Delayed Resolutions, Steep Haircuts: Is IBC Failing Companies And Creditors?

When a repayment plan of ₹6.5cr against total owed amount of ₹22,006cr triggered a public uproar in August, those who had been following the case for nearly four years were surprised.

After all, the creditors had approved the plan by a majority of more than 80%, that too about two years earlier.

The plan had been proposed by Subhash Chandra, the founder of the Essel Group, in a 2022 personal-guarantee insolvency case. By the time the plan reached creditors on October 17, 2024, the case had been through a Supreme Court intervention, a change in resolution professional (RP), and prolonged disputes over the composition of the committee of creditors (CoC). After all this back-and-forth, the majority of lenders had apparently decided that recovering whatever they could was better than holding out for a payout that might never come.

While time can soothe old wounds in life, it can have the opposite effect in bankruptcy. At least, it did in this case. The 99.97% haircut, described as a mundan by Congress leader Jairam Ramesh, turned an insolvency case that had largely run its course into a fresh public controversy.

Chandra, the banks, the government and even insolvency professionals became subjects of scrutiny and ridicule.

And within days of the controversy erupting, a fresh five-member NCLT bench was constituted to review the earlier order and stayed it soon after.

The case of India’s media tycoon is just a mirror of the overall Indian bankruptcy regime. Delay has become part of India’s ten-year-old Insolvency and Bankruptcy Code (IBC), 2016, and in corporate cases it defeats the code’s core purpose of helping creditors recover as much of their money as possible.

The IBC originally envisaged a 180-day process, extendable by another 90 days. The outer limit was later effectively capped at 330 days, including time spent in litigation.

On paper, that timeline is not unusually long compared with other major insolvency regimes. The US Chapter 11 system, for instance, has no comparable universal deadline for completing a restructuring, while the UK administration ordinarily runs for 12 months, although extensions are possible.

But, in practice, says Karan Sachdev of law firm Sachdev & Jain, the average time for approval of a resolution plan has crept up to 931 days, nearly two-and-a-half years.

An analysis of IBC recoveries by EY India, a consultancy, shows that once cases cross the 330-day mark, the amount recovered falls to about one-third of the claims, and beyond 600 days, recoveries decline below 30%.

“The delays are concentrated at three points: admission, where applications sit for months while the debtor contests the existence of a default; plan approval, where NCLT benches revisit commercial decisions of the CoC; and appeals, where a single objector can hold up an approved plan for years,” says Sachdev.

Appeal After Appeal

The major reason for such delays is litigation. During insolvency, disputes can move from the NCLT to the National Company Law Appellate Tribunal (NCLAT) and, depending on the issue, eventually to the high courts or Supreme Court.

The extreme delays caused by the labyrinthine processes and appeals can best be illustrated by the case of Jaypee Infratech. The real estate major entered insolvency in 2017 after IDBI Bank moved against it over unpaid dues.

Soon, thousands of homebuyers, who had advanced money for as-yet-undelivered flats, approached the Supreme Court to join the proceedings. In August 2018, the Court recognised their interests, paving the way for them to be treated as financial creditors.

After years of litigation, real estate developer Suraksha Group acquired Jaypee Infratech in 2024 for an upfront equity infusion of ₹250cr and commitment to complete the nearly 20,000 unfinished flats. To this day, the delivery has been dogged by delays, with the NCLT setting up a panel to monitor pending projects in February this year.

Bhushan Power and Steel is another such example, which went into insolvency in 2017 after running into trouble servicing its mounting debt. The process remained entan-gled in litigation even years after JSW Steel won the right to acquire the company in September 2019.

The NCLT approval was challenged in the NCLAT by the erstwhile promoters, several operational creditors and the Enforcement Directorate (ED). It was then dragged to the Supreme Court citing various procedural lapses and repayment delays.

In an unconventional decision, the court cancelled the acquisition—completed several years earlier—in 2025, before reversing that decision on review. The episode showed how prolonged litigation can put an entire resolution at risk.

Industry experts point out that an investor will be reluctant to put money into a distressed asset if, after winning an auction and implementing a resolution plan, the acquisition can remain vulnerable to years of litigation.

