Blitz Bureau
The decision to delay the IBC amendment bill may be politically prudent, but it also exposes the fragility of India’s insolvency ecosystem. At a time when insolvency resolution timelines are stretching, and recovery rates are falling, the absence of legislative urgency risks turning the Code into a cautionary tale rather than a reform success.
India’s insolvency architecture, built on the foundational promise of time-bound resolution, is now buckling under procedural delays and inconsistent jurisprudence. While the Insolvency and Bankruptcy Code was conceived as a creditor-driven regime, recent legal outcomes have often diluted its deterrent power. The Government’s caution — waiting for the Parliamentary Committee’s recommendations — is understandable. But stakeholders fear the system is losing momentum precisely when it needs reaffirmation.
The Standing Committee on Finance’s clause-by-clause scrutiny has created space for introspection, but it must not become a pretext for legislative paralysis. India’s economic ambitions — from expanding manufacturing to attracting global capital — rest on a functioning exit mechanism. Without it, even well-capitalised lenders become risk-averse, dragging down private investment.
Moreover, insolvency reform is not just about timelines and recoveries — it’s about predictability. Cross-border investors, particularly in distressed assets, want a legal ecosystem where outcomes aren’t hostage to prolonged litigation or interpretational swings. Provisions like Section 29A, while born of good intent, need contextual nuance. Penalising every promoter with a defaulting firm — irrespective of whether the default stemmed from fraud, sectoral distress, or macroeconomic shocks — has inadvertently reduced the pool of bidders.
The Government has rightly turned to the IBBI for operational fixes in the interim. But while improved oversight, better data transparency, and streamlined tribunal coordination are necessary, they are not sufficient. Structural overhaul must follow. For instance, India still lacks a coherent framework for group insolvency, where corporate defaults span across subsidiaries and associate firms. Likewise, cross-border insolvency remains patchy and jurisdictionally fraught.
Insolvency architecture buckling under procedural delays
The private sector is adapting in its own way — through pre-insolvency workouts, private credit, and asset reconstruction deals. But these off-code solutions often lack the transparency and accountability that the IBC was designed to offer. In the absence of a credible, efficient Code, the risk is that the IBC becomes a tool of last resort rather than a first port of call.
The silver lining is that the Government hasn’t abandoned the reform. By deferring it to the Winter Session, it retains the opportunity to introduce a more comprehensive, better-consulted bill — one that incorporates lessons from six years of implementation and litigation. But to do so credibly, the reform must address the hard edges: judicial inconsistency, the primacy of financial creditors, the role of promoters, and the chronic delays that reduce value over time.
Ultimately, the IBC is more than a piece of economic legislation — it’s a test of India’s institutional resolve. If Parliament can deliver a sharper, stronger Code in the Winter Session, the current delay will be viewed as a tactical pause. If not, it risks becoming another chapter in India’s long history of half-finished reforms.