The Insolvency and Bankruptcy Code (IBC) was enacted to provide a structured legal framework for resolving corporate bankruptcies in the country. The code was enacted in the backdrop of very high NPAs in the banking system. At its peak, the banking system had a stressed asset ratio (NPA + restructured assets) exceeded 12% of their advances. It was thus widely believed that Banks and Financial Institutions (Financial Creditors) would be the primary users of this law. That they would use this law to resolve the huge burden of NPLs on their balance-sheets.
Since its inception in May-2017 and till Mar-2021, a total of 4376 cases have been filed under the IBC. The number of cases would have been much higher but for the pandemic. In FY21 only 499 cases were filed, the lowest since FY17 – the first year of IBC. But contrary to expectation, just over half of these cases are filed by Operational Creditors – suppliers, subcontractors, vendors, employees etc. Financial Creditors have filed 43% of the cases and Corporates themselves, on Suo moto basis, have filed 6% of the cases.
And this distinction between who has filed the case influences the outcomes too. Thus, over half the cases filed by operational creditors get resolved through settlement or an appeal or simple withdrawal of the case. In contrast just over a quarter of the cases filed by financial creditors resolve in this manner. It thus appears, prima facie, that the Operational creditors have been the primary users of IBC – they have been able to successfully use the threat of being under IBC and the risk of loss of control has forced their debtors to resolve their outstanding dues.