Is The Insolvency And Bankruptcy Code Really About Resolution, Or Is It Quietly Becoming A Recovery Tool For The Creditors?
Ms. Smruti Abhipsa Mishra & Ms. Asima Dandpat,KIIT School of Law, Kalinga Institute of Industrial Technology, Bhubaneswar, Odisha
ABSTRACT
India’s Insolvency and Bankruptcy Code, 2016 was the much-needed structural solution the country had been waiting for. Until its advent, the journey for a creditor seeking recovery of debt from a defaulting company had been a long and winding road. The IBC was intended to address this problem by fixing it, not by merely making it faster but by saving the company, bringing in fresh entrepreneurs to run the company, and protecting jobs while liquidation was the last option. The IBC’s framework was based on resolution first and recovery only as an exception. Nine years after its enactment, after studying the IBC through its judgments, amendments, and data, I find tell-tale signs of the IBC’s gradual but sure move away from its original intent. There are genuine and honest successes. The IBC’s existence has already led to the timely repayment of debts by thousands of companies as soon as they receive the first notice of insolvency proceedings merely to avoid the IBC’s formal processes. It has given the creditor a tool to negotiate with defaulting companies. The Supreme Court has repeatedly clarified that the IBC is not a debt collection tool and that insolvency proceedings must not be initiated unless there is genuine financial stress. On paper, the IBC was never intended to be a debt collection tool.
In practice, however, the situation is quite different. The Committee of Creditors, comprised of financial creditors alone, has absolute and total control of the company once the IBC’s initiation is begun. The courts have repeatedly held that the commercial wisdom of the Committee of Creditors in passing an order for the approval or rejection of a resolution plan is non- justiciable and that the NCLT’s task is merely to ensure the resolution plan satisfies the requirements of the IBC’s code. Banks have the power to influence the outcome of the IBC’s resolution processes and the courts are powerless. Operational creditors are not part of the committee and are paid the minimum required by the IBC.
The enemy here is the clock. From a legal standpoint, 330 days is the maximum time available to conclude the entire process of resolution, but practically speaking, these cases run past 700 to 850 days, effectively destroying the business value that was intended to be protected through the process of resolution. Recent decisions passed by the NCLT in early 2026 indicate a pattern where Section 10 of IBC is being invoked to delay the process of moratorium, indicating that the process is being gamed by both sides, debtors using it, and creditors misusing it. With IBC, power shifted from debtor to creditor, giving creditors a say in the life of companies undergoing insolvency. However, while theory is one thing, practical experience is quite another. While IBC did provide much-needed speed, predictability, and power to creditors, there have been issues with litigation, interpretations, and procedures. Until such time that capacity issues affecting the NCLT are sorted out, differences between operational creditors and financial creditors are balanced, any further changes could result in further tilting of the scales towards imbalance.
One thing is certain: IBC has tightened credit discipline in India, giving banks much more power. While IBC is intended to provide a framework to help companies recover, practically speaking, it is being used to liquidate companies to provide maximum returns to financial creditors. Until such time that operational creditors have real power, deadlines have real consequences, capacity issues affecting the NCLT are sorted out, and decisions reflect business revival rather than liquidation, IBC is, frankly, a sophisticated tool of recovery masquerading as a process of resolution.
Keywords: IBC 2016, CIRP, Committee of Creditors, Operational Creditors, NCLT, IBC Amendment Bill 2025, Resolution vs Recovery
