Bankruptcy proceedings initiated by vendors and suppliers over unpaid dues from large companies are in focus after the insolvency court admitted a plea against wire and cable maker Polycab India on 7 October over an alleged operational debt of ₹2.79 crore claimed by supplier Asier Metals.
The admission raised concerns among bankruptcy lawyers, given Polycab’s strong financial position, with a net cash balance of ₹4,194 crore and shareholders’ net worth of ₹12,009 crore in FY26. On 9 October, the National Company Law Appellate Tribunal (NCLAT) stayed the admission order passed against Polycab by the Ahmedabad bench of the National Company Law Tribunal (NCLT).
Insolvency experts said such cases highlight how proceedings can exert commercial pressure on companies even when the amount claimed is relatively small compared with their financial position.
“The case highlights an important concern in the existing IBC (Insolvency and Bankruptcy Code) framework. Even a financially sound company may find itself facing insolvency proceedings over a relatively small operational debt,” said Pooja Chakrabarti, partner at Argus Partners.
Amir Bavani, founder of AB Legal, Hyderabad, stated that the IBC was never intended as a debt-recovery tool, though it is frequently leveraged to compel companies into settling payments.
“While the inherent ethos of the code has always been to shun recovery tactics, it is true that IBC proceedings are more often than not employed as a pressure tactic to induce repayment,” Bavani said.
Under the IBC, an operational creditor can initiate insolvency proceedings for a default of at least ₹1 crore, subject to statutory requirements and the absence of a genuine pre-existing dispute over the debt. Operational creditors include suppliers, vendors and service providers, many of which are micro, small and medium enterprises (MSMEs).
For listed companies, admission into the corporate insolvency resolution process (CIRP) can trigger regulatory disclosures and affect investor confidence, lender relationships and business operations.
“The possibility of insolvency proceedings being used as leverage in commercial payment disputes is a legitimate concern. The consequences of admission can create substantial commercial pressure on a corporate debtor to settle outstanding claims, even where the amount involved is relatively modest,” said Vidya K., partner at King Stubb & Kasiva.
Legal limits
Data from the Insolvency and Bankruptcy Board of India show that operational creditors had initiated 4,162 insolvency proceedings as of 30 June 2026. Of these, 893 were withdrawn, 930 were closed following appeal, review or settlement, 452 resulted in approved resolution plans, and 1,271 led to liquidation. Another 616 remain ongoing.
Courts have also cautioned against using the IBC merely to recover money. In April 2026, the Supreme Court said while hearing Anjani Technoplast Ltd v. Shubh Gautam that the insolvency process “must be reserved for cases of genuine insolvency or financial distress, not for the enforcement of money decrees”. The case concerned a financial creditor’s petition under Section 7 of the IBC.
In May 2025, the NCLAT dismissed an appeal by supplier SNJ Synthetics against India over alleged dues of about ₹1.97 crore, including interest, holding that the IBC could not be used as a debt-recovery tool in the circumstances.
Yogendra Aldak, executive partner at Lakshmikumaran & Sridharan, said listed companies should respond promptly to insolvency proceedings, maintain documentation of disputed claims and take timely legal action, including appeals where warranted.
For smaller businesses, delayed payments can threaten day-to-day operations as suppliers struggle to meet wages, financing costs and production expenses. Insolvency proceedings can bring their grievances against large buyers into focus, but do not guarantee recovery.
“For a small business, ₹2 crore to ₹5 crore can mean its entire working capital, wages, bank repayments and ability to continue production,” said Vinod Kumar, president of India SME Forum.
“For an MSME, initiating insolvency proceedings does not guarantee payment. The supplier may incur legal costs and face delays, and ultimately recover less than the amount owed. At the same time, the buyer and its wider supplier network can face substantial disruption. The IBC is a consequential legal remedy, not a guaranteed debt-collection strategy,” Kumar added.
Policy reforms
To address such disputes, the government amended the Micro, Small and Medium Enterprises Development Act, 2006, via the Amendment Act, 2026, passed in August. The updated legislation establishes strict timelines for mediation and , introduces online dispute resolution, and strengthens the enforcement of settlements and arbitral awards. It also allows state governments to set up multiple micro and small enterprises facilitation councils (MSEFCs) to expedite delayed-payment disputes for eligible micro and small enterprises.
The MSME Samadhaan portal, launched in October 2017, allows eligible enterprises to file delayed-payment complaints and track claims referred to MSEFCs. The government’s 2025-26 annual report said 256,892 applications involving ₹55,244.31 crore had been filed on the portal between its launch and 31 December 2025. Of these, 24,238 applications involving ₹3,018.37 crore had been resolved through mutual settlements, while 52,744 applications involving ₹8,397.25 crore awaited review by MSEFCs.
Anil Bharadwaj, secretary general of FISME, said the experience with MSEFCs has been mixed, as arbitration awards are frequently challenged in court. Even with a favourable ruling, enterprises must file separate execution proceedings to recover funds, adding time and cost. “In practice, it is the threat of taking a defaulter to the IBC which makes many MSMEs try to exercise this option,” Bharadwaj said.
Lawyers have also highlighted the trade receivables discounting system (TReDS), an RBI-regulated platform that helps MSMEs obtain financing against accepted invoices, thereby easing working-capital pressures.
However, Kumar from the Forum noted that only 37% of micro and small enterprises facing unpaid dues access a formal grievance-redressal mechanism, such as Samadhaan or the online dispute resolution portal. The remaining businesses simply write off their dues, he added.
Polycab, the Insolvency and Bankruptcy Board of India and the MSME ministry were yet to respond to Mint’s queries at the time of publishing.