Recently the Ministry of Corporate Affairs had sought public comments on changes being considered in the Insolvency and Bankruptcy Code 2016. In consultation with experts and civil society we submitted our responses to the most recent changes to the law that have been proposed. Here we share our suggestions/critical notes that we have submitted at the ministry as we believe it is crucial to keep a close public watch on such moves.

But before that a few words on what is this Insolvency and Bankruptcy Code (IBC) and what is its purpose?

The IBC is a result of a time when caution was thrown to the wind and commercial banks were riding the waves of development finance. Till the wee years of the millennium, commercial banks, that dealt with people’s hard earned savings, were kept away from development finance that involved huge and risky investments that could fail or that had long gestation periods. This was a task earmarked for specialized development finance institutions. And then suddenly, riding on a boom, in the 2000s floodgates were opened and huge loans were given to big corporates by commercial banks encouraged to do so by the political class. But as the good days tanked, the repercussions of the reckless lending started showing in mounting NPAs or non performing assets. And thereafter started the corporate write offs, a mockery of public money. This is the time when the IBC also came up as yet another way of tackling the NPA crisis and to facilitate resolutions. It was, in fact, hailed as the hallmark for insolvency proceedings as one of the ways to address the NPA issue. There was a concerted effort globally to consolidate insolvency resolution laws so as to facilitate speedy resolutions often at the cost of the creditors.

What does the IBC process entail in brief?

In the resolution process under IBC, a committee consisting of the financial creditors (i.e., banks) who lent money to the debtor is formed by an insolvency professional. The creditor’s committee decides the future of the outstanding debt owed to them. Either they choose to revive the debt owed to them by changing the repayment schedule, i.e. debt restructuring. Or they may consider selling the assets of the debtor to get back what they are owed. If a decision is not taken in 180 days, the debtor’s assets go into liquidation. In the latter case the proceeds from the sale of the debtor’s assets are distributed to cover the insolvency resolution cost, the loans of the secured creditors, the workers’ dues and unsecured creditors. The National Company Law Tribunal (NCLT) adjudicating authority in the process.  

There have been serious issues with the process.

Coming down heavily on the government, the parliamentary standing committee on finance in 2021 observed that the IBC may have “digressed from basic design” and the last 6 amendments to the law have given it a “different orientation, not originally envisioned”. One of the biggest issues being the absurd haircuts witnessed in the resolution process, as high as 95%.

Haircuts are defined as the losses incurred by creditors or the banks on resolving bad debts or stressed assets of companies.

Some of these really stood out as instances wherein the corporates in fact were taking advantage of the process. Electrosteel, for instance, was sold off after a 60% haircut and was bought by Vedanta at 40% of its price. Again, Alok industries got a 83% haircut. Reliance bought it at 17% of its original value! 

This raises questions. Are there loopholes being left to be exploited by the big players? With reference to the bidding process that has come under scrutiny, are there spaces being left for murky deals?

Such whooping haircuts, or loan waivers, are over and above the massive loan write-offs by PSBs to address the massive bad loans of over Rs10 lakh crore, which are funded by the people’s exchequer. The parliamentary panel had in fact recommended that it is “imperative to have a benchmark for quantum of haircut” which is comparable to global standards.

Where do we stand today?

In the last six years we have seen the process being swayed largely in favour of big corporates rather than the creditors. Six years after its implementation, reports point out that the cumulative recovery rate has come down from 43% Q1FY20 to 32.9% Q4FY22. Even in the cases that were resolved the creditors have taken haircuts even close to 70% and 90% in some cases, which is a mockery of public money. The IBC has been amended over the years and in line with that some of the changes proposed this time still seem to favour the corporate defaulters.

 Find below some of the problematic changes that we have been able to point out. We have shared the same with the Ministry.  

