India’s Insolvency Framework: From Fragmented Recovery Laws to the IBC

The introduction of the Insolvency and Bankruptcy Code, 2016, has proven to be a watershed moment in the history of Indian economic legislation, providing a systematic framework in a time-bound manner to decades of collapsing legal paralysis. IBC has been fairly successful in maintaining macroeconomic stability with the help of measures like Unfreezing NPAs, Consolidated Creditor Rights, Clean Slate Doctrine, Going Concern Rescue, and Creditor-in-Control Discipline. Prior to the introduction of IBC, there were multiple laws introduced from time to time from the Colonial Era laws like the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920, to the RDDBFI, 1993, & SARFAESI, 2002. The evolution has been broad, but it was still virtually impossible for the businesses to exit alive without having highly specialized knowledge and resources, which explains India’s pre-IBC reality: “marketism without exit’’. IBC 2016 has brought major changes, which include the introduction of the Insolvency and Bankruptcy Board of India, established under Section 188; court-appointed insolvency professionals regulated by Insolvency Professional Agencies (IPAs); adjudicating and appellate authorities such as NCLT and NCLAT; and the development of electronic databanks (Information Utilities) like NeSL to store, collect, and authenticate sensitive financial records. Moreover, there was also the mandatory 330-day straight line, which is the statutory time limit for completing the entire Corporate Insolvency Resolution Process (CIRP); it forces a swift economic resolution, replacing a system in which cases were dragged for decades. However, in the landmark case of Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta & Ors[i], The Supreme Court of India struck down the word ‘mandatory’ and held that the NCLT retains exceptional discretionary power to extend the timeline slightly if the delay is entirely due to systemic judicial bottlenecks, ensuring that innocent litigants are not penalized. Moreover, in the case of Swiss Ribbons Pvt. Ltd. v. Union of India[ii],  the Court upheld the constitutional validity of the Act, stating that the main aim of the Code is to emphasize resolution, not liquidation, and that more priority will be given to corporate rescue and value maximization, while stating that henceforth, ‘the defaulter’s paradise is lost. 

Admission Delays and The Operational Creditor Dilemma

One of the major challenges that the creditor faces is the delay in the completion of the process. It can be due to various reasons, such as delay in filing of the CIRP application, delay in appointment of a resolution professional, or creditors being unable to meet the required minimum threshold to file the application, which, in the case of an operational creditor, is ₹1 crore excluding interest, whereas in the case of a financial creditor, it is ₹1 crore including interest. Operational creditors face difficulties in initiating the CIRP individually before the adjudicating authority (NCLT) as they are barred from filing a joint application under Section 9 to combine their individual debts. For instance, Vendor X has provided services worth Rs 75 lakhs, and Vendor Y has provided goods worth Rs 25 lakhs, and payment of both is due now; together they have a default of 1 crore rupees. If they file a joint application but individually cannot meet the threshold, this further creates tension amongst the creditors as their claim is delayed until the minimum threshold is met by any other creditor. In the landmark case of Vidarbha Industries Power Limited v. Axis Bank Limited[iii]  (2022) The Supreme Court of India reinstated what was held in case of Surendra Trading Company v. Juggilal Kamlapat Jute Mills Co. Ltd[iv],(2017) that the 14-day timeline given to the adjudicating authority to accept or reject the application is discretionary rather than mandatory in nature, giving the authority the power to prolong the process even at this first stage. The 2026 amendment makes the timelines mandatory for the admission of applications but fails to remedy the structural bar in Section 9 on the filing of a joint application by operational creditors. As a result, several small operational creditors continue to face the practical challenge of invoking the insolvency procedure, since each individual creditor must independently satisfy the statutory threshold under Section 4. This remains one of the unanswered criticisms of the amendment.