“Although the ruling was eventually recalled on review, the mere fact that such an outcome was possible is enough to keep global distressed-debt capital on the sidelines,” Sachdev says.

The Melting Ice Cube

Just two years before filing for insolvency in 2023, Wadia Group-owned airline Go First was planning an initial public offering. It wanted to raise ₹3,600cr on the back of being the second-largest Indian airline after IndiGo. But fate had something else planned.

Covid-19 deepened Go First’s losses, which reached ₹4,543cr by March 2023, alongside ₹3,513cr of debt. Engine failures also grounded nearly half its fleet. Despite months of mounting losses and operational stress, the airline and its owners waited until the crisis became public to file for insolvency. In the month preceding its insolvency filing, Go First cancelled 4,118 flights, affecting 77,500 passengers.

Finally, on May 2, 2023, the airline approached the NCLT for voluntary insolvency proceedings.

In many cases, promoters are reluctant to acknowledge distress, creditors often wait before pushing a company into insolvency, and potential investors can hesitate to buy a business that has entered IBC.

“Some promoters adopt an attitude that if they cannot retain the company, no other bidder should obtain meaningful value from it. Insolvency then becomes an emotional and ego-driven battle involving withheld information, objections and continuing litigation,” says Pranshu G, partner at chartered accountants Ashok Pranshu & Co.

While delays are widely recognised as the bane of the Indian legal system in many areas, when it comes to bankruptcy resolution, they can be lethal. The valuation of assets starts falling sharply once the company stops operating normally.

A company that could have been rescued eventually becomes a liquidation candidate, fetching the lowest possible value for its individual assets and machinery. “In insolvency, delay is not a procedural inconvenience: It decays value every single day,” says Sachdev.

Value destruction is not confined to the company and its lenders. In many cases, suppliers and other businesses that depend on payments from the distressed company become major casualties.

The problem is more severe in the case of large companies, whose bankruptcies can trigger a chain of financial problems across the ecosystem. “Nobody realises that itself can have a huge impact on the economy,” points out Neeha Nagpal, founder and managing partner at N & Company Legal.

Take Go First. When its lessors were barred from repossessing leased jets, it sent shockwaves through the aviation sector, making India less attractive to lessors. This is part of a larger pattern. The Insolvency and Bankruptcy Board of India (IBBI) data from 1,164 completed cases show creditors have claimed ₹11.5 lakh crore but recovered just ₹3.7 lakh crore, losing more than two-thirds of their claims.

Nearly half the cases ended with creditors recovering less than 20% of admitted claims. By comparison, World Bank data shows creditors in the US and Japan recovered more than 80 cents on the dollar.

Interestingly, Indian creditors recovered 71.6 cents in 2019, during the early years of the IBC. Since then, recoveries have deteriorated as case volumes surged.

Tushar Agarwal, founder and managing partner of law firm C.L.A.P. JURIS, argues that the high haircuts are not always caused by the IBC process.

By the time a company enters the process, he points out, it may have already lost customers, employees, working capital, licences, suppliers and market confidence, and its productive assets run down.

The insolvency process is aimed at preserving whatever value the company has left when it enters it. “It cannot recreate value already destroyed. Therefore, early identification and timely admission are critical to better recoveries,” says Rahul Hingmire, managing partner at Vis Legis Law Practice.

However, not all companies go through such value destruction: Businesses with strong brands, intellectual property, customer relationships or strategic assets can retain value even during distress. For example, DHFL, acquired by Piramal, and Bhushan Power and Steel under JSW, revived much of their earlier value.

The lesson, according to Hingmire, is not that business value cannot survive insolvency, but that the process must reach a solution before the business itself collapses. That, he says, is why speed has to be considered central to the IBC.

The IBC changed India’s insolvency architecture. It moved the system towards creditor control, introduced a moratorium, created a formal resolution process and attempted to make insolvency time-bound.

Today, the law is nearly a decade old, but the problems it was designed to solve remain stubbornly intractable. What the system needs now is fewer layers of appeal and more capacity at the tribunals.