General Comments

  1. Low recovery rates and high haircuts continue to plague IBC

Six years after its implementation, reports point out that the cumulative recovery rate has come down from 43% Q1FY20 to 32.9% Q4FY22. Even in the cases that were resolved the creditors have taken haircuts even close to 70% and 90% in some cases. This has been noted by the banks, the finance minister and the parliamentary standing committee. The Standing Committee on Finance placed a report : ‘Implementation of Insolvency and Bankruptcy Code (IBC)-Pitfalls and Solutions’ on August 3, 2022’ that recommends an upper limit on haircuts

   2. Limitations in providing inputs to proposed amendments to IBC

 The proposed amendment draft and the mechanism for public consultation severely limits hindi and other non-english speakers to suggest and comment on the draft. The public consultation should have been devised in a way which accommodates the linguistic diversity of all stakeholders. In addition, a very short window has been provided while seeking stakeholder comments. For stakeholders to provide detailed inputs after due deliberation more time would have been appropriate.

Specific Comments

 1. Relevant Section:

4.1. Under section 10 of the Code, a CD is empowered to apply to initiate the CIRP  voluntarily on occurrence of a default. Along with the application for initiating CIRP, the  CD can propose an insolvency professional (“IP”) to be appointed as an interim  resolution professional (“IRP”). As per section 16 (2), the proposed IP is appointed as  an IRP after admission of the case. It is felt that since the IRP is required to hold the trust  and confidence of the Committee of Creditors (“CoC”) upon commencement of the  CIRP, it often becomes incongruous for a person being considered by the CD to be  appointed as an IRP. She is responsible for accumulating relevant information from the  CD and scrutinising its affairs to trace avoidable transactions or transactions amounting  to wrongful or fraudulent trading. Thus, it may be appropriate to appoint an independent  person as the IRP to prevent misuse of this provision. It is being considered that section  10 may be amended to delete the right of the CD to propose an IRP. In such  instances, the IRP should be appointed by the AA on the recommendation of the  IBBI.


After several instances of Insolvency Professionals being suspended, the proposed amendment suggests deleting the right of CDs to propose IRP. There needs to be a more stringent selection process with background checks and verification before selecting IRPs, in order to avoid malpractices, and to generate trust and confidence of not just the CoC, but also peoples’ faith in the process.

2. Relevant Section:

5.1 It is being considered that section 235A may be amended to empower the AA to impose penalties where any person fails to comply with the provisions of the Code or any rules or regulations made thereunder, where such compliance was required. The proceedings in relation to this may be initiated on an application made by the IBBI or any other person authorised by it in this regard. Since AAs, the National Company Law Tribunal (“NCLT”) or the Debt Recovery Tribunal, oversee the conduct of the different processes under the Code, as the case may be, they may be better equipped to determine penalties if any contravention is found. For instance, if the promoter of a CD does not cooperate with the resolution professional (“RP”) or a liquidator, then such conduct may be proceeded against under this provision for the levy of penalties on such promoter.


So far 3,400 legal provisions have been decriminalised for easing out doing business. In line with this policy of the government, the IBC code is proposed to be changed to 235 A to impose penalties for non compliance. Decriminalisation of non compliance should not have the potential of some big companies taking advantage of the provision. This change should not be applicable to CDs that have a history of wilful default or CDs that have acted with malicious intent.

3. Relevant Section:

5.2 Section 65 of the Code provides a penalty against fraudulent or malicious initiation of admission proceedings. However, no penalty is imposed on other proceedings filed before the AA. Hence, it is being considered that the AA should also be empowered to impose a penalty where it believes that such a person has filed frivolous or vexatious applications


When proceedings are maliciously instituted before the AA with the intent to delay the conduct of processes and when proceedings are also initiated with no reasonable prospect of success or based on insufficient evidence submitted without any purpose to determine the actual issue, the consequence cannot be limited to only fine. Because when malicious intent is established, just an imposition of fines might be a deterrent for smaller companies, but not against those with financial means to pay the fine. While it is often pointed out that cases of criminal proceeds result in further delays. But the solution to that should be to strengthen the adjudicating authority to deal with these in a timely manner.

