When the cure becomes the disease

India’s insolvency framework is facing renewed scrutiny after a controversial personal-insolvency case involving Essel and Zee founder Subhash Chandra highlighted concerns over creditor recoveries, asset valuation and institutional transparency.

The National Company Law Tribunal has approved a repayment plan under which creditors would receive about $655,000 against admitted claims of roughly $2.31 billion, while around $26,000 has been allocated toward process expenses.

The recovery represents only about 0.03 per cent of the admitted claims, leaving creditors with an approximately 99.97 per cent haircut.

The plan was backed by creditors representing 80.81 per cent of the voting share, although institutions including LIC Housing Finance and HDFC Bank raised objections concerning its legality and viability.

Several lenders, including LIC Housing Finance, Canara Bank and Union Bank of India (UK), have reportedly moved or are preparing to move against the approval, while HDFC Bank has also been reported to be considering an appeal.

The case has attracted attention partly because Chandra’s liabilities were principally linked to personal guarantees provided for debts of Essel-associated companies rather than conventional personal borrowing.

Reports have also pointed to a significant gap between his currently disclosed wealth and earlier net-worth certificates submitted to lenders, raising questions about the movement, transfer and valuation of assets over time.

Chandra’s present disclosed net worth is estimated at about $3.33 million, including a residence valued at approximately $2.62 million, compared with earlier lender-related certificates that placed his net worth in the billions of dollars.

Those historical figures alone do not establish wrongdoing, concealment or diversion of assets, but they create an obvious demand for greater forensic scrutiny when billions of dollars in guaranteed claims are ultimately settled for a fraction of their value.

The political background has added another layer to the debate, as Chandra served in the Rajya Sabha as an independent member with BJP backing between 2016 and 2022.

There is no established evidence that political connections influenced the insolvency decision, but the case has intensified calls for stronger safeguards whenever financially significant individuals with political associations enter insolvency proceedings.

The wider performance of India’s Insolvency and Bankruptcy Code also complicates the picture.

According to IBBI data cited in the analysis, 203 large resolution cases involving claims above ₹1,000 crore had been approved by June 2026, with admitted claims of about $128.6 billion and creditor realisations of approximately $40.4 billion.

That translates into a recovery of around 31.35 per cent of admitted claims, meaning a substantial portion of the original claims was not recovered.

Across all 1,484 approved resolution plans, admitted claims were approximately $149.6 billion, while reported creditor realisation stood near $45.6 billion.

Supporters of the insolvency system argue that these figures should not be judged solely against admitted debt because insolvency often occurs after years of financial deterioration.

IBBI data shows that recoveries have generally exceeded estimated liquidation values, suggesting that the resolution process can preserve more value than simply selling distressed companies piecemeal.

Critics, however, argue that prolonged insolvency proceedings can themselves destroy economic value before a buyer finally takes control.

Factories can lose productive capacity, employees can leave, suppliers can withdraw support and valuable contracts can disappear while cases remain trapped in litigation.

This creates a difficult cycle in which declining asset values make heavily discounted bids appear successful simply because they exceed an already weakened liquidation benchmark.

Parliamentary committees have previously raised concerns about excessive haircuts, tribunal vacancies, litigation and delays in insolvency proceedings.

The average time taken to conclude approved resolution cases has also remained far above the timelines originally envisioned by the Code.

The central debate is therefore no longer simply whether large haircuts are acceptable. It is whether creditors, courts and insolvency professionals have enough independent information to establish why those haircuts occurred.

Greater disclosure of valuation assumptions, competing bids, related-party transactions, guarantees and creditor decision-making could make the process more transparent.

India may also need stronger forensic mechanisms for cases where a promoter’s apparent wealth has fallen dramatically before personal insolvency.

The objective of bankruptcy law is not to guarantee full recovery in every failure, but to ensure that losses are allocated through a process that is competitive, transparent and accountable.

The Chandra case has brought that unresolved question into sharp focus: when enormous claims collapse into tiny recoveries, the system must be capable of explaining not only what creditors received, but why so little value remained.