Bankruptcy resolutions peak in FY25, creditors recover over ₹67,000 crore

New Delhi: Creditors and investors salvaged a record number of 284 companies from bankruptcy in FY25 under provisions of the Insolvency and Bankruptcy Code (IBC), as per data from the National Company Law Tribunal (NCLT).

This improvement comes as the government filled vacancies in bankruptcy tribunals and the sector’s regulator continued refining rules to enhance the efficiency of the corporate turnaround ecosystem.

Creditors stand to recover over ₹67,000 crore from these transactions in the recently concluded financial year, a 42% increase compared to the amount recoverable from the turnaround of 275 companies achieved in the same period last year, the data showed.

This development also comes amid improving outcomes under IBC—the key policy tool for repairing the balance sheets of lenders and corporations, which is a priority for the NDA government that is banking on a fresh cycle of private investments to bolster economic growth and create jobs.

According to the data, as of the end of March, there were only three vacant positions in the 63-member tribunal overseeing bankruptcy cases and company law-related matters, marking a significant improvement in strength after a series of retirements. On 4 October 2022, Mint reported that NCLT had only 28 members then. The tribunal had only 43 members as of end of September last year.

NCLT president Justice Ramalingam Sudhakar had last year highlighted the need for manpower capacity addition in the tribunal, at the Insolvency and Bankruptcy Board of India’s (IBBI) annual day. “Give me the numbers, I will give you the result,”he said then, Mint reported on 1 October last year.

The uptick in successful resolutions under the IBC reflects maturing institutional capacity, growing creditor confidence and the strengthening of IBC jurisprudence, said Yogendra Aldak, Partner at Lakshmikumaran and SridharanAttorneys.

Improved recovery

Developments such as the introduction of mediation, pre-packaged insolvency scheme for micro, small and medium enterprises and landmark Supreme Court rulings on personal guarantor liability and on rejection of delayed claims post-corporate insolvency resolution process have laid the groundwork for faster, more efficient resolutions, said Aldak.

The amount recoverable from bankruptcy resolutions achieved in FY25 is second only to the ₹1.19 trillion reported recoverable from 81 corporate turnaround cases in FY19. That year witnessed the debt resolution of Essar Steel India Ltd. after a joint venture between the world’s largest steelmaker ArcelorMittal and Japan’s Nippon Steel Corp. acquired the company for ₹42,785 crore under IBC proceedings.

Karvy Data Management Services Ltd, Era Infra Engineering Ltd, Sks Power Generation (Chhattisgarh) Ltd, Lanco Amarkantak Power Ltd, Coastal Energen Pvt. Ltd and Metalyst Forgings Ltd, are among the companies that have got debt resolution plans cleared by NCLT in FY25, as per data available from Insolvency and Bankruptcy Board of India (IBBI), the sector’s rule maker and regulator of professionals.

In each of these cases, creditors stand to realise more than ₹1,000 crore of their dues. In the case of Lanco Amarkantak Power, the realisable value reported by IBBI is ₹4,101 crore.

Experts also said that persistent litigation challenges such as appeals, interlocutory applications, delayed claims, and even invocation of writ jurisdiction continue to disrupt bankruptcy resolution timelines even after a resolution plan has been approved by the distressed company’s committee of creditors.

“To improve outcomes, a targeted approach is required to ensure stricter adjudication timelines, increase in the number of dedicated and technical benches, and faster mechanisms for collation of claims,” said Aldak of Lakshmikumaran and SridharanAttorneys. “Going forward, it is essential that the Code evolves in line with commercial realities, enabling a synchronous quantitative and qualitative improvement in resolutions.”

On Wednesday, NCLT president Sudhakar, during the hearing of the resolution plan for Bhushan Power & Steel Ltd, spoke about the need to increase tribunal's sanctioned strength above its existing strength and add new benches.

Also Read: Where are the members?' NCLT on Bhushan Steel resolution review

Streamlined insolvency code

To be sure, IBBI has made a series of changes to streamline the implementation of the insolvency code. In February, the regulator allowed administrators of bankrupt companies to hand over apartments, buildings or land to owners, even when the debt resolution process is still on, subject to riders including approval by two-thirds of the lenders. Last year, the regulator allowed administrators to explore the sale of individual projects of distressed real estate developers with the approval of creditors.

The regulator also made asset auctions centralised over an electronic platform set up by state-run banks and streamlined regulations to make resolution professionals more accountable. In 2022, the IBBI had allowed institutions to function as individual insolvency professionals to administer sick companies, as a professional team can bring diverse skills to the task.

However, major regulatory amendment proposals are still making their way through government consultations. These include proposals for a creditor-led debt resolution scheme for larger companies under which the bulk of the negotiations and paperwork will be done out of court and a cross-border insolvency regime and a framework for resolving the distress of a group of companies in one go. In a creditor-led resolution scheme, the existing management responsible for the payment default continues in charge of the affairs of the company. This feature is at present available for micro, small and medium-sized companies as defined under the MSME Development Act.