Insolvency and Bankruptcy Code (IBC) 2016 — Complete Guide for Bank Promotion Exams
The Insolvency and Bankruptcy Code, 2016 (IBC) is the most important NPA resolution framework tested in bank promotion exams at Scale II and above. Enacted on 28 May 2016 on the recommendations of the Bankruptcy Law Reforms Committee (BLRC), it replaced a patchwork of over a dozen overlapping statutes and created a single, time-bound framework for resolving insolvency of companies, partnerships, and individuals. Key facts: CIRP must be completed within 330 days (including litigation time), initiation threshold is a default of ₹1 crore, the Committee of Creditors (CoC) needs 66% by value to approve a resolution plan, and Section 29A bars defaulting promoters from regaining control.
Quick Reference — IBC 2016 for Bank Promotion Exam
| Enacted | 28 May 2016 (notified in parts; fully operational from December 2016) |
| Recommended by | Bankruptcy Law Reforms Committee (BLRC) — Dr. T.K. Viswanathan Committee, 2015 |
| Regulator | Insolvency and Bankruptcy Board of India (IBBI) |
| CIRP initiation threshold | Default of ₹1 crore (raised from ₹1 lakh w.e.f. 24 March 2020) |
| CIRP timeline | 180 days + 90-day extension (if 66% CoC votes) = 270 days; hard cap 330 days (including litigation) |
| CoC voting threshold | 66% by value of financial debt for resolution plan approval (reduced from 75% in 2019) |
| Moratorium | Automatic under Section 14 from insolvency commencement date — bars all suits, recovery actions, asset transfers |
| CIRP adjudicating authority | NCLT (National Company Law Tribunal) — for companies; DRT — for individuals/partnerships |
| Appellate authority | NCLAT (National Company Law Appellate Tribunal) → Supreme Court |
| Section 29A | Bars defaulting promoters (NPA >1 year), related parties, undischarged insolvents from submitting resolution plans |
| Pre-packaged insolvency (PPIRP) | Introduced 2021 for MSMEs; default ≥ ₹10 lakh; 120-day timeline |
| COVID-19 suspension | Section 10A: CIRP suspended for defaults between 25 March 2020 and 25 March 2021 |
| Average recovery (financial creditors) | ~30–35% of admitted claims (per IBBI data, FY2024) |
Background and Genesis of IBC
Before IBC, India had a fragmented insolvency architecture — the Sick Industrial Companies (Special Provisions) Act 1985 (SICA), the Companies Act 2013 winding-up provisions, the Presidency Towns Insolvency Act 1909, the Provincial Insolvency Act 1920, SARFAESI 2002, and DRT Act 1993 all operated in parallel, often leading to conflicting proceedings, indefinite delays, and poor recovery rates for lenders.
The Bankruptcy Law Reforms Committee (BLRC), chaired by Dr. T.K. Viswanathan, submitted its report in November 2015 recommending a unified, time-bound code. The World Bank’s Doing Business Report ranked India 136th on “Resolving Insolvency” in 2016; by 2020 India had climbed to 52nd — largely attributed to IBC implementation.
