Is IBC Effective Enough or Is It Time for IBC 2.0? A Detailed Analysis

IBC's Achievements So Far

Recovery of Money and Reduction in Bad Loans

By March 2025, financial creditors recovered over Rs. 3.89 lakh crore through IBC. This is about 33 percent of the total amount they were owed. In the financial year 2023 to 2024, IBC was responsible for 48 percent of all bank recoveries, which was better than other methods like SARFAESI and Debt RecoveryTribunals.

Thanks to IBC, the amount of bad loans in banks has dropped. Gross non performing assets came down from 11.2 percent in March 2018 to just 2.8 percent in March 2024. A study by the Indian Institute of Management Bangalore confirmed this positive trend.

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Success in Rescuing Companies

A total of 1,194 companies have been saved through resolution plans. These plans recovered about 93 percent of the fair value of the assets and 170 percent of what would have been recovered through liquidation. The number of successful resolutions compared to liquidations rose from 21 percent in 2018 to 61 percent in 2024. Over the last three years, 60 percent of all approved resolution plans dealt with defaults worth Rs. 13.8 trillion.

Change in Borrower Behavior

IBC has also acted as a strong warning to borrowers. More than 30,000 cases involving Rs. 13.78 lakh crore were settled even before they reached the insolvency stage. In addition, nearly 26,500 cases were withdrawn before formal admission, involving defaults of over Rs. 9.3 lakh crore. This shows that companies are now more willing to pay or settle early, fearing insolvency proceedings.

Important Judicial Decisions: Strengthening the Code

The courts have played a major role in shaping and supporting IBC. One important case was the Bhushan Power and Steel case. In May 2022, the Supreme Court made an important decision that helped clarify the powers of different authorities under the IBC.

JSW Steel had submitted a resolution plan for Bhushan Power and Steel. But later, the Enforcement Directorate attached some of the company’s assets, claiming they were linked to criminal wrongdoing by the earlier owners. This raised doubts about whether resolution applicants could be dragged into old legal troubles.

The Supreme Court ruled that once the plan is approved, agencies like the ED cannot disturb it. The Court said that resolution applicants must be protected from criminal action for acts they were not involved in. The Court also said that insolvency courts like NCLT and NCLAT should not interfere with the jurisdiction of enforcement agencies unless the matter relates directly to the insolvency process.

This judgment restored confidence in the process and ensured that buyers are not scared away due to legal risks from past owners.

Challenges That Still Exist

Despite its progress, IBC faces some serious issues that affect its full potential.

Court Delays

A major concern is the delay in court proceedings. About 78 percent of ongoing insolvency cases take longer than the set limit of 270 days. In some years, the average admission time for cases was as high as 650 days. These delays reduce the value of assets and defeat the purpose of a fast resolution system.

High Losses for Lenders

Even though companies are being resolved, the amount recovered is often very low. Lenders have to accept losses or haircuts of around 67 percent on average. Better methods are needed to value companies and to ensure that bidders offer fair prices.

Uncertainty in Legal Outcomes

Some court decisions have created confusion. For example, there have been disagreements on whether past criminal actions should affect resolution applicants. This uncertainty can scare away potential investors and slow down the process.

Problems with Sector-Specific Solutions

Some new business models like tech startups and companies based on intellectual property do not fit well under the current rules. Also, the Pre Packaged Insolvency Resolution Process, which was started in 2021 to help small businesses, has not worked as expected. Only ten cases have been admitted under this system so far.

Issues with Key Participants

Committees of Creditors, which make major decisions during insolvency, often suffer from lack of cooperation or clear understanding of the process. Resolution professionals, who manage the process, sometimes do not receive enough support. Though the Insolvency and Bankruptcy Board of India has started training programs, more needs to be done.

What IBC 2.0 Should Aim to Fix

A second version of IBC must solve current problems and prepare for future needs. Key reforms should include:

• Improve Court Infrastructure: Add more benches to the National Company Law Tribunal and introduce online systems to speed up decisions.
• Better Valuation and Bidding: Set clear rules for valuing assets and selecting the best bidder to reduce losses for lenders.
• Promote Pre-Pack Resolutions: Encourage the use of pre-pack systems for small businesses and expand them to other sectors.
• Update Rules for New Business Types: Create special rules for startups and companies whose value lies in digital assets or patents.
• Use of Technology: Introduce artificial intelligence and data tools to predict defaults, support valuations, and assist in legal analysis.
• Reward Skilled Professionals: Pay resolution professionals based on results and encourage accountability in performance.

Global Impact and India's Reputation

IBC has helped improve India’s image among global investors. The World Bank's Ease of Doing Business rankings show that India moved from the 136th position in 2017 to 63rd. This rise was largely due to improvements in the insolvency process. Banks are now more open to lending to troubled companies because they know there is a structured way to recover their money.

Conclusion

The IBC has changed the way India deals with debt and default. It has brought discipline, increased recoveries, improved the behavior of borrowers, and reduced bad loans in the banking system. However, it is still far from perfect.

Judicial support and reforms have kept the process alive, but rising delays, heavy losses for lenders, and legal confusion show that the current system cannot work forever without change. It is time to build IBC 2.0, a faster, smarter, and more modern system that matches the needs of a growing economy.

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