By: Yohaa Muruganantham
1. Introduction
The Insolvency and Bankruptcy Code, 2016 (“IBC”) was enacted to consolidate and amend the laws relating to the reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner. Its stated objectives include maximising the value of the debtor’s assets and balancing the interests of all stakeholders; the Supreme Court has emphasised that the IBC is not a mere recovery legislation (Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17).
However, individual insolvency poses a distinct problem: creditors wish to recover their dues, while the debtor often does not have sufficient assets to meet those liabilities. Although creditors are legally entitled to recover what they are owed, that entitlement may yield little in practice. This article refers to this gap between legal entitlement and actual recovery as the “enforcement paradox”.
A recent illustration of the enforcement paradox can be found in the personal insolvency proceedings relating to Dr Subhash Chandra, the founder of the Essel Group and the Zee Group.
2. Individual Insolvency under the IBC
Part III of the IBC (Sections 78 to 187) governs the insolvency and bankruptcy of individuals and partnership firms. It provides for three processes: the fresh start process, the insolvency resolution process (which culminates in a repayment plan), and bankruptcy.
However, these provisions have been brought into force only in part. Provisions relating to personal guarantors to corporate debtors came into force on 1 December 2019, whereas the remaining provisions, which would govern other individuals and partnership firms, are yet to be notified. The Supreme Court upheld the validity of the notification bringing the personal guarantor provisions into force in Lalit Kumar Jain v. Union of India, (2021) 9 SCC 321, and held that the approval of a resolution plan for a corporate debtor does not, by itself, discharge a personal guarantor’s liability. Part III has since been amended by the Insolvency and Bankruptcy Code (Amendment) Act, 2026 which, among other things, provides that no interim moratorium arises on an application against a personal guarantor to a corporate debtor, and introduces a provision addressing transactions that defraud creditors.
Therefore, individuals other than personal guarantors cannot use the IBC framework at all. Their insolvency is still governed by the Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920, because Section 243 of the IBC, which repeals those statutes, has not been brought into force. Creditors are therefore left to pursue fragmented recovery proceedings, while debtors in genuine distress have no practical route to a structured resolution or discharge.
3. The Subhash Chandra (Zee Group) Case
The proceedings against Dr Subhash Chandra illustrate the challenges facing India’s individual insolvency framework. In 2022, Indiabulls Housing Finance Limited (now Sammaan Capital Limited) filed an application under Section 95 of the IBC to initiate the insolvency resolution process against him in his capacity as personal guarantor for loans advanced to Vivek Infracon Private Limited. The National Company Law Tribunal (“NCLT”), New Delhi, admitted the application on 22 April 2024. In August 2026, after the two members of the NCLT bench differed and the matter was referred to a third member under Section 419(5) of the Companies Act, 2013, the third member favoured approval of a repayment plan supported by creditors holding approximately 80.8% of the voting share. Under the plan, the creditors would receive only about ₹6.25 crore (with a further ₹25 lakh towards process costs) against admitted claims of approximately ₹22,006.57 crore, a recovery of less than 0.03%. However, on 1 September 2026, a newly constituted five-member bench of the NCLT stayed the approval and restrained Dr Chandra from alienating his properties. Dr Chandra has challenged that order before the National Company Law Appellate Tribunal (“NCLAT”), and certain dissenting creditors have separately challenged the approval. The NCLAT has reportedly listed the matter for hearing on 29 and 30 October 2026. The repayment plan therefore cannot yet be regarded as final. The question that arises is: what can creditors do to recover their dues when the repayment amount is a small fraction of the admitted claims?
Even if creditors can enforce a personal guarantee, that does not assure full recovery. The outcome will still depend on the guarantor’s actual means and assets, and on the outcome of any related litigation. The case also shows that repayment plans need to be rigorously scrutinised before approval, including as to the verification of claims, the valuation of the debtor’s assets and whether a plan approved by the requisite majority binds dissenting creditors, an issue on which the members of the NCLT reportedly differed. Creditors’ interests, the debtor’s ability to meet basic needs, and statutory requirements must all be weighed.
4. Key Issues in Individual Insolvency
The enforcement problem in India’s individual insolvency regime can be explained through three factors. Firstly, limited recovery: creditors may have a legitimate claim against the debtor, but may recover only a fraction of it. Secondly, lack of accessible mechanisms: individuals (other than personal guarantors) facing genuine financial difficulties have no access to a modern, structured process for the resolution and discharge of their debts. Thirdly, the need for balance: the law must weigh the protection of creditors’ interests against the need to give honest debtors a realistic way out of financial distress. These factors demonstrate that recovery-focused enforcement alone cannot resolve individual insolvency, and that a more coherent framework is required.
5. Suggestions for Improvement
The Central Government should notify the remaining provisions of Part III of the IBC, so that a comprehensive individual insolvency framework is available beyond personal guarantors. This process should be accessible, inexpensive, and open to individuals unable to pay their debts. Likewise, there should be well-defined standards for approving repayment plans and valuing the assets of the debtor. Creditors should have a fair opportunity to recover their dues, while debtors should have a structured means of repaying them. Lastly, the framework must include robust safeguards against concealment of assets and misuse of insolvency processes; the 2026 amendments, which address transactions that defraud creditors and penalise frivolous or vexatious proceedings under Part III, are a step in this direction, although their effectiveness will depend on implementation.
6. Conclusion
In India, the enforcement paradox in individual insolvency arises from the gap between the legal right to recover debts and its realisation in practice. The Subhash Chandra proceedings, in which admitted claims of over ₹22,000 crore stand against a proposed recovery of ₹6.25 crore, show how wide that gap can be. The answer lies not in restricting creditors’ rights or granting debtors indiscriminate relief, but in building an individual insolvency process that protects both creditors and debtors. An effective insolvency system must allow creditors to recover what is owed to them while enabling honest debtors to find a way out of their financial distress.
References
- Insolvency and Bankruptcy Code, 2016, particularly Part III, Sections 78–187
- Insolvency and Bankruptcy Code (Amendment) Act, 2026 (Act No. 6 of 2026).
- Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17, Supreme Court of India.
- Lalit Kumar Jain v. Union of India, (2021) 9 SCC 321, Supreme Court of India.
- Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920.
Indiabulls Housing Finance Limited (now Sammaan Capital Limited) v. Dr. Subhash Chandra, NCLT, New Delhi, C.P. (IB) No. 97(ND)/2022.
