What Is the Insolvency and Bankruptcy Code (IBC), 2016?

The Insolvency and Bankruptcy Code (IBC), 2016 is a landmark legislation enacted by the Parliament of India on 28th May 2016 and brought into force in stages between 2016 and 2017. It is codified as Act No. 31 of 2016 and represents the most significant reform in India’s insolvency law landscape in decades. Before IBC, India had a fragmented, multi-statute framework for dealing with insolvency – including the Sick Industrial Companies Act (SICA), the Companies Act, the Presidency Towns Insolvency Act, and the Provincial Insolvency Act – none of which were efficient or time-bound.

The IBC consolidated all these statutes into a single unified code. It introduced time-bound resolution of insolvency and bankruptcy for companies, partnership firms, and individuals in India. It established a new institutional ecosystem comprising the National Company Law Tribunal (NCLT) as the adjudicating authority for corporates, the Debt Recovery Tribunal (DRT) for individuals and partnerships, the Insolvency and Bankruptcy Board of India (IBBI) as the regulator, and licensed Insolvency Professionals (IPs) to manage the resolution process.

As of 2026, IBC has undergone multiple amendments – in 2018, 2019, 2020, 2021, and most recently in 2024 – continuously strengthening and streamlining the insolvency framework. It is widely credited with transforming India’s credit culture and improving the country’s ranking in the World Bank’s Ease of Doing Business index.

Key Objectives of IBC 2016

The Preamble of the IBC itself outlines its core objectives:

• Consolidation and amendment of laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms, and individuals
• Ensuring time-bound resolution of insolvency (maximisation of value of assets)
• Promoting entrepreneurship by providing a clear exit mechanism
• Maximising the value of assets of corporate debtors
• Balancing the interests of all stakeholders – creditors, debtors, shareholders, employees
• Establishing an orderly and predictable insolvency process
• Creating a modern, globally comparable insolvency framework for India
• Improving the credit ecosystem and ease of doing business in India

IBC introduced the concept of creditor-in-control, replacing the earlier debtor-in-possession approach. Under IBC, once insolvency is admitted, control of the corporate debtor vests with a Resolution Professional under the supervision of the Committee of Creditors (CoC) – not with the promoters or management.

Structure and Architecture of IBC 2016

Parts of the IBC

The IBC is divided into 5 Parts, 12 Chapters, and 255 Sections:

Institutional Ecosystem Under IBC

IBC created a four-pillar institutional framework:

• Adjudicating Authority – NCLT for corporates; DRT for individuals and partnerships
• Appellate Authority – NCLAT for corporates; DRAT for individuals and partnerships
• Regulator – Insolvency and Bankruptcy Board of India (IBBI)
• Insolvency Professionals (IPs) – Licensed professionals who manage the resolution/liquidation process (Interim Resolution Professionals, Resolution Professionals, Liquidators)
• Information Utilities (IUs) – Entities that store financial data about debtors and creditors (National E-Governance Services Ltd. – NeSL is the registered IU)
• Insolvency Professional Agencies (IPAs) – Bodies that regulate and admit IPs (ICSI IPA, IPA of ICAI, IIIPI)

Who Is Covered Under IBC 2016?

Corporate Persons (Part II of IBC)

The following are covered under Part II of IBC for Corporate Insolvency Resolution Process (CIRP) and liquidation:

• Companies registered under the Companies Act, 2013 or any previous company law
• Limited Liability Partnerships (LLPs) registered under the LLP Act, 2008
• Any other body corporate (as notified by the Central Government)

Note: Financial Service Providers (banks, NBFCs, insurance companies, etc.) are generally excluded from CIRP under IBC unless specifically notified by the Central Government under a separate framework. In 2019, the Government notified a special framework for systemically important FSPs under Sections 227 and 239 of IBC.

Individuals and Partnership Firms (Part III of IBC)

Part III of IBC covers:

• Individuals (excluding personal guarantors who are covered under Chapter III-A introduced in 2019)
• Partnership firms and proprietorship firms

Note: As of 2026, Part III of IBC (individual insolvency) has been only partially operationalised. The Fresh Start Process and Insolvency Resolution Process for individuals are administered by Debt Recovery Tribunals (DRTs). The bankruptcy process for individuals is not yet fully operationalised.

