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The era before Insolvency and Bankruptcy Code ("Code") in India had various disseminated laws relating to insolvency and bankruptcy which caused inadequate and ineffective results with undue delays, like for example, Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Companies Act, 1956 for liquidation and winding up of the company, Recovery of Debts Due to Banks and Financial Institutions Act, 1993 for debt recovery by banks and financial institutions, Corporate Debt Restructuring, etc under RBI guidelines.

The Board for Industrial and Financial Reconstruction under Sick Industrial Companies (Special Provisions) Act, 1985 which was set up for specific purpose to check the industrial sickness sadly also failed to address the issue, since defaulters escaped recovery action by lenders.

Ineffective implementation, and time-consuming procedure in the aforementioned laws made the Bankruptcy Law Reform Committee draft introduce Insolvency and Bankruptcy Law which eventually led to the enactment of the Code in 2016 which was seen as a crucial moment for the Indian economy as it introduced a modern framework to deal with the insolvency of individuals and corporate entities.

Under the Code, the Parliament had devised a method for permitting the financial and other creditors of a company, to seek resolution of a company (corporate debtor) by engaging independent professional (resolution professionals) to take charge of the company from the board of directors, when the company had defaulted in paying its debts and whilst keeping the company as a going concern.

The Code ushered a concept of creditor in control, as against debtor in control regime which existed earlier and with approving power on critical issues given to the Committee of Creditors.

For the corporate debtor, the threat of a resolution process, shifting control away from the promoters is real and is serving as an effective deterrent. The debtors are encouraged to settle default with the creditors at the earliest, preferably before the process under the Code is initiated.

Many banks in India who had been struggling with the mounting non-performing loans, the Code possibly gave them a ray of hope to finally find a way to recover their claims, if not in full, at least a substantial part of it.

India made one of the most impressive improvements in the resolving insolvency parameter of the World Banks’ Ease of Doing Business Report for the year 2019-2020. This is an important recognition for India and the Code, somewhere needs a show of appreciation which has seemed to be an effective tool for creditors to realize their dues in a significantly reduced timeframe compared to earlier insolvency regime.

Starting from the first resolution, that of Synergy Dooray to complicated and protracted resolutions/litigations of some of the large companies such as Bhushan Steel and Essar Steel, the Code has been successful in passing economic legislation test as also held by the Supreme Court in its various judicial pronouncements.

It has now been little over five years from the enactment of the Code and this journey had to go through several challenges in terms of frequent amendments made to the Code, though the amendments witnessed a lot of criticism, however if one has to look at the positive side it would be that the Government came up with rapid solutions so as to swiftly be able to address the glitches.

One such example of being receptive to problems was when the Government, recently introduced the pre-pack insolvency concept in India which allows companies to decide a plan and identify a buyer ahead of the company going into insolvency. Although this approach has been introduced only for MSME’s in India, possibly in coming few years this can be used for all corporate debtors.

The lenders though in some cases have been managed to recover their significant dues, however on the other hand there have been examples of cases where there has been low recovery, leading to liquidation. A recent case of such a low recovery was the resolution of Videocon Industries, where lenders reportedly took a haircut of over 90%.

By March 2021, as reported in the Insolvency and Bankruptcy Board of India, quarterly newsletter a total of 2653 CIRPs have been closed, out of which only 13% underwent successful resolution with a respectable recovery rate, while the others have seen liquidations.

In successful resolutions, Code has been able to recover a very high realisable value, surely higher than any previous recovery mechanism.

The recovery under the Code may not have been as one could have expected, but has generated satisfactory results for the lenders, especially in absence of any other effective alternative time bound mechanism.


Homebuyers were recognized as Financial Creditors giving them due to representation in the Committee of Creditors, this had a huge impact on them, qua their treatment under the Code.

The amendments to the Code where also made, where defaulting promoters were made ineligible from taking part in the resolution process.

The other amendment was where successful resolution applicants were given immunity from any investigations into wrongdoings by erstwhile corporate debtors, before it went into insolvency. This encouraged applicant to bid for companies without fearing of being dragged into agency investigations.

During the widespread of the Covid-19, and to avoid any disruption in the business of various companies whose work has been stopped, the Government suspended the filing of insolvency applications. This suspension now stands revoked.

The concept of group companies going into insolvency together was not provided under the Code. However, in the case of Videocon group, a common resolution professional was appointed in all the companies. This was seen as a big leap and somewhere also laid foundation of group insolvency law under the Code.

The Code for the first time in India introduced Information Utilities ("IUs") which resolved the problems of existing laws and conflicts that arose between debtors and creditors with respect to the gaps in the information system. The establishment and role of IUs is to act as a data storage entity that collects information from various sources and stores it in an electronic format in a safe and secure manner and initiation of insolvency of personal guarantors to corporate debtor.

Earlier, the law under the Code did not specifically provide for a financial service provider going into insolvency, the case of Dewan Housing and Finance Corporation Limited was unique, with it becoming the first instance of resolution of a financial services provider.

Another case which was in news was the first successful insolvency of an aviation company, Jet Airways. This case provided a mechanism (in an informal and indirect manner) of cross-border insolvency mechanism.


The Code has come a long way and managed to provide a relief to lenders to some extent, but lots more may have to be done.

The next major step that must be taken soon is the adoption of the United Nations Commission on International Trade Law model for cross border insolvency protocol and signing of treaties with foreign countries so as to set up formal processes to be followed when a debtor has assets located in such foreign countries.

The Code has strengthened creditors’ position and has also brought behavioural changes in promoters of non-performing companies by inculcating credit discipline to some extent.

The Indian Parliament’s Standing Committee on Finance has also recently in August 2021 sought a review of the design and implementation of the Code and possibly find viable solutions, vis-à-vis the low recovery rates, long delays in the resolution process, Committee of Creditor’s commercial wisdom and the high number of vacancies in the Tribunals.

Some of the issues though still faced under the Code, amongst various issues are treatment of operational creditor’s recovery under the Code, less priority being given to applications filed in respect of avoidable transactions such as extortionate, preferential, undervalued, and fraudulent transactions etc.

To conclude, the Code has strengthened an entire ecosystem in India, an achievement that seems to be less recognised.

The Code has surely made an impact on the recovery system in India and it will continue to inspire confidence in stakeholders in times to come.


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