IBC Is Not A Corporate Death Warrant; Resolution Is Its Primary Objective: Justice Sanjeev Sachdeva

Supreme Court judge Justice Sanjeev Sachdeva on Tuesday said that the Insolvency and Bankruptcy Code should not be viewed as "a corporate death warrant," emphasising that its primary objective is the revival of financially distressed companies through resolution rather than liquidation.

Speaking at the launch of IBC Mantra: The Law & Practice of the Insolvency and Bankruptcy Code, authored by Senior Advocate Tarun Gulati and Advocate Kumar Sambhav, Justice Sachdeva said the enactment of the IBC marked a "tectonic shift" in India's insolvency framework.

According to him, it replaced a fragmented regime with a unified, creditor-in-control system.

"A common misconception is that IBC is a corporate death warrant. It is not. The primary object of IBC is resolution, not liquidation. Liquidation, in fact, is the last resort," he said.

Explaining the rationale behind the Code, Justice Sachdeva said India lacked an effective mechanism for the orderly resolution of distressed businesses before the IBC came into force in 2016.

Multiple overlapping laws resulted in prolonged litigation, eroded asset value, and left creditors struggling to recover their dues, contributing to mounting non-performing assets.

"For life to thrive, old and decaying matter must efficiently clear away to return nutrients to the soil. For decades, the Indian economic system lacked this vital clearing mechanism," he said.

He said the introduction of the IBC fundamentally transformed the insolvency regime.

"Everything changed in 2016. The introduction of the IBC marked a tectonic shift in India's economic history. It replaced a fragmented century-old framework with a single unified law."

Justice Sachdeva also said that the Code introduced a paradigm shift by replacing the debtor-in-possession model with a creditor-in-control framework.

"The moment a company defaults and enters the corporate insolvency resolution process, control shifts from a defaulting promoter to an independent professional."

He said one of the Code's most revolutionary features was its strict timeline for completing the corporate insolvency resolution process. According to him, the time-bound mechanism prevents asset stripping and preserves economic value.

Justice Sachdeva said the Code seeks to preserve businesses as going concerns instead of shutting them down.

He observed that a company is not merely a collection of buildings and machinery but a living entity that provides employment, pays taxes, and contributes to the economy.

Justice Sachdeva also said the IBC had significantly altered corporate behaviour by encouraging financial discipline among borrowers.

"IBC has a very powerful behavioural effect. The fear of losing control over a company has forced promoters to become more disciplined. Thousands of debtors have settled their defaults before IBC notices are issued or before the matter reaches the NCLT."

At the same time, he acknowledged that the insolvency framework continues to face institutional challenges and called for strengthening infrastructure and stakeholder capacity.

"Digital infrastructure has to be upgraded, and the commercial wisdom of the Committee of Creditors has to be improved. Government has been proactive, but we as stakeholders have to be more proactive.", he said.

Also speaking at the event, Delhi High Court Chief Justice Devendra Kumar Upadhyaya described the Insolvency and Bankruptcy Code as a transformative reform that has fundamentally changed India's approach to corporate insolvency by prioritising timely resolution over prolonged recovery proceedings. He said:

"The Insolvency and Bankruptcy Code represents one of the most significant economic and legal reforms in independent India. It fundamentally altered the approach to financial distress by shifting the focus from prolonged recovery proceedings to timely resolution."

Chief Justice Upadhyaya also highlighted that the insolvency regime continues to evolve and identified several issues that would shape its future development.

He remarked, "Questions relating to delays in resolution, maximisation of value, cross-border insolvency, group insolvency, treatment of personal guarantors and emerging issues arising from technological and financial innovation continue to shape the future development of insolvency law."

The event was attended by Supreme Court judges Justice Vikram Nath and Justice Manmohan; former Supreme Court judges Justice Pankaj Mithal and Justice Sudhanshu Dhulia, former NCLAT President Justice Ashok Bhushan, Delhi High Court Bar Association President N. Hariharan; and the book's authors, Senior Advocate Tarun Gulati and Advocate Kumar Sambhav, besides senior advocates and members of the Bar.