coordinating Indian insolvency with parallel foreign proceedings and offshore asset structures, while the State Bank of India vs. Videocon Industries Limited[10] matter illustrated the absence of a codified group insolvency framework, compelling tribunals in exceptional cases to rely on substantive consolidation based on common control, interdependence, and intertwined finances.
- The recent IBC overhaul
The 2026 amendments to the Code, enacted through the Insolvency and Bankruptcy Code (Amendment) Act, 2026, mark a significant step toward addressing structural inefficiencies in the insolvency framework. It received the assent of the President on April 6, 2026, and was notified in the official gazette on May 22, 2026, (w.e.f. May 26, 2026) wherein some portions of the amendment have so far been put into effect. The amendments also now introduce a Creditor-Initiated Insolvency Resolution Process (CIIRP) that provides for a pre-admission creditor driven resolution mechanism with a streamlined timeline of 150 days and with an additional 45 days in exceptional circumstances, where existing management can retain operational control under supervision. The amendments also provide for enhanced procedural discipline, with tighter timelines for admission of applications by the NCLT, the treatment of statutory dues, and improve the role of the Committee of Creditors in the liquidation proceedings. The 2026 amendments together reflect a larger legislative perspective of enhancing speed, predictability, and sophistication of the insolvency regime.
- Conclusion
A decade on, the Code has fundamentally reshaped India’s credit landscape by replacing a fragmented, delay-prone regime with a creditor-driven, time-bound framework. Its’ greatest success lies in changing market behaviour and strengthening the discipline of default.
Even so, persistent delays, uneven judicial interpretation, and limited adjudicatory capacity continue to undermine the Code’s original promise. The next phase of reform must therefore focus on institutional strengthening, doctrinal consistency, and better handling of operational creditors, group insolvency, and cross-border distress. The Code’s long-term success will depend not merely on recovery in individual cases, but on its ability to deliver predictable, efficient, and equitable resolution across the system.
[1] EY IBC Evolution Report, Insolvency and Bankruptcy Code, 2016: Evolution and Journey Over the Last Nine Years (Jan. 2026).
[2] (2019) 4 SCC 17.
[3] (2019) 8 SCC 416.
[4] (2018) 18 SCC 575.
[5] Constitution of India, 1950.
[6] (2020) 8 SCC 531.
[7] (2022) 8 SCC 352.
[8] (2023) 9 SCC 545.
[9] (2025) 3 SCC 625.
[10] C.P.(IB)-02/MB/2018.
