Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp
Share on email


Insolvency and Bankruptcy Code: A Boon for Entrepreneurship


The Insolvency and Bankruptcy Code, 2016 consists of a total of 255 sections organized into five parts. The main objective of the Act is to help the debtors recover from their failed business which was unimaginable with the previous provisions relating to insolvency resolution as those provisions were highly fragmented and did not serve their purpose. This Article aims to bring forth the conditions in the business sector before and after the enactment of the Code and how entrepreneurship has evolved with the introduction of the said Act.


The Insolvency and Bankruptcy Code Bill was drafted by a special committee known as “Bankruptcy Law Reforms Committee”. The Code was passed in both the Houses of the Parliament and received the assent of the President on 28th of May, 2016. The main objective of the code is to consolidate the existing framework by creating a single law for the process of insolvency and bankruptcy. It applies to companies, partnerships, individuals, limited liability partnerships and any other body as specified by the Government of India. Prior to the enactment of the insolvency and bankruptcy code, there existed various other laws to handle insolvency such as The Presidency Towns Insolvency Act, 1909, The SARFAESI Act, 2002, The Provincial Insolvency Act, 1920, etc. which had its own shortcomings. Now with the enactment of the Insolvency and Bankruptcy Code, the time taken for the insolvency process has certainly reduced as it unifies all the aforementioned laws and provides a uniform procedure for insolvency.


  • One of the most important features of the code is to ensure an insolvency resolution process which is done in a time bound manner. It creates new institutional bodies such as the Insolvency and Bankruptcy Board of India (IBBI), Insolvency Professionals (IPs), Adjudicating Authorities (AAs), Insolvency Professional Agencies (IPAs) and Information Utilities (IUs).
  • The Code acts as a regulator of insolvency as it has granted the power to the Insolvency and Bankruptcy Board to overlook the proceedings of insolvency and also to regulate various organizations that are registered under the Board.
  • The authorized Insolvency Professionals assist in the insolvency resolution proceedings and also exercise control over the assets of the debtor during the insolvency resolution process. On the other hand, the Information Utilities registered under section 210 of the Code engage in gathering, assembling, accumulating, validating, and disseminating financial information from companies and creditors to facilitate swift decision making in the resolution proceedings.[1]
  • The Insolvency and Bankruptcy Board has recognized two tribunals to adjudicate the insolvency resolution proceedings. The National Company Law Tribunal which is constituted under Section 408 of Companies Act, 2013 is the adjudicating authority in case of insolvency of companies or limited liability partnerships, while the cases involving individuals and partnership firms are handled by the Debt Recovery Tribunals.[2]
  • The Code proposes two stages in the resolution process. They are: I) Insolvency Resolution process, where the creditors analyse the debtor’s ability and the options for its survival and II) Liquidation, if the insolvency resolution process fails or the financial creditors decide to wind up their company and distribute the assets of the debtor.


Many nations across the Globe are well ahead of us in terms of Business undertakings and entrepreneurship as a whole as they had a codified law to handle the insolvency process. For instance, the United States had adopted The Bankruptcy Reform Act back in 1978 and is continuing to favour the debtors. According to a report by the World Bank in 2016, the average time taken for the resolution process in India was close to 4.3 years which was much higher compared to other countries like the United Kingdom or the United States which took nearly 1 year and 1.5 years respectively. The World Bank’s Ease of Doing Business Index, 2015 ranked India as country number 135 out of 190 countries on the ease of doing business and resolving insolvency based on the data received by them.

The Insolvency and Bankruptcy Code, 2016 has come in handy to resolve the issues faced by entrepreneurs across the country. The Code provides for an average period of 340 days to complete the CIRP (Corporate Insolvency Resolution Process) including the time spent on litigation which is much lesser compared to the previous regime which took about 4.3 years to complete.[3] India has also come a long way by jumping to a resounding 63rd rank in the World Bank’s Ease of Doing Business Index, 2020 with a DB (Doing business score) of 71.0.[4]

Prior to the enactment of the IBC, there was an uncertainty in the Indian banking system and its jurisdiction. There were two statutes to deal with debt recovery which is the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (RDDB) and the Securitizations and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (SARFAESI). The IBC is quite helpful for the banks as they can take advantage of the code to clean up their asset reports which would further pave way to increase the capital production in the Indian economy and also helps in recovering the Non-Performing Assets (NPAs) owned by them. According to a latest data of the Reserve Bank of India (RBI), the NPAs recovered by commercial banks through the mode of IBC has increased to about 61% of the total amount recovered through various channels in the year 2019-20 in contrast with 56% in 2018-19.[5]

The code has made it possible for the advancement of business in our country as it has opened up ample of opportunities for foreign investors to invest in the Indian assets through Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII). The various platforms for the foreign investors include Asset Reconstruction Company (ARC), Non-Banking Financial Companies (NBFCs), Alternative Investment Funds (AIF), Foreign Portfolio Investment (FPI) and External Commercial Borrowings ( ECBs ).[6]

It has made room for a huge shift of power in the hands of the shareholders and the debtors to creditors. It helps the SMEs (small and medium enterprises) to reorganize their affected business and get back to their feet in an efficient manner. It aids the small entrepreneurs especially during an economic breakdown when their business has come to a standstill by being a guiding force to promote the spirit of entrepreneurship. The Insolvency and Bankruptcy Board of India (IBBI) has notified the provisions to accelerate the resolution process of the default cases of small companies and start-ups within the period of 90 days which can also be extended by 45 days.[7] This provision is crucial as a faster resolution process attracts several investors to start-ups and small firms most of which don’t survive for long. Section 29A the Code provides relief to Micro-Small and Medium Enterprises (MSMEs) by relaxing the applicability of the provision regarding submission of a resolution plan. The main idea behind this enactment was to grant exemptions to corporate debtors which are MSMEs by granting permission to promoters not being wilful defaulters to bid for the resolution plan of an MSME.[8]


Within a span of 5 years, the Insolvency and Bankruptcy Code, 2016 has become a major contributor in the world of corporate law. The code has certainly played a vital role in awakening the entrepreneurship in the country which led to India climbing up the ranks in the Ease of Doing Business Index. The act continues to provide a specialized forum to tackle the liquidation and insolvency proceedings for the companies, individuals and partnership firms. In a nutshell, I would conclude that the Act is bringing India to a new age of economy which is of exceptional standards to meet global competence.


[1] Insolvency and Bankruptcy code, s 210 (2016)

[2] Companies Act, s 408 (2013)

[3] IBC reduces resolution time to 340 days from 4.3 years earlier Eco Survey, The Week (January 31, 2020, 18:47 IST)

[4] Arfa Javaid, Ease of Doing Business 2020: India ascended 17 notches, ranked at 63rd position by The World Bank (December 26, 2020 16:57 IST)

[5] Business Line Bureau, IBC emerges as major mode of NPA recovery in 2019-20, The Hindu Business Line (December 29, 2020)

[6] Shaun Langhorne and Alexander McMyn, New Insolvency and Bankruptcy Law Creates Opportunities for Foreign Investment in India, Mondaq (07 November 2018)

[7] ENS Economic Bureau, Faster insolvency: New process in place for start-ups, small cos, The Indian Express (June 17, 2017 3:34 am)

[8] Aditi Bhawsar, Decoding the Position of MSMEs under the IBC Regime (December 14, 2020)

More to explorer