IBC in stress

Its survival depends on the judiciary and executive staying committed to its core principles

- M S SAHOO & ASHISH MAKHIJA

The Indian Parliament in 2016 enacted the Insolvency and Bankruptcy Code (IBC) to address the country's persistent challenges of financial stress and managing bad debts, with the overarching objective of driving economic growth.

In its initial years, the IBC benefited from rare institutional alignment. The legislature amended the code six times in the first five years to address implementation challenges and respond to the evolving economic environment.

With alacrity, the executive issued the rules and regulations, established the Insolvency and Bankruptcy Board of India (IBBI) and National Company Law Tribunal (NCLT), accredited insolvency professionals, and built the supporting ecosystem.

The judiciary reinforced the code's commercial and time-bound character through purposive and pragmatic interpretations.

This concerted effort, reinforced by stakeholder support, initially yielded remarkable outcomes: Faster resolutions, behavioural shifts among debtors, and improved credit discipline.

India's global ranking for resolving insolvency improved from 136th to 52nd in the first three years of the IBC's implementation.

However, this momentum appears to have waned.

While shortcomings are visible across the insolvency ecosystem, this piece focuses on two sources of growing concern: The judiciary and the executive, whose recent actions seem to undermine the IBC's core objective of insolvency resolution.

Recent rulings of the Supreme Court have somewhat modified the foundational premise of the code, diluting the legislative vision and mandate.

A recent unsettling instance is the verdict in the Bhushan Steel and Power Ltd, where the court set aside a resolution plan implemented years ago.

The inordinate delay adds to the disquiet: It took five years to decide a matter under a law that explicitly mandates time-bound resolution.