Evolution Of Insolvency Law In India Leading Up To The Insolvency And Bankruptcy Code, 2016

Written by: Bhanu Pratap Ohri, 4^th year B.B.A.LL.B (Hons.), School of Law, Lovely Professional University

Abstract

India’s insolvency framework has gradually progressed from a scattered collection of colonial laws to a unified and contemporary system capable of addressing modern financial challenges. The early insolvency laws in India were primarily punitive, focusing on debtor fault rather than on financial rehabilitation, treating insolvency as a moral issue rather than an economic process. As industrialization and globalization progressed, the shortcomings of earlier laws such as the Presidency Towns Insolvency Act, the Provincial Insolvency Act, and subsequently, the Companies Act of 1956, became more evident. The presence of multiple overlapping statutes and authorities resulted in procedural delays, low recovery rates, and diminishing creditor trust.

The enactment of the Insolvency and Bankruptcy Code (IBC) in 2016 represented a major transformation in India’s legal and financial architecture. The Code unified various insolvency processes for different entities into a single, time-sensitive framework designed to maintain asset value. This research paper outlines the historical development of insolvency laws in India, highlights major shortcomings in the pre-IBC system, and explores the factors that prompted the creation of the IBC. The study concludes that the IBC has led to enhanced credit discipline, improved coordination between creditors and debtors, and greater investor confidence in India's financial system.

Keywords: Insolvency Law, Bankruptcy Code, Corporate Restructuring, Financial Distress, Insolvency and Bankruptcy Code (IBC), 2016, Legal Reforms in India, Debt Recovery, Non-Performing Assets (NPAs), Corporate Insolvency Resolution Process (CIRP), Economic Liberalization, Judicial Reforms, Insolvency Framework Evolution, Creditor–Debtor Relationship, Financial Sector Reforms

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