Threats of losing their companies have prompted a considerable number of promoters to settle their outstanding debts. Several companies have reportedly repaid their dues soon after lenders initiated cases with the National Company Law Tribunal (NCLT), driven by the fear of losing control over their businesses, according to the data from the Insolvency & Bankruptcy Board of India (IBBI).
NCLT benches have concluded 6,811 cases after admission, whereas 25,565 cases were closed before reaching the admission stage, marking a significant 3.7-fold difference.
Instances of creditors, banks, and suppliers swiftly recovering dues have been observed immediately after filing cases under the Insolvency & Bankruptcy Code (IBC), even before petitions are formally admitted.
Even post-admission, roughly 1,900 cases have seen closure due to withdrawal, appeals, reviews, or settlements. The IBBI has indicated that the credible threat posed by the code, implying a change in ownership, has significantly influenced debtor behaviour. Several debtors are taking steps to address distress in the early stages, including resolving defaults when repayment issues become imminent.
Operational creditors drive recovery
Various factors contributed to these rapid settlements which were struck after numerous cases of operational creditors – owed smaller dues compared to major banks – filed complaints. Promoters often clear these dues, which could have been outstanding for extended periods, due to their relatively smaller amounts. In cases where corporate insolvency resolution cases stemmed from defaults below Rs 1 crore, around 80% were initiated by operational creditors. On the other hand, when defaults exceeded Rs 10 crore, 80% of cases were triggered by financial creditors like banks, financial institutions, and homebuyers, especially in the real estate sector.
Once a petition gains admission to the NCLT, the tribunal appoints a resolution professional and a committee of creditors, leading to the removal of company promoters. Since the implementation of the law in 2016, settlements totalling over Rs 8.2 lakh crore have been disbursed as of May 2023. Notably, claims amounting to Rs 9.2 lakh crore have been made to the government, with Rs 2.9 lakh crore successfully recovered from 720 cases.
