Sitharaman defends IBC citing higher recoveries and post-resolution performance of firms
Replying to the debate on the Insolvency and Bankruptcy (Amendment) Bill 2026 in Lok Sabha, the Finance Minister said the reason for bringing in IBC was not debt recovery, but rather the rescue of viable businesses and addressing their financial stress
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Context
Finance Minister Nirmala Sitharaman defended the Insolvency and Bankruptcy Code (IBC), 2016 in Parliament during a debate on the Insolvency and Bankruptcy (Amendment) Bill, 2026. The Minister emphasized that the primary goal of the IBC is to rescue viable businesses and resolve financial stress, rather than being a simple debt recovery mechanism. This defense comes as the Lok Sabha passed the seventh amendment to the code, which aims to introduce stricter timelines and a framework for cross-border insolvency.
UPSC Perspectives
Economic
The is a landmark economic reform designed to address the 'twin balance sheet' problem—over-leveraged companies and bad-loan-encumbered banks. The Finance Minister's statement underscores a crucial aspect of the code: its focus on business rescue and resolution over mere asset liquidation. By creating a market-driven process, the IBC aims to maximize the value of distressed assets. The data cited, such as creditors recovering ₹4.11 lakh crore and realisations exceeding 171.54% of liquidation value, is presented as evidence of this value maximization. Another key economic impact is the behavioral change it induces; the "credible threat" of losing company control has pushed promoters to settle defaults worth ₹14.62 lakh crore even before formal proceedings begin. This improves the overall credit culture and enhances the ease of doing business. The introduction of a cross-border insolvency framework in the new amendment is critical for integrating the Indian economy globally, providing a predictable mechanism for handling insolvencies of multinational corporations.
Governance
From a governance perspective, the IBC represents a paradigm shift from a 'debtor-in-possession' to a 'creditor-in-control' model. This corrects a major flaw in previous mechanisms like the and the , which were often plagued by delays and debtor-led legal maneuvering. The IBC established a new institutional framework for time-bound resolution, managed by the Insolvency and Bankruptcy Board of India (IBBI), which acts as the regulator. The process involves key players like Insolvency Professionals (IPs) and a Committee of Creditors (CoC), which takes commercial decisions, thereby ensuring a professional and market-oriented approach. The article highlights the improvement in the resolution-to-liquidation ratio as a sign of maturing governance under the IBC framework. The proposed amendments, such as strict timelines and enabling group insolvency, further aim to streamline the process and reduce delays, which are often caused by litigation.
Polity & Legal
The consolidated a fragmented legal landscape for insolvency into a single, comprehensive law, replacing multiple overlapping statutes. The adjudicatory mechanism is two-tiered: the National Company Law Tribunal (NCLT) for corporate entities and the Debt Recovery Tribunal (DRT) for individuals and partnership firms. The article mentions that the IBC has been amended seven times since 2016, highlighting its dynamic and evolutionary nature. Parliament continually refines the law to address emerging challenges, such as the need for a cross-border insolvency framework, which was previously governed by ad-hoc arrangements under Sections 234 and 235 of the code. The passage of the demonstrates the legislative process of adapting economic laws to global best practices, based on the UNCITRAL model, to handle cases where a debtor has assets or creditors in multiple countries.