India’s Insolvency and Bankruptcy Code has transformed the creditor-debtor relationship

Creditors had to pursue parallel remedies under various acts like the Sick Industrial Companies Act (SICA), Recovery of Debts due to Banks and Financial Institutions Act (RDDBFI), Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi), etc. Even the Reserve Bank of India’s (RBI) stress resolution mechanisms failed to address the issue of distress.

While creditors struggled with multiple laws and frameworks, promoters retained control over insolvent companies. More importantly, delays in court proceedings caused enterprise value to reduce to almost nothing.

The IBC fundamentally altered this landscape by introducing a unified, time-bound insolvency regime that rendered loss of control a real and credible consequence of default for the promoter, thereby transforming repayment discipline and compelling both borrowers and lenders to respond to financial stress at a significantly earlier stage.

The Code’s most consequential achievement was its decisive transition from a debtor-in-possession model to a creditor-in-control framework.

Upon admission of an insolvency application, the management of the corporate debtor is displaced by a resolution professional and a Committee of Creditors (CoC) assumes charge of the commercial decisions governing the company’s future. Judicial interpretation has consistently reinforced the primacy of the CoC’s commercial wisdom, preventing errant or ineligible promoters from regaining control through backdoor channels.

Another critical dimension of the Code is its treatment of the personal insolvency of personal guarantors of corporate debtors.

Recognizing that corporate insolvency resolution would remain incomplete without addressing the liabilities of personal guarantors, who are often promoters of defaulting firms, the legislature introduced specific provisions enabling creditors to initiate insolvency proceedings against such guarantors. This could be done independently of or concurrently with the corporate insolvency resolution process.

The Supreme Court has in various landmark judgements accepted this framework. In State Bank of India vs V. Ramakrishnan & Anr. (2018), the court clarified that the moratorium imposed under Section 14 of the IBC does not extend to proceedings against personal guarantors, thereby preserving creditors’ remedies against them.

In Lalit Kumar Jain vs Union of India (2021), the court upheld the constitutional validity of the notification bringing Part III provisions into force insofar as they apply to personal guarantors to corporate debtors. This affirmed the legislative intent to treat such guarantors as a distinct class.

Further, in Ghanshyam Mishra and Sons Pvt. Ltd. vs Edelweiss Asset Reconstruction Co. Ltd. (2021), the court held that an approved resolution plan is binding on all stakeholders, including guarantors, thereby precluding them from asserting claims that stand extinguished under the plan.

The insolvency framework is further reinforced by RBI's statutory power.

In June 2017, it directed lenders to initiate proceedings under the Code against 12 large corporate defaulters who owed over ₹5000 crore each. This included entities such as ABG Shipyard, Bhushan Power and Steel and Jaypee Infratech, clubbed together as the ‘Dirty Dozen.’ Then in August 2017, RBI issued a second list that included corporate houses like Videocon, IVRCL and Rochi Soya among others.

Further, under Section 227 of the Code, RBI invoked its power of appointing administrators to non-banking financial companies and housing finance companies for Dewan Housing Finance Corporation Ltd, Reliance Communication Infrastructure Ltd, Srei Infrastructure Finance Ltd and Srei Equipment Finance Ltd to ensure orderly resolutions within the IBC framework.

As per data published by the Insolvency and Bankruptcy Board of India, as of March 2026, financial creditors on average realized approximately 32% of admitted claims through approved resolution plans and around 168% of the estimated liquidation value of such companies.

The fear of losing control has also resulted in a significant number of defaults being settled out of court, either prior to the admission of petitions or through withdrawal before admission.

The IBC continues to evolve through periodic amendments and regulatory refinements; the 2026 amendments, which came into effect on 26 May, address delays in the resolution process, the National Company Law Tribunal’s case backlog, group insolvency for the coordinated resolution of related or affiliated companies, and an emerging cross-border insolvency framework.

After 10 years, the IBC has not solved every problem, but it has changed how companies, lenders and investors behave. Promoters are more careful about defaults, lenders act sooner and investors see better chances of recovery. With stronger systems and timely reforms, the Code is helping the country create a more reliable credit market.

The author is senior partner at S&A Law Offices.