Written by Mridul Kumar Chaurasia,
Intern-Lex Lumen Research Journal,
June 2025
Introduction: The Unseen Crisis Behind IBC’s Success
India pledged speed, certainty, and creditor empowerment in resolving corporate crisis when it passed the Insolvency and Bankruptcy Code in 2016. And, at least on paper, it did deliver to a great degree. More than 1,100 businesses had been successfully resolved as of the end of 2024, releasing approximately ₹3.55 lakh crore in value for stakeholders and financial creditors. According to these figures, a strong insolvency ecosystem was at last establishing itself.
A contrasting picture of service-based businesses fighting to survive in a system that does not acknowledge them, however, becomes apparent when spreadsheets and success measures are removed from the picture. The existing regime often ignores or undervalues businesses with talent, brand, goodwill, and client confidence but no physical assets. Despite all of its success, the IBC still thinks in terms of land, not attorneys, and steel, not software. This is where the structural weakness is.
The Asset Bias: When the Law Sees Bricks, Not Brains
The IBC was fundamentally built on an asset-heavy framework. Land, buildings, and equipment—physical assets that may be evaluated, sold, and used to recoup debts—are assumed to be present in a distressed company. However, this strategy fails when used with businesses in the service industry. Their essential value is found in intangible assets, such as talented teams, ongoing contracts, client goodwill, and intellectual property, regardless of whether they are consulting firms, ed-tech companies, or hospital chains.
Unfortunately, these specific elements are hard for the IBC framework to measure or manage. In actuality, valuation specialists who focus on “market value” frequently ignore or minimize these softer factors. Service providers receive fictitiously low evaluations as a result. Resolution applicants are reluctant. The bids do not line up. The Code’s inability to assess the enterprise’s worth is the grounds for the liquidation, not the fact that it is not viable.
Real-World Impact: Cases That Expose the Blind Spot
Consider the 2024 case of Maha Associated Hotels Ltd., a chain of upscale hotels that had debts of more than ₹75 crore when it joined CIRP. The approved resolution plan only collected ₹11.5 crore, which is an 85% haircut, despite running properties and a well-known brand. Why? According to the rationale of the Code, the resources that made the company viable—employees, brand, and client loyalty—were not “measurable.”
This is not a singular occurrence. Once a dominant force in the Indian education market, Educomp Solutions went bankrupt with a strong institutional presence and well-known brand. However, no bidder found value in the absence of asset-heavy infrastructure. The next step was liquidation. Hospitals, boutique legal firms, BPOs, and startups have all suffered similar outcomes.
These businesses are victims of a process that failed to recognize their strengths, not failed businesses.
Systemic Gaps: What the Data Tells Us
The narrative is supported by the numbers. By September 2024, there were more than 41,000 cases pending in India’s NCLTs, and liquidation orders were 2.5 times more common than successful resolution plans. Average creditor recovery, meanwhile, is still erratic. Despite frequently exceeding 160% of liquidation value, only 27% of all claims are recovered, even in cases where resolution plans are accepted.
The conclusion is unmistakable: true company potential, particularly intangible business potential, is difficult for the system to translate into economic recovery.
Global Comparisons: What India Can Learn
India is not the only country facing these issues; other legal systems have also changed. For instance, the United Kingdom understands how critical it is to safeguard parties other than secured creditors. Up to 5% of the recovered value is put aside for unsecured creditors, particularly employees, thanks to its “Prescribed Part.”
Singapore goes a step further. Prioritizing continuity, its insolvency regime permits debtor-in-possession finance and prepackaged resolution solutions. These systems are perfect for service companies, because the actual currency is contracts, team stability, and trust.
In contrast, India continues to approach its service-led economy with a mindset from the manufacturing period.
Procedural Fragility: Even the “Strong” Cases Are Shaky
Businesses with a lot of assets are not exempt. Citing deficiencies in the creditor process, the Supreme Court invalidated JSW Steel’s ₹19,700 crore resolution of Bhushan Power and Steel in May 2025. Financial markets were rocked by the court’s ruling six years after the plan was adopted, which weakened trust in the system’s finality.
What chance do intangible-rich service companies have if such ambiguity can thwart billion-dollar steel takeovers? Unless reforms catch up, the solution is not much.
Consequences Beyond the Courtroom
In addition to financial capital, jobs, lives, and public trust are sacrificed when service businesses collapse. Thousands of people’s access to healthcare is disrupted when a hospital closes due to insolvency, in addition to losing market share. Not only does an ed-tech platform that is abruptly shut down close, but it also disrupts the students’ education. In some industries, insolvency has a significantly greater social cost than it first seems.
Even worse, there is no social safety net provided by the current system—no statutory carve-outs for employee claims, no public impact consideration in CoC judgments, and no obligation for continuity planning. The rule is to be quiet.
What Reform Should Look Like
The first stage is to develop insolvency processes that are specific to the sector. You should not force a network of hospitals to adopt what works for a power plant. Specialized frameworks ought to direct the assessment, preservation, and restructuring of service businesses.
India too requires a revolution in value. Goodwill, continued client relationships, brand equity, and qualified staff must all be essential components of insolvency valuation. This entails training valuers, updating valuation standards, and requiring intangible asset disclosure in IBC reports.
The third requirement is that the system must accommodate hybrid and prepackaged insolvency resolution solutions. Allow service providers and creditors to develop restructuring plans as soon as possible, before a delay in the process destroys value.
Lastly, the impact on society must be significant. Similar to the UK’s Prescribed Part, India must enact laws protecting employee rights and contemplate the effects on stakeholders prior to liquidation is approved.
Conclusion: Seeing Beyond the Balance Sheet
In many respects, the IBC is a triumph. However, its persistent dependence on tangible assets causes it to ignore a developing fact: services, which are driven by people, are the engine of India’s economy. Ideas, brands, and trust.
We will continue to lose potentially profitable companies—not because they failed, but because the system overlooked them—unless the Code changes to acknowledge these factors as important.
References
In re JSW Steel Ltd., (2025) 5 S.C.C. 177 (India).
Maha Associated Hotels Ltd., Co. Pet. No. 284/2023, NCLT Mumbai Bench (Apr. 3, 2024) (India).
Insolvency and Bankruptcy Board of India, Quarterly Newsletter (Jan.–Mar. 2024), https://ibbi.gov.in/publications-newsletter.
UK Insolvency Act 1986, c. 45, § 176A (Eng.).
Insolvency, Restructuring and Dissolution Act 2018, No. 40 (Sing.).
Nikita Shikha & Rajat Parry, The Case for a Sectoral Approach to Insolvency Resolution in India, LIVEMINT, Feb. 6, 2023, https://www.livemint.com/opinion/columns/the-case-for-a-sectoral-approach-to-insolvency-resolution-in-india-11675664345678.html.
Vidhi Ctr. for Legal Policy, Analysis of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021, https://vidhilegalpolicy.in/research/analysis-of-ibc-amendment-ordinance-2021/.
Gov’t of India, Econ. Surv. 2023–24, vol. 1, ch. 6.
