{"id":121690,"date":"2026-08-30T10:33:32","date_gmt":"2026-08-30T05:03:32","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=121690"},"modified":"2026-08-30T13:23:31","modified_gmt":"2026-08-30T07:53:31","slug":"ibc-and-the-haircut-debate","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/ibc-and-the-haircut-debate\/","title":{"rendered":"IBC and the \u201cHaircut\u201d Debate &#8211; Recovery, Resolution and Creditor Rights"},"content":{"rendered":"<h2 style=\"text-align: justify;\"><b>IBC and the \u201cHaircut\u201d Debate Latest News<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A recent National Company Law Tribunal (<\/span><b>NCLT<\/b><span style=\"font-weight: 400;\">) order concerning Zee Group founder Subhash Chandra has revived concerns over deep haircuts under the Insolvency and Bankruptcy Code (<\/span><b>IBC<\/b><span style=\"font-weight: 400;\">), <\/span><b>2016<\/b><span style=\"font-weight: 400;\">, as well as the integrity of the creditor-voting process.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The NCLT approved a repayment plan offering only \u20b96.25 crore against admitted claims of about \u20b922,006.57 crore, apart from \u20b925 lakh towards process costs.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The case has raised <\/span><b>questions <\/b><span style=\"font-weight: 400;\">about <\/span><b>asset valuation<\/b><span style=\"font-weight: 400;\">, admission of claims, related-party creditors, voting rights and the balance between resolution and recovery.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>IBC &#8211; How Does the Resolution Process Work?<\/b><\/h2>\n<ul>\n<li><span style=\"font-weight: 400;\">The IBC, 2016 created a <\/span><b>time-bound framework<\/b><span style=\"font-weight: 400;\"> for dealing with financially distressed companies through either resolution or liquidation.<\/span><\/li>\n<li><b>Broad process:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">A financial\/defaulting creditor approaches the NCLT for initiation of insolvency proceedings.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">A Resolution Professional (RP) takes charge of the process.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">At least two registered valuers assess the debtor&#8217;s assets.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><span style=\"font-weight: 400;\">They determine &#8211;<\/span>\n<ul>\n<li><b>Fair value<\/b><span style=\"font-weight: 400;\">: Estimated value of assets under their present condition.<\/span><\/li>\n<li><b>Liquidation value<\/b><span style=\"font-weight: 400;\">: Expected realisation if assets are sold, generally through liquidation.<\/span><\/li>\n<li><b>Enterprise value<\/b><span style=\"font-weight: 400;\">: Economic worth of the business as a going concern.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><span style=\"font-weight: 400;\">Prospective resolution applicants submit plans. The Committee of Creditors (CoC) evaluates and votes on the plan. A plan approved by the requisite majority is submitted to the NCLT for final approval.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Thus, IBC seeks to preserve the value of a viable enterprise rather than merely maximise immediate recovery.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>The \u201cHaircut\u201d Problem<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Haircut is<\/span><b> not defined <\/b><span style=\"font-weight: 400;\">in the IBC. In banking terminology, it broadly denotes the reduction in the value recognised against a lender&#8217;s claim or collateral.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">MCA data show that during FY2021-22 to FY2025-26, 1,077 cases were resolved under IBC, with creditors recovering around \u20b92.47 lakh crore\u2014an average recovery of roughly 29% of admitted claims.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>The 20% recovery in FY26<\/b><span style=\"font-weight: 400;\">, the lowest in the five-year period, has intensified the debate over whether IBC is adequately protecting creditors.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Resolution vs Recovery &#8211; Government\u2019s Position<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The government maintains that \u201c<\/span><b>resolution, not recovery<\/b><span style=\"font-weight: 400;\">\u201d is the primary objective of the IBC.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A creditor&#8217;s admitted claim may include accumulated interest on NPAs; loans that have already substantially lost economic value; guarantees relating to such loans; and liabilities that do not correspond to currently recoverable assets.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Therefore, comparing realisation mechanically with the total admitted claim may exaggerate the apparent haircut.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The government also argues that IBC has <\/span><b>improved credit discipline<\/b><span style=\"font-weight: 400;\"> and contributed to the decline in banks&#8217; Gross NPAs, while post-resolution equity value may not be captured fully in conventional recovery calculations.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Banks\u2019 Concerns &#8211; Valuation and Transparency\u00a0<\/b><\/h2>\n<ul>\n<li><span style=\"font-weight: 400;\">Banks have nevertheless highlighted concerns about excessive haircuts, particularly deficiencies in asset valuation.<\/span><\/li>\n<li><b>Key concerns:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Inadequate identification of assets.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Lack of uniform valuation methodologies.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Excessive reliance on liquidation value rather than enterprise\/going-concern value.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Divergence between valuation reports.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Insufficient transparency in the conduct of valuers and auditors.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><span style=\"font-weight: 400;\">SBI has argued for systems capable of better reflecting enterprise value, while Bank of Baroda emphasised that accurate and timely valuation is crucial for both creditor recovery and successful revival.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Indian Overseas Bank has pointed to the<\/span><b> absence of uniform sector-specific valuation<\/b><span style=\"font-weight: 400;\"> standards, which can produce substantially different estimates of the same company&#8217;s worth.