New Delhi: A hard-hitting report by the Standing Committee on Finance, tabled in Parliament on December 2, has warned that “persistent and systemic challenges” are severely undermining the Insolvency and Bankruptcy Code (IBC), 2016, eight years after it revolutionized India’s credit and resolution culture.
The 28th Report of the Committee, chaired by BJP MP Bhartruhari Mahtab, acknowledges the transformative impact of the IBC while delivering a stark reality check: low recovery rates, excessive creditor “haircuts”, chronic delays, judicial capacity crunch, valuation distortions, and jurisdictional conflicts are collectively eroding the Code’s ability to maximize enterprise value and deliver timely justice to stakeholders.
IBC’s Undeniable Success Story: Revival and Behavioral Overhaul
The parliamentary panel has given full credit to the IBC for triggering dramatic corporate turnarounds. Companies that emerged from resolution recorded:
- Average sales growth of 76% in three years post-resolution
- Total assets expansion of nearly 50%
- Average overdue days for loan accounts slashed from 248–344 days pre-IBC to just 30–87 days
- Massive out-of-court debt settlements driven by the Code’s deterrent effect
As of March 31, 2025, 1,194 corporate debtors have been successfully resolved, enabling creditors to realize ₹3.89 lakh crore against admitted claims exceeding ₹11 lakh crore. Creditors recovered 170.1% of liquidation value and over 93% of fair value, proving the IBC has saved viable businesses from liquidation.
The Shocking Truth: Creditors Facing 67% Average Haircuts
Despite these wins, the headline recovery rate stands at a dismal 32.8% of total admitted claims, meaning lenders are writing off two-thirds of their money.
Why Haircuts Are So Deep
- Companies enter IBC at a very late stage of distress, causing irreversible asset erosion
- Assets are valued on liquidation potential instead of enterprise value
- Lack of transparency and accountability in the valuation process
- Limited pool of quality resolution applicants and absence of global bidding
The Committee warned that the current system is pushing “distress-sale” pricing instead of maximizing going-concairn value.
Delays That Destroy Value: 713 Days vs Statutory 330-Day Limit
The average Corporate Insolvency Resolution Process (CIRP) now takes 713 days — more than double the mandated timeline.
Root Causes of Chronic Delays
- Severe shortage of NCLT and NCLAT benches
- Vacant judicial and technical member positions
- Inadequate staff and infrastructure
- Procedural ambiguities in Adjudicating Authority rules
- Flood of frivolous litigation by promoters and unsuccessful bidders
- Slow admission of insolvency applications
“Every extra day in limbo translates into irreversible value loss,” the report stressed.
Jurisdictional Conflicts: IBC vs PMLA and High Court Interventions
Two major legal battles are paralyzing the system:
- IBC vs Prevention of Money Laundering Act (PMLA)
- ED attachment of assets overrides Section 32A immunity given to new buyers
- Creates uncertainty for successful resolution applicants
- High Court Overreach
- Litigants routinely approach High Courts under Article 226/227 for stays and injunctions
- Undermines finality of NCLT-approved resolution plans
Post-Resolution Nightmare: The “Defaulter” Tag That Won’t Go Away
Even after resolution approval, revived companies face:
- Banks refusing fresh loans due to lingering CIBIL/RBI defaulter tags
- Delays in statutory clearances and “no dues” certificates
- Inability to start with a genuine clean slate
The Committee demanded an automated online “no dues” certificate mechanism to end this injustice.
Cross-Border Insolvency Vacuum Costing India Billions
With Indian groups holding assets worldwide, the absence of a cross-border framework is causing massive losses in cases like Jet Airways and Videocon. The panel declared adoption of the UNCITRAL Model Law (proposed in IBC Amendment Bill, 2025) as an “urgent national priority”.
Parliamentary Panel’s Comprehensive Reform Blueprint
1. Institutional Capacity Overhaul
- Immediately create additional NCLT benches
- Fill all judicial/technical vacancies on war footing
- Notify dedicated “Adjudicating Authority Rules” for IBC
2. Technology & Process Streamlining
- Fast-track Integrated Process Information Exchange (iPIE) platform
- Mandate upfront deposit and heavy penalties for frivolous appeals
- Introduce SOPs, audit trails, and post-resolution valuation reviews
3. Value-Maximization Revolution
- Shift valuation from liquidation value to enterprise value
- Launch global outreach for bidders
- Use transparent e-auction platforms to boost competition
4. Legislative Clarity & Finality
- Use IBC Amendment Bill, 2025 (under Lok Sabha Select Committee led by BJP MP Baijayant Panda) to:
- Guarantee finality of approved plans
- Resolve IBC–PMLA conflict permanently
- Strengthen accountability of resolution professionals
5. Deterrence Against Vexatious Litigation
- Substantially increase minimum penalties
- Empower IBBI to impose heavy costs on habitual litigants
Expert Verdict: “Value Bleeds Every Day a Case Remains Stuck”
Shankey Agrawal, Partner, BMR Legal, said:
“The panel has correctly identified that value destruction is directly proportional to time spent in courts. Enhanced NCLT capacity, accountability of resolution professionals, and legislative safeguards against repeated challenges are non-negotiable. Swift implementation can shift IBC from procedural battles to genuine commercial resolution.”
The Countdown Begins: Winter or Budget Session Overhaul?
With the IBC Amendment Bill, 2025 already under review by the Lok Sabha Select Committee, a revised legislation incorporating these recommendations is expected either in the remaining Winter Session or the 2026 Budget Session.
As India races toward a $5 trillion economy, Parliament has delivered an unambiguous message: the IBC is too critical to fail. Systemic bottlenecks must be demolished without delay, or India’s global credibility as an investment destination will remain under threat.
The Standing Committee has thrown down the gauntlet. The government now holds the key to the most ambitious IBC overhaul since 2016.
FAQs
1. What is the current average recovery rate for creditors under the IBC, and why is it so low?
Creditors are recovering only 32.8% of their total admitted claims (as of March 2025). The low rate is mainly because companies enter the IBC process at a very late stage when assets have already lost significant value, combined with valuation based on liquidation value instead of enterprise value and limited competitive bidding.
2. How long does an average IBC resolution actually take compared to the legal timeline?
The average Corporate Insolvency Resolution Process (CIRP) now takes 713 days, which is more than double the maximum 330-day timeline (including extensions) prescribed under the IBC.
3. What are the biggest reasons for delays in IBC cases?
- Slow admission of cases and lack of dedicated procedural rules
- Severe shortage of judges and staff at NCLT/NCLAT benches
- Vacant judicial and technical member positions
- Frivolous litigation and appeals by promoters or unsuccessful bidders
4. Why do resolved companies still face problems even after successful resolution?
Even after approval of a resolution plan, companies continue to be tagged as “defaulters” in CIBIL and RBI records, banks refuse fresh loans, and government departments delay issuing “no dues” certificates and statutory clearances. The Parliamentary Committee has demanded an automated online system for instant “no dues” certificates.
5. What are the most important reforms recommended by the Standing Committee?
Key recommendations include:
Fast-tracking of the Integrated Technology Platform (iPIE) and SOPs for valuers and liquidators
Immediate creation of additional NCLT benches and filling of vacancies
Shift from liquidation-value to enterprise-value based valuation
Global outreach to attract more bidders and reduce haircuts
Introduction of cross-border insolvency framework (UNCITRAL Model Law)
Mandatory upfront deposits and heavy penalties to stop frivolous appeals
Use of the ongoing IBC Amendment Bill 2025 to guarantee finality of approved plans and resolve IBC–PMLA conflicts