IBC — What It Replaced
- Sick Industrial Companies (Special Provisions) Act, 1985 — SICA (repealed)
- BIFR (Board for Industrial and Financial Reconstruction) — dissolved
- Companies Act 2013 — winding-up provisions (largely superseded)
- Presidency Towns Insolvency Act, 1909
- Provincial Insolvency Act, 1920
- Part of the Companies Act — voluntary winding up (transferred to NCLT)
Structure of IBC — Four Parts
| Part | Covers | Adjudicating Authority |
|---|---|---|
| Part I — Preliminary | Definitions, applicability, IBBI establishment | — |
| Part II — Insolvency Resolution and Liquidation for Corporate Persons | CIRP, Liquidation, Voluntary Liquidation for companies and LLPs | NCLT |
| Part III — Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms | Fresh Start Process, Individual Insolvency, Personal Bankruptcy | DRT (Debt Recovery Tribunal) |
| Part IV — Regulation of Insolvency Professionals, Agencies and Information Utilities | IBBI powers, IP regulation, IPA, IU (Information Utilities) | IBBI |
Key Definitions — Exam Critical
| Term | Definition | Exam Relevance |
|---|---|---|
| Corporate Debtor | A corporate person who has committed a default | Must be a company / LLP; individuals not under Part II |
| Financial Creditor | Any person to whom a financial debt is owed — includes banks, NBFCs, debenture holders, bond holders | Only Financial Creditors form the CoC |
| Operational Creditor | Any person to whom an operational debt is owed — suppliers, employees (other than workmen dues), government (taxes) | Can initiate CIRP but NOT CoC members (unless no financial creditors) |
| Financial Debt | Debt with time value of money — loans, bonds, debentures, guarantee obligations | Section 5(8) definition; banks are always financial creditors |
| Operational Debt | Debt for goods/services, employment (workmen dues), statutory dues | Section 5(21) |
| Default | Non-payment of debt when whole or any part thereof is due and payable | Threshold: ₹1 crore minimum |
| Insolvency Commencement Date | Date on which CIRP commences — date NCLT admits the application | CIRP clock starts from this date |
| Resolution Plan | A plan proposed by a Resolution Applicant for resolving the insolvency of the Corporate Debtor | Must be approved by 66% CoC + NCLT |
Exam Trap — Financial Creditor vs Operational Creditor
- Both Financial Creditors and Operational Creditors can initiate CIRP (file application at NCLT).
- But only Financial Creditors form the Committee of Creditors (CoC) — they vote on the resolution plan.
- Operational Creditors are represented by a nominee (no voting rights) in the CoC.
- Exception: If there are no financial creditors, operational creditors participate in the CoC.
- Employees and workmen have a separate seat in the CoC through a representative elected by themselves.
IBC Institutions — The Four Pillars
Four Key IBC Institutions
- IBBI (Insolvency and Bankruptcy Board of India): Regulator for the entire IBC ecosystem. Regulates Insolvency Professionals (IPs), Insolvency Professional Agencies (IPAs), and Information Utilities (IUs). Headquarters: New Delhi.
- NCLT (National Company Law Tribunal): Adjudicating authority for corporate insolvency under Part II. Admits/rejects CIRP applications, approves resolution plans, orders liquidation. Benches across India.
- NCLAT (National Company Law Appellate Tribunal): Appellate authority against NCLT orders. Appeals from NCLAT go to the Supreme Court on questions of law.
- Insolvency Professional (IP) / Resolution Professional (RP): Licensed by IBBI through Insolvency Professional Agencies (IPAs). IRP (Interim Resolution Professional) is appointed first; then confirmed as RP by the CoC. Manages the corporate debtor during CIRP — takes over management, invites resolution plans, convenes CoC meetings.
CIRP — Corporate Insolvency Resolution Process (Step-by-Step)
The CIRP is the core process under Part II of IBC. It begins when a Financial Creditor, Operational Creditor, or the Corporate Debtor itself files an application at the NCLT.
CIRP — Step-by-Step Process
- Application to NCLT: Financial Creditor (Section 7), Operational Creditor (Section 9), or Corporate Debtor itself (Section 10) files application citing default ≥ ₹1 crore. NCLT must admit or reject within 14 days.
- Insolvency Commencement Date: Date NCLT admits the application. CIRP clock starts. Moratorium (Section 14) kicks in immediately — all suits, proceedings, enforcement actions, asset disposals are barred.
- IRP Appointment: NCLT appoints an Interim Resolution Professional (IRP) within 14 days of insolvency commencement date. IRP takes over management of the Corporate Debtor.
- Public Announcement: IRP makes a public announcement inviting claims from all creditors within 14 days of appointment.
- CoC Formation: Committee of Creditors (financial creditors) constituted within 30 days of insolvency commencement date. IRP convenes first CoC meeting.
- RP Appointment: CoC confirms the IRP as Resolution Professional (RP) or appoints a new RP by 66% vote, within 30 days.
