Structural Weakness in the Insolvency and Bankruptcy Code (IBC)
The Ministry of Corporate Affairs seeks Cabinet approval for 50 additional National Company Law Tribunal (NCLT) courts and two more National Company Law Appellate Tribunal (NCLAT) Benches. This move highlights a longstanding structural weakness affecting the effective functioning of the Insolvency and Bankruptcy Code (IBC).
Capacity Mismatch
- The NCLT, initially established to administer company law, is tasked with adjudicating insolvency cases without adequate expansion in capacity or infrastructure.
- This mismatch results in persistent delays in insolvency resolution processes.
Current Delays and Statistics
- By September, 8,659 corporate insolvency resolution processes (CIRPs) were admitted, with 1,898 ongoing cases.
- Resolution plans took an average of 603 days, while liquidation cases took 518 days, both exceeding the statutory limit of 330 days.
Concerns and Recommendations
- The IBC Amendment Bill, 2025, lacks statutory timelines for NCLAT, prompting recommendations for a three-month appeal disposal mandate.
- Undue delays risk diluting the efficiency and certainty of the insolvency process.
Impact of the IBC
- Resolved cases delivered a 32.44% recovery of admitted claims, over 170% of liquidation value, rescuing about 1,300 firms.
- The threat of losing control improved borrower behavior, enhancing repayment discipline and encouraging early settlements.
Need for Institutional Execution
- The problem lies not with the IBC's design but with its institutional execution.
- Capacity expansion requires more than just additional Benches; it needs trained members, support staff, infrastructure, and technology-enabled case management.
Conclusion
Without addressing institutional gaps alongside legislative changes, the IBC risks losing its credibility as a swift and reliable mechanism for resolving corporate insolvencies.