Personal Guarantors to Corporate Debtors

Following the landmark Supreme Court decision in Lalit Kumar Jain v. Union of India (2021), personal guarantors (such as promoters, directors, and guarantors of corporate debts) can be proceeded against under IBC even when the CIRP of the corporate debtor is ongoing. NCLT is the adjudicating authority for personal guarantors.

Important Definitions Under IBC 2016 (Section 3 & Section 5)

Understanding the key definitions in IBC is fundamental to understanding the entire code:

Corporate Insolvency Resolution Process (CIRP) – Complete Step-by-Step Guide 2026

Threshold for Filing – Minimum Default Amount

A critical pre-condition for initiating CIRP is that there must be a default in payment of debt. The minimum default threshold is:

Who Can File CIRP?

• Section 7 – Financial Creditor (banks, NBFCs, debenture holders, homebuyers as per 2018 amendment)
• Section 9 – Operational Creditor (suppliers, employees, workmen, any person to whom operational debt is owed)
• Section 10 – Corporate Applicant (the company itself through its Board of Directors or partners)

Step-by-Step CIRP Process – Detailed

1. STEP 1 – PRE-FILING NOTICE (Section 8 – for Operational Creditors only): Operational Creditor must issue a demand notice in Form 3 (NCLT Rules) to the corporate debtor. Corporate debtor has 10 days to repay or dispute the debt. If no response within 10 days, OC can file application before NCLT.
2. STEP 2 – FILING OF APPLICATION: Financial Creditor files Form 1 (Section 7), Operational Creditor files Form 5 (Section 9), or Corporate Applicant files Form 6 (Section 10) before the relevant NCLT bench having jurisdiction over the company’s registered office.
3. STEP 3 – NCLT ADMISSION: NCLT must admit or reject the application within 14 days. Upon admission, NCLT appoints the Interim Resolution Professional (IRP) proposed in the application (or IBBI nominates if no IRP proposed). Insolvency Commencement Date = Date of NCLT’s admission order.
4. STEP 4 – MORATORIUM (Section 14): Upon admission, NCLT declares a moratorium – all suits, executions, proceedings, recovery of property, and enforcement of security interest against the corporate debtor are stayed. Essential services to the corporate debtor continue uninterrupted.
5. STEP 5 – PUBLIC ANNOUNCEMENT (Section 15): IRP makes a public announcement within 3 days of appointment, inviting all creditors to submit their claims within 14 days.
6. STEP 6 – COLLATION OF CLAIMS: IRP collects, verifies, and admits/rejects claims from all creditors. Creditors must file their claims in prescribed forms within the timeline.
7. STEP 7 – CONSTITUTION OF COMMITTEE OF CREDITORS – CoC (Section 21): CoC is constituted comprising all financial creditors. Operational creditors with claims above Rs. 10 Lakh get representation but no voting rights. CoC makes all key commercial decisions by voting.
8. STEP 8 – FIRST MEETING OF CoC (Section 22): First CoC meeting must be held within 7 days of CoC constitution. CoC may replace IRP with a new Resolution Professional (RP) by a 66% vote.
9. STEP 9 – MANAGEMENT OF CORPORATE DEBTOR: Upon CoC’s confirmation of RP, management of the corporate debtor vests with the RP. The Board of Directors is suspended. Promoters lose control.
10. STEP 10 – INFORMATION MEMORANDUM (Section 29): RP prepares a detailed Information Memorandum (IM) about the corporate debtor’s assets, liabilities, operations, and business prospects for prospective resolution applicants.
11. STEP 11 – INVITATION FOR EXPRESSION OF INTEREST (EoI): RP invites EoIs from prospective resolution applicants through public notice. Resolution Applicants must meet eligibility criteria under Section 29A.
12. STEP 12 – SUBMISSION OF RESOLUTION PLANS (Section 30): Eligible resolution applicants submit resolution plans to the RP. Plans must provide for: payment of CIRP costs first, payment to operational creditors at least equal to liquidation value, and a viable resolution for the company.
13. STEP 13 – CoC APPROVAL OF RESOLUTION PLAN: CoC must approve a resolution plan by at least 66% vote (reduced from 75% by 2019 amendment). The plan must be fair, equitable, and commercially viable.
14. STEP 14 – NCLT APPROVAL (Section 31): RP submits the CoC-approved resolution plan to NCLT. NCLT approves the plan if it satisfies the requirements of Section 30(2). NCLT cannot rewrite the commercial terms of the plan (Supreme Court – Essar Steel judgment). Approved plan is binding on all stakeholders.
15. STEP 15 – IMPLEMENTATION: Resolution Applicant implements the approved resolution plan. Moratorium ceases. Corporate debtor continues as a going concern under new management/ownership.
16. STEP 16 – LIQUIDATION (if no plan approved): If no resolution plan is approved within the mandatory timeline, or if CoC resolves to liquidate (66% vote), NCLT passes a Liquidation Order under Section 33.