Why the Promise of Time-Bound Insolvency Resolution Remained Unfulfilled

The Insolvency and Bankruptcy Code, 2016, was passed to provide a time-bound and speedy insolvency resolution process, which the Corporate Insolvency Resolution Process (CIRP) has to follow, usually within 330 days. Despite this legislation, delays were still a barrier to the effectiveness of the Code. The National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) had inefficient procedures, too few judges to adjudicate cases in a timely manner, and long and often stagnant backlogs, which led to insolvency proceedings frequently taking much longer than the prescribed duration. These postponements reduced the worth of distressed assets and hurt creditor’s recovery.

The objective of the Code was also watered down by judicial interpretation. In Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta[v], the Supreme Court said that the 330-day period was directory and not mandatory in “special cases.” The Court, in the case of Vidarbha Industries Power Ltd. v. Axis Bank Ltd[vi]., also allowed for further delay in the process by determining that the adjudicating authority can accept an application for the commencement of insolvency proceedings.

Such institutional and judicial issues indicated that statutory timelines were not adequate to provide for the speedy resolution of insolvency. This led to the introduction of the Insolvency and Bankruptcy Code (Amendment) Bill, 2026, aimed to instill a sense of procedural discipline and accountability and ensure that the Code achieves its intended goal of a time-bound insolvency process.

Key Procedural Reforms Introduced by the IBC (Amendment) Bill, 2026

Disciplinary proceedings in respect of the proposed interim resolution professional (IRP), presence of default should be established, application should be complete and any other document required by the adjudicating authority should be furnished. If all these requirements are met, they will either accept or reject the application mandatorily in required time frame of 14 days; moreover, the party will get seven days to rectify its mistake. Further, if any application has not been decided within 14 days (whether by financial or operational creditor or the company), NCLT has to record the reason for the delay.

Earlier, if no resolution plan had been reached or got rejected by NCLT in the 330-day time period, the companies had to compulsorily move towards liquidation, but now the amendment provides a one-time opportunity with the Committee of Creditors (CoC) passing a resolution with a 66% majority for the restoration of CIRP; NCLT may allow the request at its own discretion. A significant highlight is that the whole restoration of CIRP must be held in a time-bound manner within the period of 120 days.

The amendments have also created stricter timelines for liquidation process and reduced it from a one-year period to 180 days, with a possible 90-day extension. With an increase in application, it has been noticed that there is also an increase in number of applications which are filled with the purpose of initiating vexatious or frivolous proceedings which significantly increase the time and resources thus, the new amendment imposes a penalty of INR 1 lakhs to INR 2 crore for the same.

The overall timeline for NCLT has been made much stricter with withdrawal of CIRP: within 30 days of application, liquidation orders: within 30 days of application, Dissolution orders: within 30 days of application and Challenge to CIRP initiation: within 30 days of application. Further, the Act lay out that National Company Law Appellate Tribunal (NCLAT) shall dispose of the appeals within three months of the receipt of appeal. These amendments critically strengthen the fabric of India’s IBC regime to work in a systematic deadline-driven manner, thereby empowering the creditor to recover their dues in a time-sensitive manner.

Conclusion

The IBC 2.0 attempts to convert IBC time-bound promises into a reality with the help of realistic deadlines, which can provide relief to creditors while remaining realistic enough for already overburdened authorities, whether NCLT or NCLAT. The amendment further closes the lacunae left by the court in the case of Vidarbha Industries Power Limited v. Axis Bank Limited (2022) and in the case of Surendra Trading Company v. Juggilal Kamlapat Jute Mills Co. Ltd[vii]. (2017) by making the 14-day period mandatory. The amendment further expedites the process by adopting harsh measures against the initiation of vexatious or frivolous proceedings. Yet important questions linger related to amendments mandating greater speed without expanding benches, filling vacancies, or resourcing the tribunals. Thus, the effective implementation of these amendments remains in the hands of the tribunals as to how well they catch up with the legislative intent.

[i] (2019) 16 SCC 479

[ii] (2019) 4 SCC 17

[iii] (2022) 8 SCC 352

[iv] (2017) 16 SCC 143

[v] (2019) 16 SCC 479

[vi] (2019) 16 SCC 479

[vii] (2017) 16 SCC 143