- Resolution Plan Invitation: RP invites Resolution Plans from prospective Resolution Applicants through Expression of Interest (EoI). Applicants must pass the Section 29A eligibility test.
- CoC Approval: CoC approves the resolution plan by 66% by value vote. Plan must provide for payment of CIRP costs (first priority), then liquidation value to operational creditors, and a fair distribution to financial creditors.
- NCLT Approval: NCLT approves the resolution plan. Once approved, the plan is binding on all stakeholders — creditors, guarantors, and third parties.
- If no plan approved in time: NCLT orders Liquidation under Section 33.
CIRP Timeline — The Numbers That Matter
| Stage | Timeline | Authority |
|---|---|---|
| NCLT admission of application | Within 14 days of filing | NCLT |
| IRP appointment | Within 14 days of insolvency commencement date | NCLT |
| Public announcement by IRP | Within 3 days of IRP appointment | IRP |
| CoC formation | Within 30 days of insolvency commencement date | IRP |
| RP appointment by CoC | Within 30 days of insolvency commencement date | CoC (66% vote) |
| Basic CIRP period | 180 days from insolvency commencement date | — |
| Extension (if 66% CoC votes) | Additional 90 days (max); NCLT approval required | NCLT on CoC application |
| Hard cap (including litigation) | 330 days from insolvency commencement date | Mandatory — NCLT orders liquidation if exceeded |
CIRP Timeline — Exam Traps
- The basic CIRP period is 180 days, not 270 days. The 270 days (180 + 90) is the extended period if the CoC votes for extension.
- The 330-day hard cap was introduced by the Insolvency and Bankruptcy Code (Amendment) Act, 2019. It includes time spent on legal proceedings/litigation.
- If the 330-day deadline is exceeded, the NCLT must order liquidation — there is no further discretion.
- The CoC voting threshold for approving a resolution plan was reduced from 75% to 66% by the 2019 amendment. This is a frequently tested change.
- The moratorium under Section 14 is automatic from the insolvency commencement date — it does not require a separate order.
Section 14 — Moratorium
The moratorium is one of the most important provisions of IBC from a banking perspective. From the insolvency commencement date, the NCLT declares a moratorium that prohibits:
- Institution or continuation of suits or proceedings against the Corporate Debtor
- Transfer, encumbrance, alienation, or disposal of any assets of the Corporate Debtor
- Any action to foreclose, recover, or enforce any security interest created by the Corporate Debtor
- Recovery of property from the Corporate Debtor by an owner (i.e., lease termination)
Moratorium — What Is NOT Barred
- Supply of essential goods and services to the Corporate Debtor shall not be terminated, suspended, or interrupted during moratorium — to keep the business running.
- SARFAESI enforcement actions already completed before the moratorium are not reversed.
- Guarantor’s liability is not covered by the moratorium — banks can still proceed against personal/corporate guarantors even during CIRP. (Confirmed by Supreme Court: State Bank of India v. V. Ramakrishnan, 2018.)
- Transactions under the payment and settlement systems (under RBI oversight) are not barred.
Committee of Creditors (CoC)
The CoC is the decision-making body during CIRP. Its composition and voting thresholds are heavily tested.
CoC — Composition and Key Rules
- Consists exclusively of Financial Creditors of the Corporate Debtor
- Voting share: proportionate to the financial debt owed to each financial creditor
- Operational Creditors (suppliers, employees) are NOT CoC members — they have a representative with no voting rights
- Employee and workmen representatives participate in CoC meetings but do not vote
- If there are no financial creditors, all creditors constitute the CoC
- Secured vs unsecured financial creditors both participate; voting power depends on admitted claim value
- Key votes requiring 66%: Resolution plan approval; RP appointment/replacement; extension of CIRP period; liquidation recommendation
- Key votes requiring 51%: Day-to-day operational decisions during CIRP
Section 29A — Who Cannot Submit a Resolution Plan
Section 29A, introduced by the Insolvency and Bankruptcy Code (Amendment) Ordinance 2017 (effective 23 November 2017), bars certain persons from submitting resolution plans. This was introduced to prevent promoters of defaulting companies from regaining control of their businesses at a discount through the IBC process.