CIRP Timeline (2026)

Section 29A – Eligibility Criteria for Resolution Applicants

Section 29A is one of the most debated and litigated provisions of IBC. It disqualifies certain persons from submitting resolution plans to prevent convicted, defaulting, or related-party promoters from regaining control of insolvent companies at a discount. The key disqualifications include:

• Undischarged insolvents
• Wilful defaulters as declared by any bank or financial institution
• Persons whose accounts are classified as Non-Performing Assets (NPA) for more than 1 year (unless they clear all dues with interest and penalty before submitting the plan)
• Convicted of any offence punishable with 2 years or more imprisonment
• Disqualified directors under Section 164(2) of Companies Act, 2013
• Prohibited from trading in securities by SEBI
• Promoters, directors, or partners of the corporate debtor within the past 3 years
• Connected persons (relatives, related parties) of disqualified persons above

Note: Section 29A does NOT apply to resolution applicants under PPIRP (Pre-Packaged Insolvency) where the base resolution plan is submitted by the corporate debtor/promoters themselves under Section 54C.

Liquidation Under IBC 2016 – Complete Process

When Does Liquidation Happen?

• NCLT passes a Liquidation Order under Section 33 when no resolution plan is approved within 330 days
• CoC resolves with 66% vote to liquidate the corporate debtor
• Resolution plan is rejected by NCLT for non-compliance
• Resolution Applicant fails to implement the approved plan

Appointment of Liquidator

Upon passing of the Liquidation Order, NCLT appoints a Liquidator (who may be the same RP or a different IP). The Liquidator takes control of all assets of the corporate debtor and forms a Liquidation Estate.

Waterfall Mechanism – Priority of Distribution (Section 53)

This is the most critical aspect of liquidation. Under Section 53, the proceeds from sale of assets are distributed in the following strict priority order:

Important Note: Secured creditors have the option under Section 52 to either (a) relinquish their security interest to the liquidation estate and receive payment as per Section 53 waterfall, or (b) realise their security interest outside the liquidation process and retain proceeds up to their admitted claim.

Liquidation Timeline

• Liquidation must ordinarily be completed within 1 year from the date of Liquidation Order
• Extension of 1 year may be granted by NCLT in exceptional circumstances
• Total maximum: 2 years for liquidation process

Fast Track CIRP (Sections 55–58)

Fast Track CIRP is a streamlined version of the regular CIRP, designed for:

• Small companies (as defined under Companies Act, 2013 – paid-up capital up to Rs. 4 Crore and turnover up to Rs. 40 Crore as of 2026)
• Start-up companies (up to 10 years from date of incorporation)
• Unlisted companies with total assets below Rs. 1 Crore

Fast Track CIRP must be completed within 90 days (extendable by 45 days, total: 135 days). The process is identical to regular CIRP but with compressed timelines.

Pre-Packaged Insolvency Resolution Process (PPIRP) – Sections 54A to 54P

What is PPIRP?

