The government and the regulator concerned seem to be taking a hard look at the Insolvency and Bankruptcy Code (IBC). A decade after the Code replaced an archaic, inefficient system for resolving financial stress in the country, the IBC appears to suffer from growing distrust among both creditors and corporate debtors (CDs). The process for creditors to get a CD admitted, finalise a resolution plan, get it approved by the adjudicator, and implement it is often too long, tedious, and self-defeating. Creditors are increasingly unconvinced that IBC-led restitution would offer a higher chance to salvage the residual asset value. As a result, the number of IBC-anchored resolutions fell to 665 in 2025-26, nearly half the level three years prior, and to a 13-quarter low of just 36 in Q4FY26. Such confidence erosion among key stakeholders calls for a comprehensive review of not only the principal law and various relevant rules, but also the institutional architecture.
The government’s intention is evident from recent legislative initiatives. One of them is a new out-of-court framework that will allow a few designated financial institutions to start the resolution process with greater control over timelines and outcomes. It might work in certain large cases, but it cannot replace the mainstream process that requires a proactive role from adjudicating bodies. Another amendment has stripped the National Company Law Tribunal (NCLT) of its discretionary power to dismiss or defer insolvency applications filed by creditors if a default has been established. This provides greater legal clarity after the confusion created by a Supreme Court order. Also, affirming the “clean slate” doctrine could incentivise potential bidders by offering greater protection from the firm’s past liabilities. Placing financial creditors above even secured government dues in the distribution waterfall is a sensible step; enabling frameworks for “group insolvency” and resolution of cases involving cross-border asset spread are also significant improvements.
Keeping pace with these amendments to the Code, the Insolvency and Bankruptcy Board of India (IBBI) has proposed a slew of changes over the last few months. Higher protection for homebuyers through project-wise resolution of insolvency and ring-fencing cash flows, steps to improve governance within the Committee of Creditors, and new valuation norms to shift focus from a piecemeal approach to assessment of the whole asset as a going concern are indeed welcome. However, a reported move by the IBBI to divest resolution professionals of the responsibility for managing the company’s day-to-day operations strikes at the core of the IBC principle, and should not be pursued further.
An inexplicable irony is that these legislative and regulatory steps are not matched by a commensurate resolve to address the capacity constraints at the NCLT level. The tribunal at present has 52 members, against a sanctioned strength of 63. Going by the norms set for the US insolvency regime by the top public auditor there, India’s company law/insolvency tribunal must have strength of 360 to perform its mandate efficiently. In fact, since India lacks efficient court machinery and research support to ensure time-bound and sound adjudication, even matching the US tribunal-level strength may not produce similar results here. The government must act fast to raise the NCLT’s capacity manifold. Fiscal costs of such an exercise will be more than offset by preserving firms that could have otherwise descent into rot. Redistributing capital efficiently through a competent insolvency process is especially vital for a capital-scarce country like India.