Source: The post “Systemic challenges with the working of IBC” has been created, based on “IBC resolution process: House panel raises concerns over ‘haircuts’, asset valuation; encourage global bidding” published in “Indian Express” on 04th December 2025.
UPSC Syllabus: GS Paper-3- Indian Economy
Context: The Insolvency and Bankruptcy Code (IBC) has played a crucial role in strengthening the confidence of creditors and encouraging foreign investment since its implementation. However, the Parliamentary Standing Committee on Finance, in its recent report, raised several concerns about the code’s effectiveness, including delays in resolution processes, inadequate asset valuation, and the issue of ‘haircuts’. To address these challenges, the committee proposed several reforms aimed at improving the overall functioning of the IBC.
Key Concerns Raised by the Committee:
- Delays and Inadequate Judicial Infrastructure: One of the primary issues highlighted by the committee is the delay in the resolution process, primarily caused by inadequate judicial infrastructure. This results in prolonged timelines, undermining the purpose of IBC, which aims for time-bound resolution of insolvency cases.
- Uncertainty Regarding Finality of Resolution Plans: The committee noted the uncertainty surrounding the finality of resolution plans, often due to judicial reversals. This creates an environment of unpredictability, discouraging investors and creditors from participating in the resolution process.
- Lack of Accountability Among Resolution Professionals (RPs): Another significant concern is the lack of accountability among resolution professionals. The committee emphasized the need for clearer roles and responsibilities for RPs to ensure transparency and better outcomes in the resolution process.
- Haircuts and Asset Valuation Issues: The committee raised concerns over the issue of ‘haircuts’ — the difference between the amount a lender is owed and the actual recovery achieved.
- The committee pointed out the lack of transparency in the process and its tendency to lead to distress sales, often resulting in lower recovery rates. Furthermore, assets are valued based on their liquidation potential rather than their enterprise value, leading to suboptimal recovery.
Recommendations for Reform:
- Enterprise-Level Price Discovery Mechanism: To address asset valuation concerns, the committee recommended adopting an enterprise-level price discovery mechanism. This would ensure that assets are valued based on their true enterprise value, better reflecting the corporate debtor’s potential and improving the recovery rates.
- Expansion of Competitive Bidding: To reduce ‘haircuts’ and enhance competition, the committee proposed expanding the competitive bidding process by encouraging global outreach. This would increase the pool of quality resolution applicants, potentially leading to better resolution outcomes and higher recoveries for creditors.
- Introduction of Standard Operating Procedures (SOPs): The committee suggested the introduction of clear standard operating procedures (SOPs) to define the roles of liquidators and registered valuers, establish audit trails, and facilitate post-resolution valuation reviews. These measures would ensure greater accountability and transparency in the resolution process.
- Cross-Border Insolvency Framework: The committee highlighted the need for a cross-border insolvency framework under the IBC, especially for Indian companies operating internationally. Given that many corporate entities have assets spread across multiple jurisdictions, the lack of a robust framework to handle cross-border insolvency disputes is causing significant losses and complicating asset recovery.
- Online Mechanism for ‘No Dues’ Certificates: The committee recommended the establishment of a transparent online mechanism for issuing ‘no dues’ certificates to companies post-resolution. This would help resolved companies start afresh by clearing their liabilities and facilitating access to fresh financing.
Conclusion: The IBC has been instrumental in streamlining the insolvency resolution process in India, but the Parliamentary Standing Committee on Finance’s concerns highlight several areas for improvement. Addressing issues such as delays, asset valuation, and the accountability of resolution professionals, along with implementing reforms like enterprise-level price discovery and cross-border insolvency frameworks, can significantly enhance the effectiveness of the IBC. By adopting these recommendations, India can strengthen its insolvency resolution mechanism, improve creditor recovery, and foster a more transparent and efficient financial system.
Question: Discuss the concerns raised by the Parliamentary Standing Committee on Finance regarding the Insolvency and Bankruptcy Code (IBC) and suggest reforms for improving its effectiveness.