PPIRP was introduced through the IBC (Amendment) Ordinance 2021 and is applicable exclusively to MSMEs (Micro, Small and Medium Enterprises) with defaults between Rs. 10 Lakh and Rs. 1 Crore. It is a hybrid insolvency mechanism that allows the MSME debtor and its creditors to agree on a resolution plan even before approaching NCLT, making the process faster, cheaper, and less disruptive.

Key Features of PPIRP

• Initiating party: The corporate debtor itself (not creditors) initiates PPIRP
• Pre-filing requirement: The corporate debtor must obtain approval of 3/4th of financial creditors by value before filing
• Base Resolution Plan: The debtor itself submits a Base Resolution Plan (from promoters/management) to financial creditors before filing
• Moratorium: A limited moratorium applies during PPIRP
• Management: The existing management of the MSME continues to run the business during PPIRP (unlike regular CIRP)
• Section 29A: Does NOT apply to the debtor’s promoters for the base resolution plan
• Timeline: 120 days total (not extendable)
• Filing fee: Rs. 25,000 (same as regular CIRP)

PPIRP Process

17. Debtor obtains written approval of 3/4th of financial creditors (by value)
18. Debtor prepares a Base Resolution Plan with support of an RP (to be appointed)
19. Debtor files application before NCLT under Section 54C
20. NCLT admits/rejects within 14 days
21. On admission, RP takes over, moratorium declared
22. Public announcement made; claims invited
23. CoC evaluates the Base Plan and may invite competing plans
24. If CoC approves base plan by 66% vote: submitted to NCLT for approval
25. If base plan rejected: open for Swiss Challenge (competing resolution applicants)
26. NCLT approves final plan within 120 days

Avoidance Transactions Under IBC 2016

IBC empowers the RP and Liquidator to examine and reverse certain transactions entered into by the corporate debtor before the Insolvency Commencement Date that were prejudicial to creditors:

Individual Insolvency Under IBC 2016 (Part III)

Fresh Start Process (Sections 80–93)

The Fresh Start Process (FSP) is a debt forgiveness mechanism for individuals with extremely low income and assets. Eligibility criteria (2026):

• Gross annual income does not exceed Rs. 60,000
• Total value of assets does not exceed Rs. 20,000
• Aggregate debt does not exceed Rs. 35,000
• Not been undischarged insolvent in past 3 years
• No pending application under IBC

If eligible, the DRT grants a discharge order, wiping off qualifying debts. The debtor gets a fresh financial start.

Insolvency Resolution Process for Individuals (Sections 94–120)

An individual debtor or a creditor owed more than Rs. 1,000 can apply before the DRT. The process involves appointment of a Resolution Professional, preparation of a repayment plan by the debtor, approval by creditors (majority in number + 3/4th by value), and implementation over the agreed period.

Bankruptcy for Individuals (Sections 121–178)

If the IRP fails or the debtor applies directly for bankruptcy, DRT passes a Bankruptcy Order. A Bankruptcy Trustee is appointed to realise assets and distribute proceeds to creditors. The individual debtor is then discharged (after 3 years or such period as DRT directs).

CIRP Costs and Insolvency Professional Fees – 2026 Reference

All costs incurred during CIRP are called CIRP Costs and are the first charge on the assets of the corporate debtor. They include:

• Insolvency Professional’s (RP’s) fees and expenses
• Legal, valuation, and advisory fees
• Cost of running the corporate debtor as a going concern during CIRP
• NCLT filing fees (Rs. 25,000 per application for Section 7 or Section 9)
• Fees of registered valuers (minimum 2 registered valuers required – for liquidation value and fair value)
• Cost of publishing public announcements

The IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 regulate the fees of IPs. Key IP fee benchmarks as per IBBI circular and market practice in 2026:

Note: CIRP costs have priority over all other dues including secured creditors. All IP fee arrangements above Rs. 2 Lakh per month must be approved by the CoC. Fees are disclosed publicly in NCLT orders and IBBI’s case tracker.

