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Enhancing the IBC: Proposed Changes for Greater Efficiency

The proposed reforms aim to improve transparency and clarity in the insolvency resolution process, reducing delays and facilitating better outcomes.
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Strengthening Insolvency Framework Through Transparency
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1. Continuous Evolution of the IBC Framework

In a dynamic market economy, regulatory frameworks require periodic evaluation to address implementation gaps and changing economic conditions. The Insolvency and Bankruptcy Code (IBC), 2016, represents one of India’s most significant structural reforms aimed at time-bound insolvency resolution and value maximisation.

Since its enactment, the government and the Insolvency and Bankruptcy Board of India (IBBI) have introduced multiple amendments to refine the framework. Recently, the IBBI released a discussion paper focusing on improving procedural clarity in the functioning of the Committee of Creditors (CoC).

The objective is to enhance transparency, reduce litigation, and make resolution outcomes more robust. Such reform signals regulatory responsiveness to operational challenges observed over time.

Regulatory adaptation is essential to maintain credibility and efficiency. Without continuous refinement, even well-designed reforms risk dilution in effectiveness due to procedural ambiguities.

2. Procedural Gaps in the Functioning of the Committee of Creditors (CoC)

The discussion paper identifies inconsistencies in the recording and documentation of CoC deliberations. The depth and detail of meeting minutes vary widely, and the rationale behind commercial decisions is often inadequately captured.

Lack of clarity in decision-making can lead to disputes, litigation, and delays at advanced stages of resolution. Since CoCs play a central role in evaluating and approving resolution plans, opaque processes undermine both accountability and legal certainty.

To address this, the paper proposes that CoCs must explicitly record:

  • Expected recovery vis-à-vis fair value and liquidation value
  • Adequacy of market discovery during the resolution process
  • Credibility of the resolution applicant
  • Certainty of implementation of the resolution plan

“… the CoC’s approval of a resolution plan is demonstrably conscious, informed, and supported by recorded rationale.” — IBBI Discussion Paper

Transparent documentation strengthens the defensibility of commercial decisions. If deliberations remain inadequately recorded, disputes and judicial scrutiny may continue to delay resolution outcomes.

3. Clarifications on Operational Continuity and Delayed Claims

The discussion paper reinforces that decisions during the Corporate Insolvency Resolution Process (CIRP) must be guided by expected value maximisation and commercial prudence.

It also addresses ambiguity regarding delayed claims. Claims accepted by the resolution professional must:

  • Be placed before the Adjudicating Authority (AA) within one week
  • Be presented before the CoC for recommendation on treatment in the resolution plan

Previously, some claims were not placed before the AA due to the absence of CoC recommendations, creating procedural bottlenecks.

The paper further proposes the exclusion of related operational creditors from the CoC to avoid conflicts of interest and ensure objectivity.

Clarifying procedural steps reduces administrative discretion and potential disputes. Without such clarity, the insolvency process risks procedural inefficiency and inconsistent outcomes.

4. Time Delays: The Core Structural Challenge

While procedural improvements are important, delays remain the most critical challenge confronting the IBC framework.

The IBC envisaged a maximum resolution timeline of 330 days. However, as per the latest quarterly newsletter of the IBBI:

  • Out of 1,376 CIRPs resulting in resolution plans (up to December last year),
  • The average time taken was 619 days

This significant deviation from the statutory timeline undermines the core objective of time-bound resolution and value preservation.

Delays erode asset value, reduce recovery rates, and discourage potential bidders, thereby weakening the overall effectiveness of the insolvency regime.

Time-bound resolution is central to the IBC’s design. When timelines stretch significantly, the economic logic of preserving enterprise value is compromised.

5. Capacity Constraints in Adjudicatory Institutions

Experts have highlighted that capacity constraints at the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) are a major reason for delays.

Increased caseloads without proportional expansion in judicial and administrative capacity have slowed the adjudication process. Even well-structured resolution plans face bottlenecks at the approval and appellate stages.

Procedural clarity alone cannot offset institutional capacity deficits. Structural strengthening of tribunals is therefore essential.

Legal reform without adequate institutional capacity leads to implementation gaps. Unless adjudicatory capacity expands, procedural improvements may yield only marginal gains.

6. Broader Economic Implications of an Efficient Exit Mechanism

The IBC was designed to enable early resolution, preserve enterprise value, and facilitate efficient capital reallocation. A smooth exit mechanism strengthens credit discipline and improves the overall investment climate.

Efficient insolvency resolution reassures lenders, reduces non-performing assets, and enhances investor confidence. Conversely, persistent delays weaken trust in contractual enforcement.

A predictable and timely bankruptcy framework supports broader financial stability and economic growth.

An effective exit framework complements entry reforms. Without credible insolvency resolution, risk-taking and investment decisions remain constrained.

