Parliamentary Panel Urges Reforms as Insolvency Process Slows
The insolvency landscape in India has shown signs of slowing down during the September 2025 quarter, with a notable decline in the resolution to liquidation ratio. This figure dropped to 0.7x, down from 0.9x in both the previous quarter and the same period last year. Lender recoveries have also decreased, with only 25% of claims being realized. A parliamentary panel has proposed reforms aimed at expediting approvals, enhancing transparency, and improving recovery rates amidst these challenges.
Declining Recovery Rates and Lengthening Timelines
The latest data reveals a concerning trend in the insolvency resolution process. In the second quarter of FY26, the average resolution timelines for financial creditors extended to 729 days, while operational creditors faced even longer waits of 739 days. Corporate debtors experienced a slightly shorter timeline of 627 days. The recovery rates for operational creditors remained stagnant at 25%, marking the lowest level recorded to date. Meanwhile, recoveries for corporate debtors hovered around 18%. Financial creditors saw a slight improvement, with recoveries rising to 33%, up from 31% a year earlier. However, this figure has remained within a narrow band of 31-34% since FY23.
Liquidation processes have also worsened, with timelines stretching to 526 days for financial creditors and 527 days for operational creditors. The overall recovery rates have plummeted to their lowest since FY21, with liquidation becoming the predominant method of closure, accounting for 43% of cases. Alarmingly, the percentage of ongoing corporate insolvency resolution process (CIRP) cases exceeding 270 days increased to 77% in Q2FY26, up from 71% in the previous quarter.
Systemic Bottlenecks Persist
Despite ongoing reforms, systemic bottlenecks continue to hinder the insolvency process. A report from India Ratings highlights several persistent issues, including capacity constraints at adjudicating authorities, prolonged admission delays, frequent litigation, and inconsistent execution across various benches. These factors collectively undermine the value recovery process. The report emphasizes that recovery outcomes are more influenced by the quality of enforcement than by regulatory frameworks alone. To address these challenges, the report calls for faster implementation of reforms, adequate staffing at the National Companies Law Tribunal (NCLT), and strict adherence to statutory deadlines.
Parliamentary Recommendations for Reform
In response to the ongoing challenges in the insolvency framework, the Parliamentary Standing Committee on Finance has proposed several key changes. The committee has identified capacity pressures faced by the National Company Law Tribunal and its appellate tribunal, urging the government to increase the number of benches, fill existing vacancies, and enhance operational efficiency. Additionally, the committee has suggested the establishment of temporary fast-track courts to address the backlog and reduce resolution timelines.
To better support homebuyers, the committee has recommended revising eligibility rules to ensure that concessions granted to the committee of creditors are beneficial. It has also urged collaboration between the corporate affairs ministry and other relevant departments, such as housing and urban affairs, to create provisions that assist homebuyers and resolve regulatory overlaps.
Observer Voice is the one stop site for National, International news, Sports, Editor’s Choice, Art/culture contents, Quotes and much more. We also cover historical contents. Historical contents includes World History, Indian History, and what happened today. The website also covers Entertainment across the India and World.
