The new insolvency and bankruptcy regime in the country is floundering. When it came into force during the second half of 2016, it was hailed as one of the biggest reforms undertaken by the Central government (bigger than GST, as many would have us believe), which was supposed to resolve loan default cases fast and help banks achieve better recovery than the then average of 26% of the creditors’ claim. Five and a half years since then, the Insolvency and Bankruptcy Code (IBC) is struggling to keep up with the expectations.
The latest data by the insolvency regulator shows that till December 2021, the code has helped banks recover on an average 33% of their claimed amount in 458 cases that were resolved through the IBC process. And even as some would argue that the main objective of the Code is faster resolution and not recovery, it cannot escape their mind that the latter has been worryingly coming down. Till March 2020, the average recovery was around 45%.
Even on the issue of faster resolution, the IBC has been scoring low. The average time taken to resolve the cases is now over 460 days (against the stipulated 330 days). Some of the large cases are yet to see any resolution even after five years; a case in point is Jaypee Infratech, which is yet to be resolved five years after it was referred to the National Company Law Tribunal (NCLT)—the adjudicating authority under the IBC. There are several other cases that took three-four years to see any kind of closure—either resolution or liquidation. The process of liquidation, in which a company’s assets are sold to recover money, itself takes ages to get over after the order from the NCLT. Of over 1,500 corporate debtors ordered to be liquidated by the NCLT till December 2021, only 292 cases have seen full closure.
Experts blame the lack of capacity in NCLTs and some even fault their inability to act as pure commercial courts for the failure of India’s new insolvency regime. The NCLTs and even the National Company Law Appellate Tribunal (NCLAT) have been rightly blamed for allowing frivolous petitions to delay the process. Whatever the reasons, the government has to take a fresh look at the IBC and effect fundamental changes to bring it back on track.