India’s 1991 New Economic Policy drove massive economic growth through liberalisation, privatisation, and globalisation, which deepened ties between banks and corporations. However, over time, a large share of banks’ performing assets deteriorated into Non-Performing Assets (NPAs). Existing recovery laws under the Civil Procedure Code, the Recovery of Debts Act (1993), and SARFAESI Act (2002) left banks stuck in prolonged, largely unsuccessful litigation. legalserviceindia
The IBC Solution
The Insolvency and Bankruptcy Code was introduced in Lok Sabha in December 2015, passed by both houses in May 2016, and received presidential assent on 28 May 2016. legalserviceindia It created a single, unified framework for resolving insolvency — replacing the fragmented system that existed before.
How It Works
The IBC covers individuals, partnership firms, LLPs, and companies. Two tribunals oversee the process — the NCLT for companies and LLPs, and the Debt Recovery Tribunal for individuals and partnership firms — with fixed time limits for resolution. legalserviceindia Most distinctively, the IBC first attempts revival of the corporate debtor before liquidation, setting it apart from all prior legislation. legalserviceindia
Results
The RBI’s identified “Dirty Dozen” — 12 major stressed accounts including Bhushan Steel and Electrosteel Steels — saw credible resolution bids under the IBC. Gross NPAs of ₹9.62 lakh crore in March 2018 were on a declining trajectory as a result. legalserviceindia
The article concludes that the IBC is India’s most significant economic reform since 1991, giving banks a faster, structured, and more effective path to recovering dues.
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