Amitabh Kant, G20 Sherpa and former CEO of Niti Aayog, has emphasized the need for second-generation reforms to the Insolvency and Bankruptcy Code (IBC) to address challenges in its current implementation. Speaking at the IBBI's annual day event, Kant highlighted the increasing delays in insolvency resolution at the National Company Law Tribunal (NCLT). He noted that the average resolution time increased from 654 days in FY23 to 716 days in FY24, while the time for case admissions also grew, from 468 days in FY21 to 650 days in FY22. This delay, according to Kant, has contributed to a decline in recovery for creditors, which fell to 27% in FY24 from 36% in FY23, bringing the cumulative recovery rate since the IBC’s inception in 2016 to 32%.
Kant stressed that delays in justice undermine its effectiveness, calling for a "breakthrough idea" to resolve these issues. He proposed involving private players and leveraging technology to improve court management, citing the successful privatization of Passport Seva Kendras as an example. Kant believes that private capital and future-ready innovations could re-engineer the judicial process, reduce backlogs, and improve the administration of justice in India.
In addition to operational improvements, Kant called for substantive reforms to address cross-border insolvency, sector-specific issues, creditor rights, and pre-packaged insolvency solutions. He acknowledged that the government has been reviewing the IBC and is considering amendments aimed at reducing delays and improving recovery for creditors.
Despite the challenges, Kant lauded the IBC’s positive impact on India’s financial landscape. He pointed out that Non-Performing Assets (NPAs) have reached a historic low, bank balance sheets are healthier, credit growth is strong, and the overall economic growth trajectory is back on track. He credited the success of the IBC to the collective efforts of the ecosystem, including regulators, legislators, courts, banks, and markets.
Ravi Mittal, Chairperson of IBBI, echoed this sentiment, noting that 45% of all IBC resolutions have occurred in the past two years. He emphasized that the IBC has made unproductive assets productive again, thereby giving creditors more resources to lend and strengthening the financial system.
In his special address, Chief Economic Advisor V. Anantha Nageswaran argued that the delays in the resolution process are not necessarily a reflection of the IBC’s inefficiency but rather the value erosion that occurs by the time distressed companies enter the process. He highlighted examples of firms that either had no assets left upon entering or achieved full recovery, suggesting that recovery rates depend on the condition of the companies at the time of resolution.
Nageswaran called for operational improvements to speed up the resolution process, particularly for MSMEs, for whom legal costs can be a significant burden. He advocated for innovative resolution methods like pre-pack arrangements for MSMEs, interdisciplinary training for insolvency professionals, and minimizing judicial delays. He concluded by recognizing the long-term benefits of the IBC, suggesting that it will prove even more valuable when the next credit bust occurs.
In summary, the call for second-generation IBC reforms focuses on reducing delays, increasing recovery rates, enhancing operational efficiencies, and modernizing the framework through the involvement of private players and technology.
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