Section 29A — Ineligible Persons (Key Categories)
- An undischarged insolvent — person who has been adjudged insolvent and not discharged
- A wilful defaulter as per RBI guidelines
- An account classified as NPA for 1 year or more — unless the applicant proposes to pay all overdue amounts with interest before final approval of the plan
- A person convicted of certain offences (including offences under IPC, PMLA, etc.) with imprisonment of ≥2 years
- A person who has been a director / promoter of a company that was classified as NPA and remains so for 1+ year
- Connected persons and related parties of the above categories
- Persons barred from associating with regulated financial entities by SEBI/IRDAI/PFRDA
Section 29A — Exam Trap (The NPA Cure Provision)
- The NPA-based ineligibility can be cured — if the resolution applicant pays all overdue amounts plus interest and charges of the NPA account before the resolution plan is approved, they become eligible again.
- This “pay and clear” route was inserted to not permanently exclude promoters who have the means to resolve the NPA. It does not apply to wilful defaulters.
- Section 29A applies not just to the resolution applicant, but to all connected persons — if any connected entity fails the test, the entire application is ineligible.
Liquidation under IBC
If CIRP fails — no resolution plan approved, or CoC itself recommends liquidation — NCLT orders liquidation under Section 33.
Liquidation — Waterfall (Priority of Payment under Section 53)
- CIRP costs and liquidation costs (first charge — insolvency professionals’ fees, costs during moratorium period)
- Workmen dues for 24 months before commencement of liquidation
- Secured creditors’ debts (relinquished security) and workmen dues for 12 months before liquidation
- Employees’ dues for 12 months before commencement of liquidation
- Unsecured financial creditors (banks’ unsecured portion, fixed deposit holders of companies)
- Government dues (central and state government taxes, cess, etc.)
- Remaining secured creditors (secured amount not recovered by enforcement of security)
- Equity shareholders (last — residual claimants)
Section 53 Waterfall — Exam Traps
- CIRP costs rank first — before even secured creditors. This is a significant change from the pre-IBC regime.
- Workmen dues (24 months) rank above secured financial creditors — this is the key priority ordering question.
- Government dues rank below unsecured financial creditors — unlike pre-IBC position where government dues had priority. This was a major reform.
- A secured creditor can choose to stand outside liquidation and enforce its security separately — but then ranks at position 7 (after government) for any remaining claim.
Pre-Packaged Insolvency Resolution Process (PPIRP) — for MSMEs
The Pre-Packaged Insolvency Resolution Process was introduced by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 (effective 4 April 2021) exclusively for Micro, Small, and Medium Enterprises (MSMEs). It is a hybrid process — the debtor and creditors negotiate a resolution plan before approaching NCLT, significantly reducing time and cost.
