The Insolvency and Bankruptcy Code, 2016 (IBC) was enacted to fix a chronic failure of the Indian legal system: endless debt recovery with no resolution. Before IBC, insolvency meant years—sometimes decades—of litigation, asset erosion, and zero accountability. IBC changed the question from “how much can creditors recover?” to “can the business be saved, and if not, how do we exit efficiently?”
This article explains the basic framework of IBC, without jargon and without romanticising it.
Core Objective of the IBC
IBC is not a recovery law.
It is a resolution law.
Its objectives are:
- time-bound resolution of insolvency,
- maximisation of asset value,
- promotion of entrepreneurship,
- balancing interests of all stakeholders,
- and ensuring credit discipline in the economy.
If resolution fails, liquidation follows. Survival is preferred, but delay is not tolerated.
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Who Does the IBC Apply To?
IBC applies to:
- corporate persons (companies, LLPs),
- partnership firms,
- individuals (implementation phased).
However, corporate insolvency is the backbone of the Code and where most litigation happens.
The Trigger: Default
IBC proceedings begin only on default, not on financial distress.
Default means non-payment of a legally due debt. The minimum default threshold is prescribed by law (and revised from time to time). Once default is established, insolvency can be triggered—no sympathy, no excuses.
Who Can Initiate Insolvency Proceedings?
IBC recognises three categories of applicants:
Financial Creditors
Banks, financial institutions, and lenders whose debt is disbursed against consideration for time value of money.
Operational Creditors
Suppliers of goods or services, employees, and statutory authorities owed operational dues.
Corporate Debtor Itself
A company can voluntarily admit insolvency if it knows it cannot pay.
Each category has a different procedural route, but the end goal is the same: resolution.
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The Adjudicating Authority
For corporate insolvency, the adjudicating authority is the National Company Law Tribunal.
NCLT does not decide civil disputes. Its job is limited:
- to admit or reject insolvency applications,
- to oversee the resolution process,
- to approve or reject resolution plans.
Appeals lie before the National Company Law Appellate Tribunal (NCLAT), and ultimately the Supreme Court of India.
Corporate Insolvency Resolution Process (CIRP)
Once an application is admitted, the Corporate Insolvency Resolution Process (CIRP) begins.
Key steps:
- declaration of moratorium,
- appointment of Interim Resolution Professional (IRP),
- constitution of Committee of Creditors (CoC),
- invitation and evaluation of resolution plans,
- approval or rejection of the plan.
The entire process is time-bound. Delay is the enemy. Extensions are limited and scrutinised.
Moratorium: Freezing the Battlefield
Upon admission, a moratorium is imposed. During this period:
- no new suits or proceedings can be initiated,
- existing proceedings are stayed,
- assets cannot be alienated,
- recovery actions are paused.
The idea is simple: stop the bleeding so resolution can be attempted.
Committee of Creditors (CoC): Real Power Centre
The CoC consists mainly of financial creditors. This is where real decisions are made.
The CoC:
- appoints or replaces the resolution professional,
- evaluates resolution plans,
- decides whether the company survives or goes into liquidation.
Courts have consistently held that commercial wisdom of the CoC is largely non-justiciable. Judges don’t run businesses; creditors do.
Resolution Plan or Liquidation
If a viable resolution plan is approved by the CoC and the NCLT, it becomes binding on all stakeholders.
If no plan is approved within the prescribed time, liquidation is mandatory. There is no sentimental extension. Economic reality prevails over emotional attachment.
Institutional Framework Under IBC
IBC is supported by a structured institutional ecosystem:
- Insolvency Professionals (IPs),
- Insolvency Professional Agencies (IPAs),
- Information Utilities (IUs),
- Insolvency and Bankruptcy Board of India (IBBI).
This framework ensures regulation, transparency, and accountability.
What IBC Is Not
Let’s be clear:
- IBC is not a debt recovery shortcut.
- It is not meant to threaten businesses casually.
- It is not a substitute for poor lending decisions.
Misuse of IBC has been repeatedly criticised by courts.
The Hard Truth
IBC has teeth because it threatens loss of control. Promoters lose management the moment CIRP begins. That single feature forced a cultural shift in Indian credit markets.
IBC works not because it is gentle—but because it is unforgiving about delay.
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The Insolvency and Bankruptcy Code is a creditor-in-control, time-bound, resolution-first framework. It prioritises economic efficiency over emotional attachment to failing businesses.
Understand this clearly:
IBC is not about saving companies at all costs.
It is about saving value—and exiting fast when value cannot be saved.
That clarity is its greatest strength.
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