Insolvency and bankruptcy code (IBC), 2016
What is the IBC?
The Insolvency and Bankruptcy Code, 2016 (IBC) is India’s landmark legislation aimed at reforming the framework for insolvency resolution of individuals and business entities. Before the IBC, resolving a company’s financial distress was a challenge. IBC has changed that by establishing a single, comprehensive law that promotes transparency, speed, and creditor-driven outcomes.
IBC is pivotal to India’s financial system because it helps to resolve the defaults by either reviving the company or, if that’s not possible, making sure its assets are sold in a way that gets the maximum value.
Why was it introduced?
There were often prolonged litigation, asset erosion, and poor recovery for creditors. With banks struggling under the weight of non-performing assets (NPAs), a mechanism was needed to ensure that:
- Defaults are identified early
- Creditors have a structured say in the resolution
- Asset value is recovered efficiently
The IBC addressed these issues by introducing time-bound insolvency resolution, creditor-in-control mechanisms, and clear legal provisions to protect the process from abuse or manipulation.
Who all does it apply to?
- Corporate Debtors – Companies and Limited Liability Partnerships (LLPs)
- Individuals and Partnership Firms – Personal insolvency (implemented in phases)
- Financial Creditors – Lenders, banks, bondholders
- Operational Creditors – Suppliers, employees, contractors
- Investors and Resolution Applicants – Anyone bidding to revive or acquire assets of a distressed entity
The Corporate Insolvency Resolution Process (CIRP) – How It Works?
- Default Event: CIRP begins when a creditor or the debtor files an application before NCLT on a default of ₹1 crore or more. If admitted, the resolution process begins.
- Moratorium and Appointment of IRP: NCLT imposes a moratorium under Section 14 and appoints an Interim Resolution Professional (IRP).
- Constitution of Committee of Creditors (CoC): Within 30 days, IRP forms CoC, primarily of financial creditors. CoC decides on key actions and approves resolution plans.
- Invitation and Evaluation of Resolution Plans: Expression of Interest and resolution plans are invited and assessed based on legal and financial criteria.
- Outcome: If approved by 66% of CoC, the plan is submitted to NCLT. If no plan is approved within 330 days or CoC votes for liquidation, the company goes into liquidation.
How Auctions Work Under IBC:
- Liquidator Appointment: A licensed professional prepares asset lists, valuations, and sale strategy.
- Valuation and Sale Strategy: Two registered valuers assess and set a reserve price for auction.
- Public Auctions and E-Bidding: Auctions include Going Concern, Slump Sales, or Piecemeal Sales.
- Bidding and Payment Terms: Full payment is required within 90 days (extendable by 30 days with interest).
- Clean Slate Principle – Section 32A: Buyers are protected from past liabilities if not related or complicit in fraud.
For investors and financial institutions, the IBC has unlocked a regulated and credible gateway to India’s distressed asset market with legal protections and oversight.
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