| Feature | CIRP (Regular) | PPIRP (MSME only) |
|---|---|---|
| Eligibility | Any company / LLP | MSMEs only (MSME Act definition) |
| Minimum default | ₹1 crore | ₹10 lakh (lower threshold for MSMEs) |
| Who files application | FC / OC / CD | Corporate Debtor itself (CD files after 3/4 unrelated financial creditors consent) |
| Management control | RP takes over management | Existing management retains control (debtor-in-possession) |
| Base plan | RP invites resolution plans fresh | CD submits its own base resolution plan; can be improved by competing plans |
| Timeline | 180 days + 90 extension = 330 days hard cap | 120 days (no extension permitted) |
| Moratorium | Section 14 — full moratorium | Section 14 applies but management stays with CD |
| CoC approval | 66% by value | 66% by value |
IBC vs SARFAESI vs DRT — Comparison
The most commonly asked comparison in bank promotion exams at Scale II and above:
| Feature | IBC 2016 | SARFAESI 2002 | DRT Act 1993 |
|---|---|---|---|
| Purpose | Insolvency resolution + liquidation of companies/individuals | Enforcement of secured assets without court | Recovery of bank dues through tribunal |
| Who can use | FC, OC, CD (Section 7, 9, 10) | Scheduled Commercial Banks, ARCs, eligible NBFCs | Banks and FIs (debt > ₹20 lakh) |
| Threshold | Default ≥ ₹1 crore | Outstanding > ₹1 lakh (NPA) | Debt > ₹20 lakh |
| Asset type | All corporate assets | Secured assets only (not agri land) | All assets (decree-based enforcement) |
| Management control | Transfers to IRP/RP during CIRP | Remains with borrower until possession | Remains with borrower; court may appoint receiver |
| Timeline (law) | 330 days hard cap | No statutory end-to-end limit | No statutory limit; typically multi-year |
| Adjudicating authority | NCLT | DRT (Section 17 appeals) | DRT |
| Agricultural land | No exclusion under IBC | Excluded — cannot enforce | Can pursue through DRT decree |
| Personal guarantee | Guarantor can be proceeded against; separate CIRP for individual | Not applicable — only secured assets | Guarantor can be joined as defendant |
| Recovery rate (typical) | ~30–35% for financial creditors | Higher — secured asset enforcement | Lower — slow, lengthy proceedings |
Key Amendments to IBC — What Changed
| Amendment | Key Change |
|---|---|
| IBC Amendment 2017 (June) | Section 29A introduced — bars promoters of defaulting companies from submitting resolution plans |
| IBC Amendment 2017 (November) | Homebuyers recognised as Financial Creditors (after Supreme Court direction); strengthened CoC authority |
| IBC Amendment 2018 | Allottees of real estate projects (homebuyers) expressly included as Financial Creditors under Section 5(8)(f); minimum 10% of allottees required to file application |
| IBC Amendment 2019 | CoC voting for resolution plan: 75% → 66%. Hard cap of 330 days (including litigation time) mandated. CIRP extended to personal guarantors of corporate debtors. |
| IBC Amendment 2020 (Section 10A) | CIRP suspended for defaults occurring between 25 March 2020 and 25 March 2021 — COVID-19 relief. Threshold also temporarily raised to ₹1 crore (later made permanent). |
| PPIRP Ordinance 2021 | Pre-packaged insolvency for MSMEs introduced; 120-day timeline; debtor-in-possession model. |
Cross-Border Insolvency
IBC 2016 does not yet have a comprehensive cross-border insolvency framework. Sections 234 and 235 enable bilateral agreements between India and foreign countries for cross-border insolvency cooperation, but no such agreements have been finalised. The IBBI has recommended adoption of the UNCITRAL Model Law on Cross-Border Insolvency, which remains under consideration.
Personal Insolvency (Part III of IBC)
Part III of IBC, covering individuals and partnership firms, was notified in December 2019 for personal guarantors to corporate debtors and is gradually being extended to all individuals. Key features:
- Fresh Start Process (FSP): For individuals with annual income ≤ ₹60,000 and assets ≤ ₹20,000 and qualifying debt ≤ ₹35,000 — a one-time debt write-off.
- Individual Insolvency Resolution Process (IRP): For individuals who don’t qualify for FSP; structured repayment plan.
- Bankruptcy: If IRP fails, the individual can be adjudicated bankrupt; adjudicating authority is DRT.
- Personal guarantors: Banks can initiate CIRP against personal guarantors of corporate debtors under Part III before NCLT (as held by Supreme Court in Lakshminarayanan v. Union of India, 2023).
