The Insolvency and Bankruptcy Code, 2016 (IBC) is a comprehensive Act of the Indian Parliament that consolidates and amends the laws relating to the reorganisation and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner. The Code was enacted on May 28, 2016, to solve the problem of a fragmented and slow insolvency regime that was spread across multiple legislations, such as the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The primary objective is to maximize the value of assets, promote entrepreneurship, and balance the interests of all stakeholders.
The core mechanism for companies is the Corporate Insolvency Resolution Process (CIRP), which is initiated by a creditor or the debtor before the National Company Law Tribunal (NCLT), the adjudicating authority. Upon admission, a moratorium is declared, and control shifts from the owners to a Committee of Creditors (CoC), which must decide on a resolution plan or liquidation within a maximum of 330 days. Key provisions include Section 7 (initiation by financial creditor) and Section 9 (initiation by operational creditor). The Code is built on the philosophy of "rescue over liquidation," aiming to revive financially distressed entities.
The IBC is closely connected to the Insolvency and Bankruptcy Board of India (IBBI), which is the regulator that oversees the process, insolvency professionals, and information utilities. The Code significantly changed the priority of payments in liquidation, placing government dues below the claims of secured creditors and workmen, a change from the earlier regime.
The Code has been subject to continuous refinement, including the Insolvency and Bankruptcy Code (Amendment) Act, 2026, which introduced major changes. A significant recent change is the amendment to Section 3(31), which clarifies that a "security interest" must arise from a contractual agreement, thereby legislatively reversing the effect of the State Tax Officer v. Rainbow Papers Pvt. Ltd. judgment by pushing government dues arising by operation of a tax statute down the priority waterfall. This amendment ensures that only consensual security arrangements are recognized under the Code.