Introduction

India’s growth is continuously rising despite of U.S tariff on the Indian economy as recently International Monetary Fund in its World Economic Outlook report released in October 2025 has stated “India’s GDP will grow faster than estimated earlier despite the impact of US tariffs on Indian economy” also it showed “India’s GDP growth rate for 2025-26 at 6.6 percent versus 6.4 per cent earlier. But the IMF has lowered its estimates by 20 basis points to 6.2 per cent for 2026-27.” While all these geopolitical incidents are going on in background India’s insolvency landscape is witnessing a noticeable rise in technology-based companies struggling with financial distress and especially after the sharp funding slowdown across the startup ecosystem. The Insolvency and Bankruptcy Board of India (IBBI) quarterly newsletter for April-June 2025 reports that 8,492 corporate insolvency resolution processes (CIRPs) have been admitted since the Code was introduced, as per Table 1 of the newsletter, it also presents sectoral distribution data for admission, appeal, review, settled, withdrawn and resolution plans. According to the same newsletter, it shows that IT, software, digital services, and technology-enabled companies form a significant share of all admitted cases, as illustrated in Figure 3 on Page 5. Moreover, it also states the mode of closure which shows that 57% of all closed CIRPs resulted in rescue outcomes such as resolution, settlement, or withdrawal, based on Figure 2 on the same page and all these figures indicate a growing space for investors and buyers to acquire distressed companies under the Insolvency and Bankruptcy Code (IBC), 2016. With tech development, India’s startups are also growing. Still, the major concern is that over 28,000 startups in India closed their doors in 2023-2024 as a result of financial problems which indicates the severity of struggles by India’s startup ecosystem additionally 23,000 workers were laid off across by nearly 82 Indian startups as the funding winter intensified and this led to noticeable uptick in distressed technology acquisitions as more investors utilise the IBC route to acquire struggling tech companies, as distress grows and digital assets become more affordable.

Rise of Distress in Tech Companies

India’s growing financial distress in the tech industry is increasing day by day, as technology companies in India are closely linked to the slowdown in private capital and changing market conditions. As reported by Business Standard that startup funding in India dropped by 72% in 2023 by further stating that “the funding had declined across all stages, with late-stage funding dropping over 73 per cent, followed by early-stage funding (70 per cent) and seed-stage funding (60 per cent). With this, India’s global ranking also dropped a place to 5th position in the list of the highest-funded geographies globally in 2023” which marks one of the sharpest contractions in the past few years. This decline directly affected the early-stage and growth-stage of tech-driven firms, which depend heavily on external investment to sustain their business operations. With a reduced amount of capital and limited funding availability from other sources, many tech companies are struggling to meet their recurring expenses, such as cloud infrastructure costs, software development expenses, and vendor payments, which increases the risk of default. In addition to this weaker funding, the technology industry as a whole experienced strong consolidation pressure. As per the Nasscom – Startup Report 2024, “funding fell to about USD 6 billion in 2023, a drop of nearly 67%, and tech-startup M&A activity declined by around 50%”. This contention is also supported by the KPMG Startup Ecosystem Report 2024, which similarly reports that many acquisitions in 2023 happened due to financial stress and rising operational costs and these conditions made several tech firms more vulnerable to creditor action and increased their presence in the IBC process.

Role of Digital Platforms and Market Trends in IBC Tech Acquisitions

The process of acquiring distressed tech companies under the IBC has been strongly supported by digital platforms. As the IBBI’s liquidation auction portal displays over 8,300 auction related records which includes auction notices and corrigenda, which shows the extensive use of e-auction system for felling assets under insolvency. These online platforms provide transparency and help investors which includes tech focused buyers also to ascertain and put their bid for assets efficiently. At the same time, global technology deal activity has remained steady as the EY Technology Services M&A Report 2023 states that over 740 tech-services M&A transactions in 2023 by highlighting sustained investor interest even in a weak market and this digital transparency under IBC and continued global demand for tech assets have made distressed technology acquisitions more attractive to investors in India.