NARCL — IBC’s Resolution Supplement
The National Asset Reconstruction Company Ltd (NARCL), incorporated in July 2021, is the government’s “bad bank” designed to complement the IBC resolution framework for large stressed accounts:
- Acquires large NPA accounts (typically ₹500 crore+) from banks at agreed price
- Payment structure: 15% cash + 85% Security Receipts (SRs) backed by Government of India guarantee of ₹30,600 crore
- The India Debt Resolution Company Ltd (IDRCL) is the operational partner — manages the asset and pursues resolution through IBC/other routes
- SRs are redeemable as and when the underlying assets are resolved; GOI guarantee is invoked if SRs are not redeemed at par
- Target: Resolution of 15 large NPA accounts in the first phase (₹50,000 crore+ in book value)
Worked Example — CIRP Timeline Calculation
Scenario: ABC Ltd defaults on a ₹200 crore term loan to Bank X. Bank X files an application under Section 7 at NCLT. NCLT admits the application on 1 January 2025.
| Event | Date |
|---|---|
| Insolvency Commencement Date (NCLT admission) | 1 January 2025 |
| IRP appointed by NCLT | By 15 January 2025 (within 14 days) |
| CoC constituted | By 31 January 2025 (within 30 days) |
| Basic CIRP period expires (180 days) | 30 June 2025 |
| If CoC votes for extension (66%): +90 days | 28 September 2025 |
| Hard cap (330 days from ICD) | 28 November 2025 — NCLT must order liquidation if no plan by this date |
What is the minimum default amount to initiate CIRP under IBC?
The minimum default required to initiate the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 is ₹1 crore. This threshold was raised from ₹1 lakh to ₹1 crore by a government notification on 24 March 2020, initially as a COVID-19 relief measure and subsequently made permanent. The ₹1 crore threshold applies equally to applications by Financial Creditors (Section 7), Operational Creditors (Section 9), and the Corporate Debtor itself (Section 10).
What is the timeline for CIRP under IBC?
The CIRP must be completed within 180 days from the insolvency commencement date. This can be extended by up to 90 days if the Committee of Creditors (CoC) votes for extension by 66% majority. The absolute hard cap, including any time spent in litigation, is 330 days. If no approved resolution plan exists within 330 days, the NCLT must order liquidation. The 330-day hard cap was introduced by the IBC Amendment Act, 2019.
Who forms the Committee of Creditors (CoC) under IBC?
The Committee of Creditors (CoC) is constituted exclusively of Financial Creditors of the Corporate Debtor — banks, NBFCs, debenture holders, and other entities to whom financial debt is owed. Operational Creditors (suppliers, employees, government) are not members of the CoC and do not vote on the resolution plan. They may send a representative to CoC meetings. If there are no financial creditors in a CIRP, all creditors together form the CoC. Voting in the CoC is proportionate to the financial debt owed to each creditor.
What is Section 29A of IBC?
Section 29A of IBC bars certain persons from submitting a resolution plan in a CIRP. The key ineligible categories include: promoters or directors of companies whose accounts have been classified as NPA for one year or more; wilful defaulters as per RBI guidelines; undischarged insolvents; persons convicted of specified offences; and their related parties and connected persons. Section 29A was introduced by the IBC Amendment Ordinance in November 2017 to prevent defaulting promoters from regaining control of their business at a discount through the insolvency process. The NPA-based ineligibility can be cured if the person pays all overdue amounts with interest before the resolution plan is approved.
What is the order of priority in IBC liquidation?
Under Section 53 of IBC, the waterfall order for distribution of liquidation proceeds is: (1) CIRP and liquidation costs; (2) workmen dues for 24 months preceding liquidation; (3) secured creditors’ claims (relinquished security) and workmen dues for 12 months; (4) employee dues for 12 months; (5) unsecured financial creditors; (6) government dues; (7) remaining secured creditors; (8) equity shareholders. The key exam points are that CIRP costs rank first (before secured creditors) and government dues rank below unsecured financial creditors — a reversal of the pre-IBC priority.
What is Pre-Packaged Insolvency (PPIRP) under IBC?
The Pre-Packaged Insolvency Resolution Process (PPIRP), introduced by the IBC Amendment Ordinance of April 2021, is available exclusively to MSMEs with a minimum default of ₹10 lakh. In PPIRP, the existing management retains control of the business (debtor-in-possession model) and submits its own base resolution plan before filing at NCLT. The process must be completed within 120 days with no extension. The CoC must approve the plan by 66% vote and NCLT must then approve it. PPIRP is designed to be faster, cheaper, and less disruptive than regular CIRP for small businesses.