In her recent budget statement, Finance Minister Nirmala Sitharaman lauded the Insolvency and Bankruptcy Code, 2016 (IBC), celebrating it as a new-age miracle. With over 1,000 companies resolved and a whopping Rs. 3.3 trillion recovered, it seems the IBC is finally hitting its stride – or at least that is the optimistic narrative. The average resolution time may have been trimmed, but it still lingers beyond the ideal 270-day mark set by the IBC. Further, while the recovery rate has seen a boost, it remains as unpredictable as a lottery draw, heavily dependent on the quirks of each individual case.

The Finance Minister’s enthusiasm for expanding the National Company Law Tribunals across India echoes a desire to address the more elusive elements of the IBC’s journey. While the improvements are tangible, they may not fully capture the intricate and often less-visible struggles of the insolvency process. The insolvency process remains a labyrinthine journey, riddled with cumbersome procedures that seem to defy the very efficiency they were designed to address. Insolvency proceedings often become a protracted saga of bureaucratic red tape, involving a myriad of intermediaries from insolvency professionals to legal advisors each contributing to a mountain of paperwork.

Cases like the Lanco Infratech insolvency highlight this complexity, where delays have stretched well beyond the prescribed timelines, largely due to protracted negotiations and voluminous documentation. Such instances underscore how the process, intended to streamline resolution, can instead morph into an endurance test of patience and pertinence. Adding to this tangled web, stakeholders frequently encounter opaque practices that obscure asset ownership and financial transactions, leaving them in the dark about critical details. The lack of transparency often results in disputes over asset concealment and fraudulent activities, which further prejudice the fairness of proceedings.

In many prominent instances, such as the VMC Systems scandal, allegations of fraudulent transactions and concealed assets have not only delayed resolution but also eroded trust in the system. These challenges highlight the need for continued reform and vigilance to ensure that the IBC’s promise of fairness and efficiency in insolvency process is fulfilled. In a country where blockchain has been hailed as the magic fix for a lot of things from election tampering to land record glitches, one might ask if this tech marvel could also rescue the struggling insolvency regime. Since its introduction in India via the Digital India initiative and the National Blockchain Framework, blockchain has proven useful in enhancing transparency and tamper-proofing records.

So, why not explore if its immutable ledger and decentralised nature could address the inefficiencies plaguing the insolvency proceedings? The immutable ledger that blockchain offers ensures transaction records are as tamper-proof as a digital Fort Knox. This is not just theoretical – it serves as a substantial safeguard against fraud and discrepancies. Consider a scenario under Section 28 of the IBC, where the resolution professional must manage the corporate debtor’s assets. Currently, this process is often bogged down by inconsistencies. Now, picture blockchain stepping in as the meticulous librarian of financial records. Every transaction is recorded immutably, making it impossible to alter past entries without leaving a conspicuous trail.

This would prevent disputes, such as a situation where a company claims its asset valuation was mishandled due to ‘clerical errors’ blockchain would render such excuses implausible, if not outright extinct. By providing an unalterable record of all transactions, blockchain could transform asset management from a chaotic ordeal into a transparent, dispute-free process. Smart contracts could revolutionize the IBC process by automating key aspects of insolvency proceedings. Under Section 25 of the IBC, which outlines the powers and duties of the resolution professional, the introduction of smart contracts could streamline creditor verification and asset distribution by automatically enforcing rules. Imagine a scenario where a resolution professional is spared the tedious task of manually verifying claims and distributing assets. Instead, smart contracts handle these tasks, minimizing delays and reducing human error. This would ensure compliance with the IBC’s procedural requirements and greatly enhance efficiency. Asset tokenisation could also alleviate the complexities associated with traditional asset transfers. Imagine a scenario where the lengthy valuation and transfer processes that bog down cases are replaced with swift, blockchain-based solutions.

Instead of manual verification and cumbersome paperwork, assets will be represented as digital tokens on the blockchain. This allows for real-time tracking and instantaneous transfers, cutting through bureaucratic red tape with the efficiency of a hot knife through butter. While some might fear that blockchain could lead to job losses, history suggests otherwise. Much like how the ATM did not obliterate bank tellers but instead allowed them to focus on more complex tasks, blockchain could reduce administrative burdens while augmenting human roles in meaningful ways. With lower cost and enhanced efficiency, the future of insolvency proceedings could be as streamlined and transparent as the technology itself. In an era where digital innovation meets the courtroom, blockchain technology is making waves in the realm of insolvency, much like the allegory of Plato’s cave where what we perceive as shadows might soon be revealed as the real thing. Singapore’s pilot programmes for creditor voting, Australia’s exploration of asset tracking, and the European Union’s cross-border harmonisation projects all hint at a future where blockchain could illuminate the dark corners of insolvency proceedings.

Yet, even the brightest light can cast shadows. While blockchain promises efficiency and transparency, it is not a panacea. The IBC’s achievements are arguably commendable, but technology must be tempered with the wisdom of a well-enforced legal system. We must tread carefully, balancing our enthusiasm with the knowledge that progress, like enlightenment, requires both light and reflection.

(The writer is an advocate at Delhi High Court.)