EVOLUTION OF INSOLVENCY LAW IN INDIA: FROM SICA AND SARFAESI TO IBC 2016
AUTHOR – ANANYA SHARMA, STUDENT AT SYMBIOSIS LAW SCHOOL, HYDERABAD
BEST CITATION – ANANYA SHARMA, EVOLUTION OF INSOLVENCY LAW IN INDIA: FROM SICA AND SARFAESI TO IBC 2016, INDIAN JOURNAL OF LEGAL REVIEW (IJLR), 5 (12) OF 2025, PG. 721-727, APIS – 3920 – 0001 & ISSN – 2583-2344
INTRODUCTION
In legal terms, insolvency refers to a situation when an individual or an organisation is unable to meet their financial obligations to a person. Such a situation happens when one’s liabilities or debts exceed one’s assets. It can occur due to a lack of cash flow, poor financial management, unexpected expenses, etc. When one becomes insolvent, it can lead to serious repercussions, such as bankruptcy, liquidation, or restructuring of one’s assets. According to Black’s Law Dictionary, insolvency is “The condition of a person who is insolvent; inability to pay one’s debts; lack of means to pay one’s debts. Such a relative condition of a man’s assets and liabilities that the former, if all made immediately available, would not be sufficient to discharge the latter. Or the condition of a person who is unable to pay his debts as they fall due, or in the usual course of trade and business.”[1]
In India, insolvency is governed by the “Insolvency and Bankruptcy Code, 2016”[2] in the present times. The Code creates a consolidated framework for governing both insolvency and bankruptcy proceedings in India, for both individuals and organisations.
Before the IBC there was the “Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002”[3] which was preceded by the “Sick Industrial Companies (Special Provisions) Act, 1985”[4]. The IBC created a time-bound and a comprehensive framework for governing insolvency matters in India, unlike SICA and SARFARESI which were narrower in scope. SICA did not provide for a mechanism which would help in timely disposal of cases, and SARFARESI focused more on benefiting the lenders than the borrowers. THE IBC brought a strict set of timelines, and did not only focus on repaying the creditors, but also reviving sick companies who had the potential to regrow.
[1] Insolvency, The Law Dictionary, https://thelawdictionary.org/insolvency/ (last visited Sept. 4, 2025).
[2] Insolvency and Bankruptcy Code, No. 31 of 2016 (India).
[3] Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, No. 54 of 2002 (India).
[4] Sick Industrial Companies (Special Provisions) Act, No. 1 of 1986 (India).