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>IBC Still Performs Better Than Other Recovery Mechanisms<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Despite low recoveries, IBC has generally outperformed conventional debt-recovery mechanisms.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">In FY2024, recovery rates were 2% in Lok Adalats, 9.9% in Debt Recovery Tribunals (DRTs), 27.8% in SARFAESI, and 39% in IBC.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">In FY2024, it was 1.8% in Lok Adalats, 15.2% in DRTs, 24.7% in SARFAESI, and 28.3% in IBC.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>This distinction is important<\/b><span style=\"font-weight: 400;\">: IBC is primarily a resolution mechanism, whereas DRTs, Lok Adalats and SARFAESI are predominantly oriented towards enforcement and recovery.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Subhash Chandra Case &#8211; Why Is It Controversial?<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The controversy <\/span><b>goes beyond<\/b><span style=\"font-weight: 400;\"> the size of the haircut. Of 23 creditors participating in voting, the repayment plan received 80.814% of the votes, while banks opposing it collectively held only 19.186%.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Banks alleged that at least five entities supporting the plan were associate\/related parties of Chandra and therefore their votes should not have been counted.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Chandra&#8217;s office <\/span><b>rejected the allegation<\/b><span style=\"font-weight: 400;\">, arguing that certain entities were connected to Jawahar Goel and that their business interests had been separated from Chandra&#8217;s through a family business restructuring in 2008-09.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>NCLT\u2019s Serious Findings on Claim Verification<\/b><\/h2>\n<ul>\n<li><span style=\"font-weight: 400;\">The NCLT identified significant deficiencies in the admission of claims.<\/span><\/li>\n<li><b>1,260 questionable individual claims:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Claims filed through Anil Kumar and Sunil Jain, representing 960 and 300 individuals respectively, were admitted despite apparently inadequate documentary evidence.\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The tribunal criticised the RP for admitting such claims without adequate due diligence and verification.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Alleged related-party claims:<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">The tribunal also questioned claims associated with several entities, particularly where relationships with the personal guarantor appeared significant.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The NCLT also flagged allegations that some guarantees could have been collusive arrangements designed to create artificial liabilities.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Way Forward<\/b><\/h2>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">The case highlights the need to strengthen the IBC ecosystem through &#8211;<\/span><\/p>\n<ul>\n<li><b>Transparent <\/b><span style=\"font-weight: 400;\">and standardised valuation methodologies across sectors.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Greater emphasis on going-concern\/enterprise value where businesses remain viable.<\/span><\/li>\n<li><b>Stronger scrutiny<\/b><span style=\"font-weight: 400;\"> of related-party and associate-party claims.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Robust documentary verification before admitting claims.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Greater accountability of Resolution Professionals and valuers.<\/span><\/li>\n<li><b>Safeguards <\/b><span style=\"font-weight: 400;\">against artificial or collusive liabilities.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Faster resolution to prevent further erosion of stressed assets.<\/span><\/li>\n<li><b>Better monitoring<\/b><span style=\"font-weight: 400;\"> of creditor voting to preserve the integrity of the CoC process.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Conclusion<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The central issue is not simply whether a particular haircut is \u201chigh\u201d.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The real question is whether the IBC process maximises the economic value of a distressed enterprise while ensuring fair treatment of creditors and preventing manipulation of claims and voting rights.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A credible insolvency regime must therefore <\/span><b>balance resolution, value maximisation<\/b><span style=\"font-weight: 400;\">, recovery, transparency and credit discipline.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><b>Source: <\/b><strong><a href=\"https:\/\/indianexpress.com\/article\/explained\/explained-economics\/ibc-haircuts-explained-insolvency-recovery-valuation-10854159\/\" target=\"_blank\" rel=\"nofollow noopener\">IE |<\/a>\u00a0<a href=\"https:\/\/indianexpress.com\/article\/explained\/explained-economics\/subhash-chandra-insolvency-nclt-creditor-votes-claims-10854524\/\" target=\"_blank\" rel=\"nofollow noopener\">IE<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>IBC and the \u201cHaircut\u201d Debate resurfaces over deep haircuts under IBC 2016 and concerns over the integrity of the creditor-voting process.<\/p>\n","protected":false},"author":19,"featured_media":121711,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[9876,60,22,59],"class_list":["post-121690","post","type-post","status-publish","format-standard","has-post-thumbnail","category-upsc-mains-current-affairs","tag-ibc-and-the-haircut-debate","tag-mains-articles","tag-upsc-current-affairs","tag-upsc-mains-current-affairs","no-featured-image-padding"],"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/121690","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/19"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=121690"}],"version-history":[{"count":4,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/121690\/revisions"}],"predecessor-version":[{"id":121707,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/121690\/revisions\/121707"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/121711"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=121690"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=121690"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=121690"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}