IBC@10: A Boon For Creditors, A Bane For Promoters?

Union Finance Minister Nirmala Sitharaman has every reason to feel happy. The Insolvency and Bankruptcy Code (IBC), introduced by the Modi government on May 28, 2016, has crossed an important milestone — 10 years of existence. IBC has proved to be an effective economic reform that has helped creditors (read public sector banks) and changed promoters' attitudes. Earlier, default under BIFR carried little stigma. With IBC, promoters fear losing their companies, and this has improved credit discipline.

We saw this in the case of Essar Steel, where the promoters — the Ruia family — used multiple strategies to block ArcelorMittal's Rs 42,000-crore winning bid. The legal battle ended in late 2019 when the Supreme Court cleared all hurdles. In December 2019, ArcelorMittal successfully completed the acquisition of Essar Steel.

A decade since its enactment, the IBC has emerged not merely as a legislative reform but as an institutional transformation with far-reaching implications for credit markets, corporate behaviour, investor confidence, and economic efficiency.

This is evident from the fact that, as of March 2026, 1,419 cases had yielded resolution plans. This, in turn, facilitated the realisation of over Rs 4 lakh crore for creditors. This realisation amounted to 95% and 167% of their fair and liquidation values, respectively. This is unprecedented.

Viewed against the IBC backdrop, the gross NPAs of public sector banks crossed the Rs 10 lakh crore mark in 2017-18. A large chunk of this money was linked to companies operating in sectors such as steel, infrastructure, power, telecom, and textiles. With little chance of loan recovery, bankers had to take sharp haircuts while also resorting to evergreening loans.

Without doubt, IBC has revolutionised India's credit and debt-resolution culture.

But before IBC came into being, it was the era of BIFR for nearly 30 years, from 1987 to 2016. The Board for Industrial and Financial Reconstruction (BIFR) was created under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The main objective of the Act was to detect industrial sickness early, revive viable companies, protect jobs, and prevent asset destruction.

Unfortunately, that did not happen, as a section of the business fraternity played merry hell with BIFR. Since promoters remained in the driver's seat, they used the excuse of BIFR protection to avoid repaying bank loans and delayed payment of wages and salaries. For public sector banks, it was a nightmare, as most BIFR companies were large enterprises employing the same modus operandi. The result: NPA numbers kept rising, parliamentarians raised uncomfortable questions, and sadly, bankers had little legal recourse.

I cherry-picked 10 companies that were referred to BIFR, and they reveal the reasons companies turn sick:

· Diversion/siphoning of funds by promoters' families

· Family disputes. In 90% of cases, these were succession wars — the Kamani Group, Modi Group, Mafatlal Group, and several textile families.

· Labour unrest. Who can forget Mumbai's historic textile strikes of the 1980s?

· Policy changes. The 1991 liberalisation destroyed many cocooned businesses.

· Technological obsolescence disrupted several companies.

· Evergreening by banks. Banks continued lending to weak companies to avoid recognising bad loans.

Out of the 10 companies, eight have shut down and only two — Kamani Tubes and Nirlon — have survived till date. The strike rate of companies returning to profitability under BIFR was abysmally poor.

Some promoters tried to wriggle out of BIFR's clutches by negotiating "compromise write-offs" with their banks. For instance, if a businessman owed a bank Rs 100 crore, he would partly repay, say, Rs 20-30 crore, along with speed money to bureaucrats, ministers, and bankers. It was a win-win situation for the robber barons.

A Mumbai-based mid-cap industrialist with interests in steel and real estate boastfully told me many moons ago: "We (read politicians, bureaucrats, and bankers) make our money during the capital-expenditure phase. We are not bothered whether the project takes off or is grounded." This explains why some companies become sick.

In reality, BIFR helped promoters’ families. Since they remained in control, they filed cases in various courts, and these disputes dragged on for 10-15 years. Banks could not effectively enforce recoveries. A famous line from that era was: "Once a company enters BIFR, it never comes out."

The real victims were public sector banks, taxpayers, employees, and minority shareholders. Indian banks were drowning in NPAs and, by 2017-18, gross NPAs had crossed the Rs 10 lakh crore mark.

Then came IBC in 2016, and it worked in favour of creditors. That was a big change. Under IBC, everything was time-bound. The core principle of IBC was simple: "Default is not merely a financial problem; it is a transfer-of-control problem." Once a default occurs, promoters can lose control, creditors take charge, and resolution must happen within a fixed timeline. This was path-breaking in India.

Till March 2026, a total of 8,987 cases had been admitted, of which 7,102 had reached closure. Of these closed cases, 4,099 companies — 58% of all closures — were successfully rescued, while another 3,003 cases culminated in liquidation. Among the rescued entities, 1,388 cases were closed on account of appeal, review, or settlement, while 1,292 were withdrawn.

A study conducted by IIM Ahmedabad covering 1,194 firms that underwent the resolution process till 2025 showed that their sales increased by 90% over five years after resolution. Their capital expenditure increased by 100%, while employee-related expenditure rose by over 70%. These are significant indicators that the IBC helped revive underlying businesses.

Thanks to IBC, several large companies, including Bhushan Steel, Essar Steel, and Alok Industries, changed hands. Such resolutions helped bring down the banking sector's NPA ratio to 2.1% in September 2025 from 11.8% in 2017. It is equally heartening that the aggregate market valuation of resolved listed entities rose from Rs 2.8 lakh crore to nearly Rs 9 lakh crore over five years.

But there are shrill critics too. The original promise was that cases would be resolved within 180 days, extendable to 330 days. In reality, however, average timelines often exceed 600 days for resolution and more than 500 days for liquidation.

This delay has prompted the Supreme Court to flag concerns over the time taken by the National Company Law Tribunal (NCLT) to approve resolution plans. It recently highlighted a case where approval remained pending for nearly two years. Any undue delay, the Court observed, risks defeating the core objective of the IBC, which envisages time-bound completion of insolvency proceedings.

Viewed dispassionately, BIFR protected promoters and delayed firm’s death, whereas IBC protects creditors and accelerates resolution. IBC is unquestionably a better framework, and successive governments, recognising its effectiveness, have amended the Code repeatedly — more than six times — to plug gaps and improve outcomes.

Finally, the fundamental difference between the two is this: BIFR protected sick companies. IBC protects economic value.