AI will make business cycles more frequent, increase stressed assets: Sahoo

Former IBBI chief M S Sahoo said AI will make business cycles more frequent and sharp, increasing stressed assets and adding to the insolvency ecosystem's load

Artificial intelligence (AI) will make business cycles more frequent and sharp, leading to many more stressed assets coming into the market, MS Sahoo, first chairperson of the Insolvency and Bankruptcy Board of India (IBBI), said at the Business Standard Dialogue.

 

Speaking on ten years of the Insolvency and Bankruptcy Code (IBC) and the impact AI would have on the future of the Code, the former IBBI chief said, “This (AI) will actually increase the load on the ecosystem.”

 

Highlighting the poor treatment of micro, small and medium enterprises (MSMEs), which are operational creditors under the IBC, Sahoo said, “MSMEs are practically getting zero amount as of today... That is a big concern, and there is a fundamental mistake in the law and its understanding.”

   

Unlike financial creditors, operational creditors (OCs) fall into four categories, and each sits at a different level in the waterfall mechanism, which determines the priority of distribution of recovered amounts. The highest level is the workmen, followed by employees, government dues, and, lastly, supply vendors and MSMEs.

 

Criticising the misuse of powers by financial creditors and the concept of commercial wisdom, Sahoo said, “95 per cent of OCs have business wisdom and 95 per cent of financial creditors do not have business wisdom. Their (FCs) job is to increase the size of the pie, not to divide it.”

 

He said that resolution plans and liquidation are both equally efficacious ways of resolving stress, but the number of days being taken for resolving cases is the biggest deficiency in the system as of now.

 

Realisations under the IBC as a percentage of admitted claims stood at 30.56 per cent as of March 2026, against 32.8 per cent last year. As a percentage of liquidation value, the realisations have declined from 170 per cent as of March 2025 to 167 per cent as of March 2026, according to IBBI data.

 

Sahoo stressed the need to increase the capacity of National Company Law Tribunal (NCLT) benches by adopting a systematic approach and analysing the workload. For instance, the current sanctioned strength of the NCLT at 63, he said, was decided on an ad-hoc basis.

 

The NCLT, originally formed to deal with only Companies Act matters, has been dealing with the additional workload of the IBC without any increase in its capacity.

 

“We always come up with an adhoc number, and we don't even fill up that number. The process of our selection and eligibility is such that we want only retired people to come for three years, unlike in the US where it is 14 years…NCLT have all the handicaps they have, but still we want them to deliver,” Sahoo said.

 

He suggested that there was a need to change the recruitment system for the NCLT to get better talent. “If you are given a job for three years and we know how much money you are paying, no one, even a small advocate, has any incentive to come here,” Sahoo added.

 

Against sanctioned posts of one president and 62 members, the “in-position” strength of the NCLT as of February 14, 2026, was 53, according to a standing committee report.