Mains Paper 3: Economy
Prelims level: IBC
Mains level: IBC pros and cons
Even as the time taken for resolution under the Insolvency and
Bankruptcy Code (IBC) continues to exceed the outer limit prescribed under
The process is yielding better outcomes in a shorter time frame as
compared to the erstwhile regime.
In FY19, financial institutions recovered close to Rs 70,000 crore
through resolution under the IBC, estimates rating agency Crisil.
This works out to a recovery rate of 43 per cent.\
In comparison, recoveries under the preceding regime through various
channels debt recovery tribunals, securitisation and reconstruction of
financial assets, and enforcement of the securities interest act (SARFAESI)
and Lok Adalats stood at Rs 35,000 crore in FY18.
Cause for concern
The time taken for successful resolution continues to exceed that
envisaged in the law. Under the law, the insolvency resolution process is to
be completed in 180 days, which can be extended by another 90 days to a
maximum of 270 days.
But, of the 1,143 cases that are currently outstanding under the IBC,
362 cases or 32 per cent are pending for more than 270 days.
In a few of the big ticket cases, the resolution process has exceeded
Part of the delay in resolution can be attributed to the absence of
buyers, differences between members of the committee of creditors, as well
as legal challenges mounted by existing promoters not willing to let go of
Then, there are issues of institutional capacity which need to be
However, despite these delays, Crisil estimates that it takes around 324
days for cases to be resolved under the IBC in comparison, as per the World
Bank’s Doing Business Report 2019, it took 4.3 years under the earlier
In the months after the IBC kicked in, operational creditors had taken
the lead in initiating the corporate insolvency resolution process (CIRPs)
against errant debtors.
But thereafter, financial institutions stepped up.
In fact, in the quarter ended March 2019, the number of CIRPs initiated
by financial creditors exceeded those initiated by operational creditors.
But it is difficult to say whether this trend will continue after the
Supreme Court ruling on the RBI’s February 12 circular.
The quashing of the circular has opened the door for banks to tackle the
issue of bad loans outside the IBC process, a route they might prefer.
Q.1) Which of the following cannot be subjected to judicial review? 1. The satisfaction of the President in declaring Financial Emergency.
2. The legal protection by the Parliament to any person in the Union services
for his acts to restore order in a martial law enforced area.
3. Any parliamentary law made under Article 33 to abrogate the fundamental
rights of the members of the police forces.
Select the correct answer using the code given below. (a) 3 only
(b) 2 and 3 only
(c) 2 only
(d) 1, 2 and 3
Q.1) Time taken for resolution process falls, but continues to exceed
prescribed limits. Comment.