IBBI – Insolvency and Bankruptcy Board of India

Establishment and Role

The Insolvency and Bankruptcy Board of India (IBBI) was established on 1st October 2016 under Section 188 of IBC. IBBI is the apex regulatory authority for IBC implementation and operates under the Ministry of Corporate Affairs, Government of India. Its head office is in New Delhi.

Key Functions of IBBI

• Regulation of Insolvency Professionals (IPs) – licensing, conduct norms, fee guidelines
• Regulation of Insolvency Professional Agencies (IPAs) – ICSI IPA, ICAI IPA, IIIPI
• Regulation of Information Utilities (IUs) – NeSL (National E-Governance Services Ltd.)
• Framing of Regulations for CIRP, liquidation, PPIRP, and individual insolvency
• Examination and enrolment of Insolvency Professionals (IBBI Insolvency Professional Examination – conducted by IBBI)
• Monitoring and enforcement – inspection, investigation, and disciplinary action against IPs
• Data collection and publication – IBBI publishes quarterly insolvency newsletters and annual reports
• Policy recommendations to the Government for IBC amendments

IBBI Regulations (Key Regulations as of 2026)

• IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 – amended multiple times
• IBBI (Liquidation Process) Regulations, 2016 – amended 2019, 2022
• IBBI (Voluntary Liquidation Process) Regulations, 2017
• IBBI (Insolvency Professionals) Regulations, 2016 – amended 2019, 2021, 2024
• IBBI (Insolvency Resolution Process for Personal Guarantors) Regulations, 2019
• IBBI (Pre-Packaged Insolvency Resolution Process) Regulations, 2021
• IBBI (Information Utilities) Regulations, 2017

Key Amendments to IBC (2018–2026)

Landmark Cases Under IBC 2016 (2017–2026)

1. Swiss Ribbons Pvt. Ltd. v. Union of India – Supreme Court (2019)

The Supreme Court upheld the constitutional validity of IBC in its entirety. It validated the differentiation between financial and operational creditors, the role of CoC, and NCLT’s jurisdiction. This judgment resolved all major constitutional challenges to IBC and gave it full legal sanctity.

2. Essar Steel India Ltd. v. Satish Kumar Gupta – Supreme Court (2019)

The Supreme Court clarified that NCLT’s role in approving resolution plans is limited – it cannot rewrite commercial terms approved by the CoC. It also held that all creditors (including operational creditors) must receive at least their liquidation value from the resolution plan. The 330-day timeline was held to be directory, not mandatory.

3. Committee of Creditors of Essar Steel v. Satish Kumar Gupta – Supreme Court (2020)

Reinforced the concept of commercial wisdom of CoC. Supreme Court held that CoC’s decision on the distribution of value in a resolution plan is sacrosanct unless it is manifestly unjust to any class of creditors. NCLT cannot adjudicate on commercial terms of the plan.

4. Lalit Kumar Jain v. Union of India – Supreme Court (2021)

Landmark judgment upholding the validity of IBC’s provisions on personal guarantors. The Supreme Court held that NCLT has jurisdiction over insolvency of personal guarantors and the liability of a personal guarantor does not cease merely because a CIRP resolution plan has been approved for the corporate debtor.

5. Vidarbha Industries Power Ltd. v. Axis Bank – Supreme Court (2022)

The Supreme Court held that NCLT has discretionary power (not mandatory obligation) to admit a Section 7 application even after default is established. NCLT can consider special circumstances (e.g. pending regulatory disputes that could provide funds to repay) before admitting. This was a significant departure from the earlier near-automatic admission standard and sparked considerable debate.

6. Go First Airlines CIRP – NCLT Delhi (2023)

Go First Airlines filed voluntary insolvency under Section 10 of IBC. The case raised novel issues about aircraft lessors’ rights, the applicability of Cape Town Convention in India during moratorium, and the rights of aviation lessors vs. CIRP moratorium. The case is considered a milestone in India’s aviation insolvency jurisprudence.

