‘Persistent and systemic challenges’ undermine IBC’s full potential: Parliamentary committee

The Insolvency and Bankruptcy Code (IBC) has so far played a significant role in enhancing India’s ease of doing business, but despite its successes, there are “persistent and systemic challenges” that undermine its optimal performance, the Parliamentary Standing Committee on Finance has said.

In its ‘Review of Working of Insolvency and Bankruptcy Code and Emerging Issues’ report submitted to Parliament on Tuesday, the Standing Committee on Finance said that the efficacy of the IBC can be seen in the fact that a total of 1,194 companies have been successfully resolved under the its framework. 

It added that creditors have recovered over 170% of the liquidation value and more than 93% of the fair value of these companies.

“Despite these undeniable successes, the Committee express profound concern over persistent and systemic challenges that significantly undermine the Code’s optimal performance,” the report said. 

Slow processes

“These challenges include protracted delays in proceedings, an excessive burden of litigation straining adjudicating authorities, contentious issues surrounding excessive haircuts for creditors, and the incomplete implementation of key frameworks, specifically the individual insolvency framework and the pre-packaged mechanism for MSMEs,” it added.

The report further said that the Committee particularly took note of the fact that the slow admission of insolvency applications continues to impede rapid value realisation and leads to the deterioration of assets, and also significantly leads to delays in resolution. 

The Committee did note that a lot of the shortcomings of the IBC process have been sought to be addressed in the government’s Insolvency and Bankruptcy Code (Amendment) Bill 2025.

However, it also highlighted that the average time taken for the closure of the Corporate Insolvency Resolution Process (CIRP) is currently 713 days, as compared to the mandated 330-day timeline. 

How to reduce delays

“The Committee observe that these excessive delays are primarily caused by a severe shortage of NCLT benches, vacant judicial and administrative staff positions, and widespread frivolous litigation and appeals by promoters or unsuccessful resolution applicants, which erodes asset value,” the report said.

Towards addressing this, the Committee recommended that the government’s proposal to set up additional National Company Law Tribunal benches be expedited and that the Ministry of Corporate Affairs accelerate the operationalisation of the proposed Integrated Technology Platform (iPIE) for centralised case management.

“To deter vexatious challenges, the Committee further recommend that the IBBI [Insolvency and Bankruptcy Board of India] prescribe a mandatory upfront threshold deposit for unsuccessful resolution applicants filing appeals, and the minimum penalty for frivolous applications should be substantially raised,” the report said.

Low recovery

The Committee made note of the fact that, while creditors recover about 170% of the liquidation value of the stressed assets, the overall recovery is 32.8% of the total admitted claims, “indicating a significant shortfall largely due to firms entering the IBC when assets are already heavily stressed”. 

It said that the recovery is constrained due to the valuation of assets based on their liquidation potential rather than their enterprise value, and by a limited pool of quality resolution applicants. It added that valuation is a concern due to the “lack of transparency and accountability in the process”.