Whalesbook
The Paradox of Progress Amidst Paralysis
The Economic Survey of India 2025-26 paints a stark picture of India's insolvency regime, revealing a deepening paradox: while policy reforms have enhanced the effectiveness and outcomes of the Insolvency and Bankruptcy Code (IBC), the very institutions tasked with its implementation are buckling under severe capacity constraints. At current disposal rates, the nation's National Company Law Tribunals (NCLTs) are projected to require a decade to clear the existing backlog of over 30,600 cases. This systemic gridlock directly threatens to negate the legislative gains of the IBC, projecting significant economic drag and eroding investor confidence. The operationalization of the IBC has seen Corporate Insolvency Resolution Processes (CIRPs) balloon to an average of 713 days, a stark deviation from the mandated 330-day timeline, with cases closed in FY25 averaging an even longer 853 days.
Capacity Constraints Fueling Decade-Long Delays
The core of the crisis lies in the NCLT's inadequate institutional capacity. With only 30 benches handling cases across both IBC and Companies Act jurisdictions, and a shortage of qualified Resolution Professionals (RPs)—where less than half of registered RPs hold active authorisations—the tribunals are overwhelmed. This chronic under-resourcing means that thousands of cases languish at the admission stage alone, effectively freezing an estimated ₹10-15 lakh crore in capital. This paralysis not only suspends productive economic resources but also increasingly converts viable firms into liquidation candidates, thereby destroying intrinsic value.
Global Benchmarks Highlight Performance Gap
India's insolvency resolution timelines significantly lag international standards. While advanced economies like the UK, US, and Singapore typically resolve cases within a year, India's average duration extends beyond 600-700 days. A 2019 World Bank report highlighted that India's insolvency resolution took 1.6 years, compared to one year in the US and UK. Despite improvements, recovery rates for creditors in India, reported to be between 30-40% in recent resolutions, still trail behind jurisdictions like the US, where rates can reach 60-70%. This performance gap, coupled with prolonged uncertainty, signals potential withdrawal from foreign investors and increased reluctance among domestic lenders to initiate insolvency proceedings, risking a rise in non-performing assets and reduced credit supply.
Reforms and the Path Forward
Despite the operational challenges, the IBC has demonstrably improved credit discipline and enhanced creditor recovery outcomes. The resolution-to-liquidation ratio has surged from 20% in FY18 to 91% in FY25, and creditors have realized approximately ₹3.99 lakh crore from resolved cases. Furthermore, pre-admission settlements of defaults totaling ₹13.78 lakh crore indicate a behavioral shift among debtors. The proposed Insolvency and Bankruptcy Code (Amendment) Bill, 2025, aims to address these systemic issues by introducing provisions for group and cross-border insolvency. However, past reform attempts, such as the Pre-Packaged Insolvency Resolution Process (PPIRP), have seen limited adoption due to procedural complexity and trust deficits. For the IBC to truly fulfill its mandate, a substantial expansion of institutional capacity alongside process reforms is imperative to ensure that policy progress is not perpetually stymied by execution paralysis.