Insolvency and Bankruptcy Code, 2016 — A Landmark Reform
India’s New Economic Policy of 1991 introduced liberalisation, privatisation, and globalisation, spurring significant economic growth and deepening the relationship between banks and businesses. However, over the years, a large portion of banks’ performing assets turned into Non-Performing Assets (NPAs), and existing recovery laws left banks entangled in years of slow, largely unsuccessful litigation.
The Insolvency and Bankruptcy Code (IBC) was introduced in 2015, passed by both houses of Parliament in May 2016, and received presidential assent on 28 May 2016. It was hailed as the biggest economic reform in India since 1991.
Key Features:
- The IBC covers insolvency resolution for individuals, partnership firms, LLPs, and companies, and can be initiated by either the debtor or creditors. legalserviceindia
- It established two separate tribunals — the NCLT for companies and LLPs, and the Debt Recovery Tribunal for individuals and partnership firms — with strict time limits for resolution. legalserviceindia
- Crucially, the IBC prioritises revival of the corporate debtor before ordering liquidation, making it unique among Indian legislation. legalserviceindia
Impact:
Gross NPAs stood at ₹9.62 lakh crore in March 2018 but were on a declining trend as the IBC enabled banks to tackle defaults more effectively.
The RBI identified 12 major stressed accounts (the “Dirty Dozen”), including Bhushan Steel and Electrosteel Steels, for immediate resolution under IBC, with several reaching final resolution stages by 2019.
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