In the recent past, various stakeholders including the Parliamentary Standing Committee on Finance, Reserve Bank of India (RBI) Governor Shaktikanta Das and India’s G-20 Sherpa Amitabh Kant have raised their concerns over the delays and called for a recovery impulse.

Fortunately, after eight years, as India’s insolvency regime matures, there is a change, with several recent cases challenging the narrative of poor recoveries.

Some big-ticket settlements, both early and more recently, show that creditors can recover far more than they anticipated – sometimes even more than their allowed claims.

When the IBC first came into force in 2016, cases such as Monnet Ispat (2018) and Alok Industries (2019) it made headlines, though not for the reasons lenders were celebrating. These cases involved significant haircuts, with creditors losing 70-90% of their admitted claims.

This painted a picture of IBCs as a system where creditors bore the brunt of insolvency, often walking away with a fraction of what they were owed. This led to calls for reform in the system’s design.

On the positive side, there have been successful cases such as Binani Cement (2018) and Essar Steel (2019) which provided the best possible outcome for all stakeholders, demonstrating that large recoveries were possible in valuable companies.

Creditors at Essar Steel, for example, have recovered nearly 90% of their admitted claims. UltraTech Cement’s resolution of Binani Cement resulted in over 100% recovery for creditors, including an important precedent of allowing interest to accrue during the resolution process.

While earlier examples set the stage, recent cases like SKS Power reinforce this change. In 2024, the resolution of SKS Power, acquired by Sarda Energy, saw a 100% recovery for creditors.

The National Company Law Appellate Tribunal (NCLAT) dismissed the appeals filed by competing bidders and upheld Sarda Energy’s resolution plan, ensuring full recovery of financial creditors.

One of the key developments that has gone relatively unnoticed is the willingness of the courts to let creditors receive more than their admitted claims.

Traditionally, the focus of insolvency resolutions has been on settling admitted claims, but some cases have shown that creditors can recover beyond this, if contractual terms are met.

In Binani cement case, for example, the resolution plan provided for 10% interest for financial creditors throughout the resolution period.

Similarly, in the more recent case of Sripriya Kumar (2023)financial creditors received more than those admitted ₹34.27 crore due to a penalty interest clause, eventually recovering ₹46 million.

NCLAT judgment in Sripriya Kumar If the moratorium did not waive interest payments, it may just have cleared a new path for creditors, reinforcing the sanctity of contracts.

These cases show that courts support creditors receiving additional payments where there are contractual obligations, highlighting that financial creditors do not always stick with the bare minimum.

A driving force behind this trend is the IBC’s respect for the commercial wisdom of the Committee of Creditors (CoC). Because financial creditors bear the greatest risk, the courts have deferred their decisions, whether it be a deep haircut or full recovery.

The decision of the Supreme Court in K. Sashidhar reinforced this principle, and courts continue to follow this approach, showing that they will not second-guess CoC unless there is a significant violation of the law.

While haircuts remain a reality in many cases, the ability of lenders to recover more than their allowed claims, or at least avoid significant losses, signals a promising new direction for IBCs.

The combination of courts honoring contractual terms and respecting the commercial decisions of CoCs and the strategic interests of settlement applicants has created room for hope in what was once seen as a harsh landscape for financial creditors.

In a regime once characterized by huge delays and steep financial losses, these cases highlight the potential for IBCs to deliver favorable outcomes, reshaping lenders’ expectations.

As pointed out by Chief Economic Adviser V. Anantha Nageswaran, sustained improvement in the operational efficiency of the debt resolution process under the IBC with faster resolutions is critical to achieving 7-8% economic growth.

He also highlighted the need for innovative resolution routes such as pre-packaged arrangements for micro, small and medium enterprises (MSMEs) to keep legal costs down, the importance of increased capacity in resolution professionals and the need to minimize delays in decision-making. .

When passed in 2016, India’s IBC Act was considered a major milestone for reforms to improve the ease of doing business. After eight years, it is time to review its operation for further improvements.

Dhanendra Kumar is the Chairman of Competition Advisory Services India LLP and former Chairman of the Competition Commission of India.