Conclusion

The IBBI’s proposed procedural reforms aim to enhance transparency, documentation, and operational clarity within the IBC framework. While these changes are necessary to reduce litigation and improve decision-making, they are insufficient in isolation.

Addressing capacity constraints at the NCLT and NCLAT is equally critical to restoring the time-bound nature of insolvency resolution. Strengthening both legal design and institutional capacity will ensure that the IBC continues to serve as a robust mechanism for value preservation, efficient capital allocation, and sustained economic growth.*

Quick Q&A

Everything you need to know

The Insolvency and Bankruptcy Code (IBC), 2016 represents a landmark structural reform aimed at creating a time-bound and creditor-driven insolvency resolution framework in India. Prior to the IBC, insolvency proceedings were fragmented across multiple laws such as the Companies Act, SARFAESI Act, and the Sick Industrial Companies Act, leading to prolonged delays and erosion of asset value. The IBC consolidated these mechanisms into a unified code, shifting control from defaulting promoters to the Committee of Creditors (CoC) during the Corporate Insolvency Resolution Process (CIRP).

The central objective of the IBC was to ensure value maximisation and timely resolution within a prescribed 330-day period. By providing a credible exit mechanism, it aimed to improve credit culture, reduce non-performing assets (NPAs), and enhance investor confidence. For instance, several large accounts in the steel and power sectors were resolved under the IBC, leading to improved recoveries compared to earlier mechanisms.

However, the effectiveness of the IBC depends not only on statutory design but also on procedural clarity and institutional capacity. Continuous reforms, such as those proposed by the Insolvency and Bankruptcy Board of India (IBBI), are therefore crucial to maintain its credibility and efficiency.

The Committee of Creditors (CoC) plays a pivotal role in determining the fate of distressed firms under the IBC framework. Its commercial wisdom is generally upheld by courts, making transparency in its decision-making process essential. The IBBI’s discussion paper highlights inconsistencies in recording deliberations, which can lead to ambiguity, litigation, and delays.

Improved documentation—such as recording expected recovery vis-à-vis liquidation value, adequacy of market discovery, and the credibility of resolution applicants—ensures that decisions are conscious, informed, and backed by rationale. This reduces the scope for disputes at later stages before the adjudicating authority (AA) or appellate tribunals.

Greater transparency enhances stakeholder confidence, particularly among operational creditors and minority claimants. It also aligns with principles of good governance and accountability, ensuring that insolvency resolution remains focused on value maximisation rather than opaque negotiations.

Procedural reforms, such as clearer documentation and defined timelines for handling delayed claims, are essential for reducing friction in the insolvency process. They enhance predictability and reduce avoidable litigation. However, they may not fully resolve the deeper structural bottlenecks affecting the system.

Data indicates that the average time for resolution has reached 619 days, significantly exceeding the intended 330-day limit. The primary constraint lies in the limited capacity of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). Judicial vacancies, heavy caseloads, and procedural adjournments contribute to systemic delays.

Therefore, while improving legal design is necessary, strengthening institutional capacity—through additional benches, digital case management systems, and specialised training—is equally critical. Without such reforms, even well-crafted procedural changes may not achieve the intended efficiency gains.

The IBBI’s discussion paper addresses ambiguities surrounding delayed claims and the participation of related operational creditors in the CoC. It proposes that claims deemed acceptable by the resolution professional must be presented before the adjudicating authority within a week and placed before the CoC for recommendation. This ensures procedural certainty and prevents claims from being excluded due to technical lapses.

Further, excluding related operational creditors from the CoC seeks to prevent conflicts of interest and safeguard the integrity of decision-making. This reinforces the principle that the CoC must act in the collective interest of genuine financial stakeholders.

Such clarifications can reduce disputes and ensure that the resolution process remains focused on objective commercial evaluation. By strengthening procedural discipline, these measures aim to improve fairness and efficiency in the insolvency ecosystem.

A comprehensive reform approach must address both legal and institutional dimensions. First, enhancing the capacity of the NCLT and NCLAT through increased judicial appointments, specialised insolvency benches, and digital case-tracking systems would reduce pendency. Fast-track mechanisms for smaller cases could also prevent backlog.

Second, strengthening pre-insolvency mechanisms such as out-of-court restructuring frameworks and promoting mediation could reduce pressure on tribunals. Encouraging early recognition of financial stress through improved credit monitoring systems would also preserve enterprise value.

Finally, continuous training for resolution professionals and CoC members, coupled with transparent performance metrics, would improve quality of decision-making. International best practices, such as the UK’s administration model, demonstrate that efficient insolvency systems enhance investment climate. A robust exit framework reallocates capital efficiently and strengthens overall economic dynamism.

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