4. Relevant Section:

7.1. Pre-Packaged Insolvency Resolution Process (“PPIRP”) was introduced during the Covid-19 pandemic to provide an efficient alternative insolvency resolution process for corporate persons classified as MSMEs. It seeks to provide quicker, cost-effective, and value-maximising outcomes for all the stakeholders in a manner that is least disruptive to the continuity of their business and helps in preserving jobs. After the PPIRP framework was implemented, public consultations and stakeholder comments on its functioning indicated that the framework should be expanded to apply to a broader range of CDs as observed for similar frameworks in other jurisdictions. Accordingly, it is being considered that section 54A be amended to provide that the framework shall apply to prescribed categories of CDs in addition to the MSMEs.


The Pre-Packaged Insolvency Resolution Process (PPIRP) was introduced during COVID 19 pandemic for the MSMEs keeping in mind the unprecedented and enormous impact the lockdown had on the MSME sector. The PPIRP provided quicker, cost-effective and value maximising outcomes that would be for the benefit of the MSME sector that had taken a severe blow. Hence, the PPIRP framework included provisions of Creditors taking voluntary haircuts, companies to submit resolution plans, informal understanding between creditors and debtors etc. This cannot be extended to Corporate debtors. There are more chances of corporate debtors taking advantage of the provisions. Furthermore, the IBC and AA was instituted to resolve companies, NCLT should be provided with resources to address the cases in a timely manner, having more provisions that enable informal settlements are more disadvantages to the creditors.

5. Relevant Section:

 7.2. Further, it is being considered that the following modifications and relaxations be made to the procedures stipulated under Chapter IIIA of Part II of the Code: –

  1. a) The PPIRP framework may involve a diverse range of FCs who will be required to approve its initiation at the pre-commencement stage by confirming the proposed RP under section 54A (2) (e). Thus, to facilitate quicker and more efficient decision-making at this stage, the sixty-six per cent threshold for unrelated FCs may be lowered to fifty-one percent. Similarly, under section 54A (3), the sixty-six per cent threshold for unrelated FCs may be replaced by an enabling provision for the IBBI to specify the appropriate threshold, not being less than fifty-one percent of the unrelated FCs, for approving the filing of an application.


This should be scrapped. Reducing the threshold for the FCs is dangerous as some of them could be bought over through influential CDs to sway decisions in their favour. Such amendments are only going to tilt the process in favour of big borrowers. The threshold should be brought back to its original number of 75 percent.

6. Relevant section:

6.1 Accordingly, it is being considered that the provisions dealing with FIRP may be amended to provide that unrelated FCs of a CD may select and approve a resolution plan through an informal out-of-court process and involve the AA only for its final approval (or a moratorium, if needed). Insolvency resolution through this procedure will be available for CDs with such asset size as notified by the Central Government. Further, the resolution plan approved through this procedure will


The IBC should not be amended to make provisions for more out of the court settlements between the creditors and debtors. Instead the NCLT needs to be empowered and strengthened to facilitate speedy and effective resolution.

The parliamentary standing committee report 2021 in fact observes and recommends:

Creating dedicated benches of the NCLT for matters related to IBC. More than 50% of the sanctioned strength of the NCLT is vacant and recommended: (i) analysing required capacity based on projected number of cases, (ii) planning recruitment in advance, (iii) providing for virtual hearings to address backlogs, and (iii) administering training programmes for members. It also recommended ensuring that only High Court judges are appointed as judicial members of the NCLT.


Special thanks to Thomas Franco (Former General Secretary, AIBOC) whom we consulted to arrive at the above critical notes

Some of our research on the Insolvency process so far:

IBC’s stressed asset resolution is under severe stress, needs overhauling

An interview with Dr. Sangeetha Ghosh, on five years IBC and the recent amendment of bringing MSME sector into the ambit of IBC.

IBC: Escape Route for Big Corporate 

Report: Insolvency and Bankruptcy Code: Whose Loss, Whose Gain?

Haircut for the Lenders Under Insolvency and Bankruptcy Code!

Click here to see the lull list of the amendments proposed this time.