The IBC And The Power Sector Paradox: Examining The Suitability Of The Indian Insolvency Framework For Financially Distressed DISCOMs
- IJLLR Journal
- Dec 26, 2025
- 2 min read
Kartikey Mishra, Advocate, High Court of Madhya Pradesh
ABSTRACT
India’s power distribution sector has remained in a state of persistent financial distress despite repeated government bailouts and reform initiatives. Power Distribution Companies (DISCOMs) continue to accumulate substantial losses and debt, raising serious concerns about the effectiveness of existing legal mechanisms to address their insolvency. The Insolvency and Bankruptcy Code, 2016 (IBC) was enacted to provide a time- bound and efficient framework for resolving corporate insolvency; however, its application to DISCOMs has remained largely theoretical, with no significant or successful insolvency resolution proceedings to date. This paper examines the suitability and efficacy of the IBC framework in addressing the financial distress of DISCOMs within India’s heavily regulated power sector. The study analyses the unique regulatory, political, and operational characteristics of DISCOMs that distinguish them from conventional corporate debtors. It highlights how factors such as state control, politically influenced tariff determination, regulatory approvals, delayed subsidy disbursements, and the essential public utility nature of electricity supply complicate insolvency resolution under a market-driven framework like the IBC. Through a doctrinal analysis of insolvency law and electricity regulation, supported by sectoral data and policy reports, the paper demonstrates that insolvency in the power distribution sector is not merely a financial issue but one deeply rooted in governance and regulatory design. The paper further explores whether sector-specific insolvency frameworks or calibrated modifications within the IBC are required to address these challenges effectively. It evaluates alternative mechanisms, including sectoral financial restructuring, regulatory-led interventions, and the use of non-insolvency recovery tools such as the SARFAESI Act. The study concludes that a uniform insolvency framework may be ill-suited for DISCOMs and argues for a differentiated approach that balances creditor interests with public service obligations and sectoral realities
