The IBC Paradox: Analyzing Section 7 As A De Facto Recovery Tool Vs. De Jure Resolution Mechanism
Gopalkrishna Bhambri, Thakur Ramnarayan College of Law
ABSTRACT
The Insolvency and Bankruptcy Code (IBC), 2016, represents the most significant structural reform in India’s economic history, aimed at fostering a robust credit culture by replacing the defunct “debtor-in-possession” model with a “creditor-in-control” regime. At the epicentre of this legislative shift is Section 7, which permits financial creditors to initiate the Corporate Insolvency Resolution Process (CIRP). While the de jure objective of the Code, as articulated in its Preamble. Section 7 has increasingly functioned as a sophisticated debt recovery tool, leveraging the threat of management displacement to compel settlements. This research paper provides a comprehensive analysis of this paradox, tracing the jurisprudential pendulum from the mandatory admission doctrine. The study concludes that while the IBC has successfully instilled credit discipline, the persistence of the recovery-resolution tension necessitates a recalibrated judicial and legislative approach to prevent the “𝑑𝑒𝑎𝑡h 𝑘𝑛𝑒𝑙𝑙” of viable enterprises. The paper investigates how speculative litigation and pre-admission settlements have redefined the Code’s utility. Furthermore, the analysis explores the proposed Insolvency and Bankruptcy Code (Amendment) Bill, 2025, which seeks to formalize project-wise resolution and out-of-court commencement.
Keywords: Debtor-in-possession, Creditor-in-control, viable, leveraging, death-knell.
