Thoughtful Regeneration

Building Sustainable Resolution Frameworks

Balancing Stakeholder Interests, Long-Term Viability, and Creditor Recovery in Distressed Asset Management

CFM ARC  |  Thoughtful Regeneration

The Right Call Is Rarely the Obvious One

India’s gross NPAs for scheduled commercial banks hit 2.15% in September 2025, a historic low. The financial press covered it as it deserved; everyone got a good story for the year. What got less attention, because clean balance sheets make for better headlines than what comes after them, is the harder question: what comes next?

Cleaning a balance sheet is the starting condition. The real work, the kind that determines whether value is created or permanently destroyed, begins the moment an Asset Reconstruction Company takes ownership. And the first discipline a serious ARC must exercise is resisting the pull toward a fast decision.

Not because speed is wrong. In distressed situations, speed is frequently everything. But the fastest decision and the right decision are not always the same thing. Confusing the two is one of the most consistent sources of value destruction in ARC-led resolution. It is also, if we are being honest, one of the most consistent sources of regret in the post-mortem.

The Hardest Trade-Off in the Room

The received wisdom is that going-concern resolution is almost always superior to liquidation. The data broadly supports this. But data does not make the call. You do.

Some businesses are not cyclically distressed. They are structurally broken. The market they served has changed. The cost base is permanently uncompetitive. In those cases, preserving the going concern at the cost of time and capital does not produce a better outcome. It produces a slower version of the same outcome, with more expense and more uncertainty along the way. More heroic effort, same destination.

As of December 2025, 33.4% of admitted IBC cases ended in liquidation. One reading of this is failure. A more precise reading is that a meaningful share of those assets were already economically hollow before admission: cases where value had been stripped over years and the NPA was simply the last act. Calling this a resolution framework failure is a bit like blaming the paramedics. The resolution framework cannot be fairly judged on liquidation rates alone without asking what was actually left to resolve.

Value Erosion Is Not Gradual. It Accelerates.

This is the mechanical reality that gives the cyclical-versus-structural question its urgency. A one-year delay from the point of default erodes recovery rates by 800 to 1,000 basis points. The decay is not linear. It accelerates as working capital dries up, skilled employees leave, customer relationships deteriorate, and the asset’s operational credibility erodes with each public filing. By the time the last capable manager has quietly updated their LinkedIn profile, you are working with a materially different asset from the one you thought you were acquiring.

The diagnostic window, the period between acquisition and committed strategy, must be treated as a high-cost resource, not a buffer. That is where the discipline of a sustainable resolution framework begins: rapid diagnosis of whether the distress is cyclical or structural, followed by committed execution of the right strategy for that specific asset.

These questions require rigorous techno-economic viability assessment, independent of any party with a financial stake in the outcome. The RBI’s minimum Net Owned Fund requirement of Rs. 300 crore for ARCs by March 2026 is structurally aligned with this logic: a well-capitalised ARC is not forced into premature liquidation to protect its own liquidity. It has the balance sheet to hold its position long enough for the right resolution to play out.

Key Design Choices: Short-Term vs. Sustainable Lens

Ruchi Soya: A Success Story With Uncomfortable Footnotes

When insolvency petitions were filed against Ruchi Soya Industries in September 2017, the scale of the problem was not in dispute. India’s largest edible oils company, home to brands like Nutrela and Mahakosh with genuine national reach, had accumulated roughly Rs. 12,000 crore in debt it could no longer service. The NCLT admitted the case in December 2017. What followed was two years of a process that produced a textbook outcome by one measure and a cautionary tale by several others.

The Bidding War Nobody Won Cleanly

Adani Wilmar emerged as the frontrunner with a bid of Rs. 5,500 crore and won CoC approval in August 2018. Patanjali Ayurved challenged the process, the timeline stretched considerably, and Adani eventually withdrew, having documented in writing that the asset had deteriorated because of the delays. Patanjali’s revised bid of Rs. 4,350 crore was eventually approved and the acquisition completed in December 2019, more than two years after the case was admitted. In resolution terms, that is not a delay. That is a geological epoch.

The gap between Adani’s Rs. 5,500 crore bid and Patanjali’s Rs. 4,350 crore outcome is Rs. 1,150 crore. That is a reasonable estimate of the value that evaporated while the process ran. It is also not a coincidence. The asset decay curve showed up in the final numbers, as it tends to.

What the Numbers Say

Secured financial creditors received roughly 48 paise in the rupee on their claims. Operational creditors, the suppliers and traders who had extended credit to keep Ruchi Soya’s factories running, received approximately 3 paise in the rupee. Three. That number has a way of staying with you.

Three Lessons the Case Left Behind

The first is the cost of delay, which was already covered above and needs no elaboration beyond this: it is never theoretical, and it always shows up.

The second is about what happens when a resolution plan distributes proceeds without thinking carefully about the nature of each creditor’s claim. DBS Bank held secured debt, meaning their loan was backed by specific collateral pledged by Ruchi Soya. When the CoC majority voted to split the available proceeds equally across all creditors, regardless of whether they held security or not, DBS ended up recovering less than what their collateral was actually worth. Under the IBC, secured creditors are entitled to at least liquidation value of their security. DBS took the matter to the Supreme Court. They won on the legal principle. But winning on appeal in a resolution case is the equivalent of being technically right at a dinner party: accurate, satisfying for about thirty seconds, and beside the point once you count what the fight cost in time and reputation for everyone involved.

The third is the signal that a 3-paise recovery sends to the market. Every supplier, farmer, and commodity trader operating in that ecosystem absorbed the Ruchi Soya number and adjusted their risk pricing accordingly. That signal does not expire when the case closes.

The Framework That Makes the Difference

If there is a thread running through everything the case studies, the recovery data, and the post-mortems have to say, it is this: the frameworks that produce defensible, durable outcomes are not more complex than the ones that don’t. They are more honest. Six principles account for most of the difference. None of them are surprising. What is surprising, fairly consistently, is how often they get skipped.

The pressures that push resolution frameworks toward short cuts are not imaginary. SR redemption timelines are real. CoC dynamics are real. The gap between what a framework should do and what a room full of creditors with different interests will actually agree to is very, very real. What distinguishes sustainable resolution is not that it pretends these pressures do not exist. It is that it accounts for them without being captured by them. That is the work. And on the cases where it actually comes together properly, it is, quietly, worth being proud of.