Since the Insolvency and Bankruptcy Code (IBC) went into effect in late 2016, manufacturing has accounted for 38% of all such cases admitted until September 2023, while its share of settled cases has risen to 48%. According to the most recent Insolvency and Bankruptcy Board of India (IBBI) data, real estate accounted for 21% of accepted cases but only 15% of resolved cases.
This is a story about two industries: manufacturing and real estate. Together, the two industries account for three out of every five insolvency cases admitted in India, yet the outcomes have been dramatically different.
While both sectors are "asset-heavy," experts believe that stronger investor demand for manufacturing is the fundamental factor in resolutions. Furthermore, because of the enormous number of purchasers who have been granted financial creditor status under the IBC, the resolution of insolvent real estate enterprises has proven to be both complex and lengthy, they stated.
Several real estate developers are experiencing insolvency, including Jaypee, Unitech, Amrapali, Today Homes, Supertech, Logix, and Ajnara. Surprisingly, the proportion of construction in admitted and resolved cases was 12% and 11%, respectively.
Wholesale and retail commerce accounted for 10% of all insolvency cases approved until September 2023, followed by transport and power (3% each) and hotels (2%). Wholesale and retail commerce accounted for 7% of resolved claims, followed by power (5%), hotels (2%), and transportation (2% each).
According to the data, as of September 2023, the National Company Law Tribunal (NCLT) admitted 7,058 insolvency cases, 808 of which were resolved. In 2,249 cases, liquidation orders were issued, while 2,001 cases were in the process of being resolved. The remaining cases were either withdrawn or settled/closed on appeal, and so on.
Manoj Kumar, partner and head of M&A and insolvency resolution services at advisory firm Corporate Professionals Capital, stated that strained manufacturing businesses are an easy target for investors unless they have been very unwell for a long time. "Many investors (in the same sector) want to acquire these insolvent companies at a reasonable cost instead of going for green-field projects for capacity expansion for a variety of reasons, including the time-consuming land acquisition and environmental clearance processes," he added.
In the case of real estate, homebuyers' interests are frequently at odds with those of other creditors. This complicates the resolving process, according to Kumar. According to a Delhi-based insolvency specialist, the primary distinction between real estate and manufacturing is the amount of financial creditors. "Because there are so many financial creditors (homebuyers) in real estate, their individual weight is too small to influence outcomes." As a result, litigation is common in such circumstances. In the case of manufacturing units, however, the number of financial creditors on the committee of creditors is limited. As a result, reaching an agreement is easy. Of course, there is a bigger appetite for industrial enterprises than for real estate entities," he noted.
To speed up the resolution of real estate issues, the government is considering limiting the use of the IBC to only bankrupt projects and not the entire firm, including other solvent projects.