7. Phoenix ARC Pvt. Ltd. v. Ketulbhai Ramubhai Patel – Supreme Court (2021)

Clarified the scope of the moratorium under Section 14 – it applies to all judicial proceedings relating to debts by and against the corporate debtor, including criminal proceedings for cheque dishonour under Section 138 of Negotiable Instruments Act.

8. NARCL (National Asset Reconstruction Company) Cases (2022–2026)

NARCL (also called Bad Bank), incorporated in 2021, has been acquiring NPAs of public sector banks through the IBC route. Multiple NCLT cases involving NARCL as the resolution applicant have set precedents on the rights of asset reconstruction companies under IBC.

IBC 2016 – Performance Statistics and Data (As of 2026)

The following data reflects the performance of IBC 2016 from inception to early 2026 (based on IBBI quarterly newsletter and publicly available NCLT data):

Note: Data above is approximate and based on publicly available IBBI data as of early 2026. For exact current data, refer to IBBI’s official website at www.ibbi.gov.in and NCLT’s official website at www.nclt.gov.in.

Cross-Border Insolvency Under IBC – 2026 Developments

Current Framework

Sections 234 and 235 of IBC provide for bilateral agreements between India and foreign countries for cross-border insolvency. However, as of 2026, India has not yet fully adopted the UNCITRAL Model Law on Cross-Border Insolvency. The Ministry of Corporate Affairs released a draft framework in 2021 and the process of formal adoption is ongoing.

2024 Amendment – Cross-Border Alignment

The 2024 amendments to IBC took steps toward aligning India’s framework with the UNCITRAL Model Law by:

• Providing for recognition of foreign insolvency proceedings in India
• Allowing foreign representatives to appear before Indian courts (NCLT)
• Enabling cooperation between Indian and foreign insolvency courts
• Protecting Indian creditors’ interests in foreign insolvency proceedings

Full cross-border insolvency rules under the UNCITRAL Model Law are expected to be implemented by 2026-27, making India’s IBC framework globally interoperable.

Practical Guide – What Should You Do in 2026?

If You Are a Financial Creditor (Bank / NBFC / Bondholder)

• Verify that the default amount exceeds Rs. 1 Crore before filing Section 7 application
• File the debt information with NeSL (Information Utility) for faster NCLT admission
• Nominate a competent Insolvency Professional in your application
• Actively participate in CoC meetings – your vote determines the commercial outcome
• Explore one-time settlement (OTS) or Section 12A withdrawal before CIRP admission for better recovery
• Engage expert legal counsel familiar with IBBI regulations and NCLT practice

If You Are an Operational Creditor (Supplier / Employee)

• Issue the mandatory demand notice under Section 8 (in Form 3) before filing the application
• Wait 10 days after the demand notice for the debtor to respond or pay
• Ensure your debt is operational in nature (goods, services, employment, statutory dues)
• File Form 5 application before the relevant NCLT bench within the limitation period (3 years from default)
• Track the CIRP proceedings – file your claim before the IRP within the stipulated time to avoid exclusion
• Employees and workmen have special protections under Section 53 waterfall in liquidation

If You Are a Corporate Debtor (Stressed Company)

• Explore restructuring, OTS, or settlement with lenders before default becomes public
• For MSMEs: consider PPIRP as a less stigmatising and management-friendly option
• Voluntary insolvency (Section 10) with a ready resolution plan gives more control over the process
• Ensure books of accounts are up-to-date and audited – RP will examine all transactions
• Cooperate fully with the IRP/RP – non-cooperation is an offence under Section 70 of IBC
• Engage an Insolvency Professional for pre-CIRP advisory to assess options

If You Are a Resolution Applicant

• Conduct thorough legal and financial due diligence using the Information Memorandum
• Verify Section 29A eligibility early to avoid disqualification at a later stage
• Engage NeSL to verify authenticity of creditor claims
• Ensure resolution plan meets minimum requirements of Section 30(2) – CIRP costs first, OC protected
• Factor in post-acquisition litigation risks – pending avoidance transaction claims may continue
• Comply with all conditions precedent (regulatory approvals, competition clearance) within the plan timeline

IBC vs. Pre-IBC Insolvency Framework – A Comparison