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Insolvency and Bankruptcy Code (IBC), 2016 explained
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The Insolvency and Bankruptcy Code, 2016 (IBC) is India's consolidated law to resolve the insolvency of companies, partnerships and individuals in a time-bound way. The corporate insolvency provisions came into force in December 2016, and the aim is to rescue viable businesses and pay creditors fairly, instead of letting disputes drag on for years.
Institutions
| Body | Role |
|---|---|
| Insolvency and Bankruptcy Board of India (IBBI) | Regulator for the insolvency profession and processes, set up in October 2016 |
| National Company Law Tribunal (NCLT) | Adjudicating authority for companies |
| NCLAT | Appeals from the NCLT |
| Debts Recovery Tribunal (DRT) | Adjudicating authority for individuals and partnership firms |
| Insolvency professional (IP) | Runs the process as the resolution professional |
The corporate insolvency process (CIRP)
- Default and application. A financial creditor (Section 7), an operational creditor (Section 9) or the company itself (Section 10) files with the NCLT. There is a minimum default amount for filing (₹1 crore since March 2020; confirm at ibbi.gov.in).
- Moratorium. From admission, a freeze (Section 14) stops recovery suits against the company, so the business keeps running.
- Committee of creditors (CoC). Made up of financial creditors. Its decisions need a high voting majority; approval of a resolution plan needs 66% of the voting share.
- Resolution plan. Bidders propose how to revive the firm. Section 29A bars certain persons, such as wilful defaulters, from bidding.
- Timeline. 180 days, extendable by 90 days, with an overall limit of 330 days including litigation.
- Liquidation. If no plan is approved, the company is liquidated, and proceeds follow the priority order in Section 53.
Pre-packaged insolvency for MSMEs was added in 2021. The Code has been amended several times, so confirm the provisions at ibbi.gov.in.
Why banks care
Together with the SARFAESI Act, the IBC changed borrower behaviour, since promoters now risk losing control. The IBC works for large corporate defaults, while SARFAESI works for secured retail and smaller loans. The resolution value banks get, and the haircuts they take, feed into the NPA picture.
How bank exams ask about it
Look for the year, the regulator (IBBI), the adjudicating authority for companies (NCLT), the timeline (180 + 90 days), and who forms the CoC. A common comparison is IBC vs SARFAESI. Revise this with the legal framework section of banking awareness; RBI Grade B papers can go deeper into the recovery architecture.
Frequently asked questions
Can an operational creditor start insolvency?
Yes, under Section 9, after serving a demand notice, but operational creditors do not sit on the CoC with voting rights.
What is the difference between insolvency and bankruptcy?
Insolvency is the inability to pay debts. Bankruptcy is the legal declaration for an individual.
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