Bankruptcy code on back burner

It was meant to signal the next big leap in India’s economic reform story — an amendment to the Insolvency and Bankruptcy Code (IBC) that would strengthen creditor rights, streamline cross-border insolvency, and enforce time-bound resolutions. But as the Monsoon Session of Parliament got underway, the long-anticipated bill was quietly dropped from the legislative docket.
This, despite months of preparation and public signalling by the Ministry of Corporate Affairs (MCA) and the Insolvency and Bankruptcy Board of India (IBBI).
The Government had been expected to address critical pain points such as excessive delays in resolution (averaging over 600 days against the statutory 330-day outer limit), limited effectiveness in cross-border insolvency, and group insolvency provisions. Yet, when the PRS Legislative Research released the official list of bills to be taken up, the IBC amendment was conspicuously absent.
PRS is one of India’s most respected and widely cited sources for non-partisan, factual analysis of legislative activity. While it does not have official legal or constitutional status like Parliament Secretariat or Government ministries, its sanctity lies in its credibility, neutrality, and rigorous documentation.

Bill not being tabled in current session of Parliament as it’s still being vetted

Members of Parliament acknowledge PRS as an authoritative input for debates. Why was a much-needed reform, acknowledged by both policymakers and courts, pushed to the back burner?
The short answer is that the bill was not ready. Government sources confirmed that final Cabinet approval was still pending when the Monsoon Session began in late July. Without inter-ministerial consensus, the Ministry of Finance and MCA chose not to rush the draft into Parliament.
More importantly, a Parliamentary Standing Committee on Finance, chaired by BJP MP Bhartruhari Mahtab, is conducting a comprehensive, clause-by-clause review of IBC.
The committee is examining whether the current framework adequately balances the rights of creditors and debtors, ensures time-bound resolution, and protects asset value. In light of recent judicial setbacks — particularly the Supreme Court’s reversal of the JSW Steel-Bhushan Power deal — the committee is engaging with stakeholders across the ecosystem, including insolvency professionals, financial institutions, and the MCA, to identify legal ambiguities and institutional bottlenecks.
Introducing a half-baked amendment while a comprehensive review is underway could have led to duplication, confusion, or even contradiction. The Government seems to be signalling that it prefers to wait for the committee’s recommendations and present a cohesive set of reforms in the Winter Session.
Parallelly, IBBI and MCA have initiated a set of operational and regulatory reforms. These include simplifying reporting requirements for resolution professionals, enhancing training and oversight mechanisms, and improving coordination between insolvency tribunals and regulatory bodies. The broader goal is to restore confidence in the IBC process, reduce delays, and reinforce the Code’s core objective of timely and efficient resolution of distressed assets.

These soft reforms are helpful but do not address the structural issues that plague the Code, particularly the underwhelming recovery rates and weak deterrents against prolonged litigation.

The delay also reflects legislative trade-offs. The Monsoon Session was crowded with fiscal and governance priorities — like the new Income-Tax Bill, amendments in sports and mining laws, and the Jan Vishwas Bill. In comparison, IBC, though economically significant, lacked the immediacy to demand floor time.

Yet, with several large corporate bankruptcies stalled or caught in legal limbo, and growing investor concerns about India’s insolvency ecosystem, deferring the bill sends a mixed signal. It could dent confidence at a time when India is trying to position itself as a preferred investment destination amid global supply chain shifts.
The procedural delays have inevitably affected outcomes. The proportion of cases ending in liquidation is rising steadily, and in many of those, there is little value left to recover by the time proceedings conclude. What was envisioned as a mechanism to save viable businesses is, in practice, increasingly leading to the dismantling of distressed companies.

The sharp fall in recoveries under the IBC — from an initial average of 43-45 per cent to about 25 per cent or less in recent years — tells its own story. Lenders are often compelled to accept steep haircuts, sometimes exceeding 80-90 per cent, not necessarily due to poor resolution plans but because of value erosion while the process drags on.