Why Investors Prefer Acquiring Technology Companies Through the IBC Process

Investors are increasingly preferring to acquire distressed technology companies through the IBC because it offers clarity in legal protection and lower commercial risk compared to traditional negotiations. One of the major advantages is that acquisitions under the IBC provide a “clean slate,” as the National Company Law Tribunal (NCLT) approves the resolution plan and extinguishes past liabilities unless specifically included, and this gives a buyer a greater certainty. The Grant Thornton Annual Dealtracker, 2023 report states that India recorded 1,641 deals in 2023, with a total value of about USD 65.9 billion and in which technology-linked sectors remained active despite an overall decline in deal values, which indicates that investors are interested in technology assets has stayed strong even during weaker market conditions.

Another report by McKinsey’s “Cracking the Digital Code” further support this trend as it notes that 71% of global executives expect digital initiatives to increase company revenues over the next three years, and nearly half report that CEOs now directly sponsor digital programs, reflecting growing strategic importance because digital capabilities which have become very essential for acquiring distressed tech firms through the IBC allows investors to obtain platforms, software, and talent at a lower cost and with greater legal certainty. This combination of legal clarity, digital demand, and investor confidence has made IBC-driven tech acquisitions increasingly attractive in India.

Key Challenges in Acquiring Distressed Technology Companies

Despite growing interest in acquiring distressed technology companies under the IBC framework comes with several difficulties like ascertaining the value digital assets. Unlike physical assets the worth of software, intellectual property, user data and algorithms depends on usage, scalability and future revenue which make valuation highly subjective case to case basis as these assets do not have fixed market value. The report by KPMG, “KPMG M&A Outlook 2025” shows that valuation gaps are one the major reason for deal failure, cited by 34% of surveyed dealmakers which highlights how difficult it is for buyers and sellers to agree on the value of technology-driven companies and this challenge becomes even sharper in distressed cases where future revenue, , user retention, and product stability are uncertain. Another major issue is retention of key employees, as distressed tech firms often lose developers, engineers and product architects during insolvency proceedings which was also highlighted by The Deloitte Tech Trends 2025 report which notes that organisations face a persistent skills gap especially in advanced digital areas like AI, cloud and cybersecurity which makes it harder for buyers to stabilise a distressed tech business after acquisition. Additionally, compliance with Digital Personal Data Protection Act, 2023 which was notified on 14 November 2025 by the government adds pressure on investors because distressed tech companies often handle sensitive user data. These challenges show that while IBC provides a structured route for acquiring distressed tech companies and buyers still need to carefully assess valuation, talent stability and regulatory risks.

Future Prospects for Distressed Technology Acquisitions in India

The outlook for the distressed technology acquisitions under the IBC is positive because both market demand for tech and deal activity support such transactions. As per NASSCOM’s Strategic Review 2025, the Indian tech industry reached about USD 282.6 billion in FY2025 (including hardware) and is expected to approach USD 300 billion by FY2026 with exports of roughly USD 224.4 billion and growing domestic tech spending as all of which keep technology assets strategically valuable for buyers. At the same time, PwC in its mid-year analysis of both global and India shows that while global M&A volumes fell 9% in H1 2025 versus H1 2024, deal values rose 15% India’s deal volumes increased around 18%, with the TMT sector remaining active which mean trend is still strong buyer interest in tech assets even in uncertain markets. Taken together these rising long term demand for digital capabilities and ongoing deal activity make the IBC an increasingly viable route for acquiring distressed tech firms and provided buyers manage valuation, talent and data risks carefully.

Conclusion

The rise in distressed technology acquisitions under the IBC reflects both the pressures and the evolving opportunities in India’s digital economy but with slowdown in fundings, valuation gaps and operational challenges have pushed many tech companies toward financial distress still IBC continues to offer a predictable and transparent route for their revival or sale. Investors are drawn to this process because it provides clearer legal protection and cleaner ownership transfer and access to valuable digital assets at more reasonable costs. Simultaneously, India’s tech sector continues to grow and supported by long-term digital demand highlighted in recent NASSCOM reviews and global deal activity remains steady even amid uncertainty as shown in PwC’s 2025 outlook. We need improvements in digital auctions, better information systems and stronger regulatory oversight for making IBC transactions more efficient. While another challenge like employee retention, digital-asset valuation and data-compliance risks remain but overall ecosystem is becoming more investor-friendly and distressed technology acquisitions under the IBC are likely to play an increasingly important role in future market consolidation and technological development.