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The National Company Law Tribunal approved a repayment plan offering Rs 6.25 crore to creditors, plus Rs 25 lakh towards process costs, against admitted claims of about Rs 22,006.57 crore in the personal insolvency of Zee Group founder Subhash Chandra.
The order has revived concerns over deep haircuts under the Insolvency and Bankruptcy Code, 2016 and over the integrity of the creditor-voting process.
The Government's position is that resolution, not recovery, is the primary objective of the IBC, and that comparing realisation with total admitted claims exaggerates the apparent haircut.
Banks have flagged weaknesses in asset identification, the absence of uniform valuation methodologies and excessive reliance on liquidation value over enterprise value.
The term haircut is not defined anywhere in the IBC; in banking usage it means the reduction in the value recognised against a lender's claim or collateral.
The IBC created a time-bound framework for dealing with financially distressed entities through either resolution or liquidation. A financial creditor approaches the National Company Law Tribunal to initiate proceedings; a Resolution Professional takes charge of the process; and at least two registered valuers assess the debtor's assets. They arrive at three distinct figures: the fair value, being the estimated value of the assets in their present condition; the liquidation value, being what the assets would realise if sold, generally through liquidation; and the enterprise value, being the economic worth of the business as a going concern. Prospective resolution applicants then submit plans, the Committee of Creditors evaluates and votes on them, and a plan carried by the requisite majority goes to the NCLT for final approval. The design intent is to preserve the value of a viable enterprise rather than to maximise immediate cash recovery.
Simple Analogy: It is the difference between selling a working bakery to someone who will keep baking and selling its ovens for scrap. The scrap price is the floor, but the whole point of the process is to find the buyer who values the bakery running.
| Question | Government's position | Banks' concern |
|---|---|---|
| What is the IBC for? | Resolution, not recovery: preserving a viable enterprise is the primary objective | Creditors' realisations have fallen too far to be explained by design intent alone |
| Is the haircut overstated? | Admitted claims include accrued interest on NPAs and loans that have already lost economic value, so mechanical comparison exaggerates the haircut | Even allowing for that, realisations point to under-valuation of assets |
| What about valuation? | Post-resolution equity value is not fully captured in conventional recovery calculations | Assets are inadequately identified, methodologies are not uniform, reports diverge and liquidation value is relied on excessively |
| Has the IBC worked? | It has improved credit discipline and contributed to the decline in banks' gross NPAs | Transparency in the conduct of valuers and auditors is insufficient |
GS Paper 3 > Indian Economy > Banking sector reforms, mobilisation of resources, non-performing assets
General Awareness > Insolvency and Bankruptcy Code, NPAs, Recovery Mechanisms
General Awareness > Economy
Not defined in the IBC. In banking usage, the reduction in the value recognised against a lender's claim or collateral.
The body of financial creditors that evaluates and votes on resolution plans; a plan carried by the requisite majority is placed before the NCLT for approval.
The value expected to be realised if the debtor's assets are sold, generally through liquidation; it functions as a floor, not as the target of the process.
The insolvency professional who takes charge of the corporate debtor and runs the resolution process under the IBC.