IBC or SARFAESI: choosing the right resolution path
When does the Insolvency and Bankruptcy Code beat SARFAESI, and when does it bleed value? A 15-minute decision framework for recovery heads.
The honest answer is: it depends on the borrower, the collateral, and how patient you are. Recovery heads who treat IBC as an automatic upgrade over SARFAESI usually regret it. Recovery heads who never touch IBC leave money on the table. Here is how we think about the trade-off.
Three questions, in order
First, is there meaningful collateral and is it identifiable? If yes, SARFAESI is almost always faster and cheaper. Second, is the borrower a going concern with operational value beyond the collateral — running plants, contracts, working capital cycles? If yes, IBC unlocks value SARFAESI cannot. Third, what is the cohort of creditors? If you are alone, SARFAESI. If you are one of many, the Committee of Creditors process under IBC gives you collective leverage.
Where SARFAESI wins
Single-secured creditor. Identifiable collateral. Borrower is uncooperative but not strategically valuable. Median resolution under SARFAESI in our portfolio: 7–11 months, recovery rate 38–52% on collateral value. The process is solitary; you control timing. The downside is that you only recover up to what the collateral fetches.
Where IBC wins
Operational businesses where the going-concern value exceeds the asset sale value. Cases with multiple lenders. Borrowers who respond to the prospect of admission. The latest IBBI data shows resolved cases averaging 86% of admitted claims when a successful resolution plan exists, against 32% in liquidation. The catch: only one in three CIRP admissions ends in a resolution plan; the rest go to liquidation, where recovery and timeline both compress.
The 15-minute decision
Score the file on five axes: collateral coverage, going-concern strength, creditor concentration, borrower behaviour, and your own bandwidth. If collateral coverage is below 60% but going-concern strength is high, IBC. If collateral coverage is above 80% and going-concern strength is low, SARFAESI. If both are strong, run SARFAESI and keep IBC as a credible threat. If both are weak, mediate.
A note on parallel proceedings
Initiating both is legal but operationally costly. SARFAESI is automatically stayed once a CIRP is admitted under Section 14 of the IBC. Most teams who file both end up running IBC by default, regardless of intent. Pick one with eyes open.
Recovery is not the same as resolution. Pick the path that fits the borrower in front of you, not the one your peers are running this quarter.