Bankruptcy and IBC: How Insolvency Works in India
The Insolvency and Bankruptcy Code (IBC), introduced in 2016, transformed how India handles corporate and personal insolvency. Before the IBC, India's insolvency laws were fragmented and led to agonisingly slow resolutions — sometimes taking decades. The IBC introduced a unified, time-bound framework that prioritises revival of struggling businesses over liquidation.
Initiating Insolvency Proceedings
Insolvency proceedings begin when a company defaults on its debt. Either a creditor (financial or operational) or the debtor company itself can initiate proceedings by filing an application before the National Company Law Tribunal (NCLT). The threshold for default is ₹1 crore for corporate debtors. Once the NCLT admits the application, the insolvency process formally begins.
The Moratorium Period
Once proceedings are initiated, a moratorium comes into effect — all legal proceedings, lawsuits, and enforcement actions against the company are temporarily halted. This is the breathing space the company needs to stabilise and begin the resolution process without external pressures. During this period, an Insolvency Professional (IP) is appointed to manage the company.
The Resolution Plan
The IP invites resolution plans from potential investors or resolution applicants. These plans outline how the company's debt will be resolved — through restructuring, change in management, or asset sale — with the primary goal of ensuring the company's survival. The Committee of Creditors (CoC), consisting of financial creditors, votes on resolution plans with a 66% majority vote. Approved plans go to the NCLT for final sanction.
Time-Bound Resolution: The Key Advantage
The IBC mandates completion of the resolution process within 180 days, extendable by up to 90 days — a total of 270 days. This strict timeline, compared to the years or decades under the old system, is the IBC's greatest contribution to India's financial health. For borrowers, understanding the IBC matters because it changes power dynamics — creditors have far more influence than before, and promoters can be displaced if a better resolution applicant emerges.
Need personalised guidance?
Our experts are available to walk you through your specific situation — free of charge, no obligation.
Book a Free Call →