IBC vs DRT — When to File Insolvency Instead of Recovery
In short: use the DRT to recover a debt from a borrower who can pay; use the IBC to resolve a genuinely distressed company where the default is ₹1 crore or more. The IBC is not a recovery tool — admission imposes a Section 14 moratorium that freezes DRT and SARFAESI alike and hands control to the Committee of Creditors. Choosing wrongly can stall, not speed, recovery.
| Basis | IBC 2016 (CIRP) | DRT (RDB Act 1993) |
|---|---|---|
| Governing statute | Insolvency and Bankruptcy Code, 2016 | RDB Act, 1993 |
| Forum | NCLT / NCLAT | DRT / DRAT |
| Objective | Resolution of the company (or liquidation) — not mere recovery | Recovery of a specific debt by a Recovery Certificate |
| Nature | Collective — binds all creditors (Committee of Creditors) | Individual — one creditor’s claim |
| Minimum default | ₹1 crore (notified 24 Mar 2020) | ₹20 lakh |
| Who can file | Financial creditor (s.7), operational creditor (s.9) | Banks and financial institutions |
| Debtor | Corporate person (company / LLP) | Any borrower (incl. individuals, firms) |
| Moratorium | Yes — Section 14 freezes DRT, SARFAESI, suits | No moratorium |
| Control after admission | Resolution professional + Committee of Creditors | Creditor retains its action |
| Outer timeline | 330 days (180 + 90 + litigation) | 12–24 months (OA) |
Thresholds and procedure are as per the IBC 2016 (and the 24 March 2020 ₹1 crore notification) and the RDB Act 1993; confirm the current position for a specific matter.
Frequently Asked Questions
What is the core difference between IBC and DRT?
The DRT (under the RDB Act 1993) is an individual-creditor recovery remedy — one creditor obtains a Recovery Certificate against the borrower. The IBC (Insolvency and Bankruptcy Code 2016) is a collective insolvency-resolution process before the NCLT — once admitted, it imposes a moratorium that freezes all individual recovery actions (including DRT and SARFAESI) and seeks to resolve the company through a resolution plan, or liquidate it. The Supreme Court has repeatedly held that the IBC is not a recovery mechanism (Swiss Ribbons, Mobilox); it is a resolution/insolvency process.
What is the minimum default to file under IBC?
A financial creditor (or operational creditor) can trigger the Corporate Insolvency Resolution Process (CIRP) under the IBC only where the default is ₹1 crore or more — the threshold notified by the Central Government on 24 March 2020 (raised from the original ₹1 lakh). The DRT, by contrast, has jurisdiction over debts of ₹20 lakh and above. For defaults between ₹20 lakh and under ₹1 crore, the IBC route is unavailable and the DRT (and SARFAESI, if secured) are the operative remedies.
Does filing IBC stop a pending DRT case?
Yes — once the NCLT admits a CIRP petition, Section 14 of the IBC imposes a moratorium that stays the institution or continuation of suits and proceedings against the corporate debtor, including DRT Original Applications and SARFAESI enforcement, for the duration of the CIRP. This is a critical strategic consequence: admission of an IBC petition pauses every individual creditor’s recovery action and channels all claims through the resolution process and the Committee of Creditors.
When should a financial creditor choose IBC over the DRT?
Choose the IBC where the borrower is a company (or an LLP) in genuine financial distress, the default is ₹1 crore or more, and a time-bound resolution — change of management, a resolution plan, or liquidation — is the realistic path to value. Choose the DRT where the objective is to recover from a borrower who has the means to pay, where guarantors must be pursued for a personal decree, or where the borrower is not a corporate person. The IBC is powerful but blunt: admission triggers the moratorium and cedes control to the resolution professional and the Committee of Creditors.
Is IBC faster than DRT?
The IBC sets a statutory outer limit for the CIRP of 330 days (an initial 180 days, extendable by 90, with the outer limit including litigation). The DRT targets disposal of an Original Application typically within 12–24 months. In headline terms the IBC timeline is tighter, but the IBC produces a resolution plan or liquidation across the whole company, whereas the DRT produces a Recovery Certificate enforceable by a single creditor. They answer different questions: resolution of the enterprise versus recovery of one debt.
Related: IBC / NCLT practice · DRT proceedings · SARFAESI vs DRT · NPA recovery strategy. For forum selection on a specific account, contact Unified Chambers and Associates at legal@unifiedchambers.com or +91 84008 60008.