Chandra’s settlement comes as IBC turns 10, with bank haircuts at five-year high

Why in the News

The National Company Law Tribunal (NCLT) has approved a personal insolvency repayment plan under which Zee Group founder Subhash Chandra will pay Rs 6.5 crore against admitted claims of Rs 22,006.57 crore. That is a 99.97 per cent haircut, one of the highest in the history of the insolvency regime. It comes as the Insolvency and Bankruptcy Code, 2016 (IBC) completes ten years in force. Banks are considering an appeal before the National Company Law Appellate Tribunal (NCLAT). The dispute is whether the Code should be judged by what creditors recover or by whether a stressed asset is resolved at all.

What is a “haircut” under the Insolvency and Bankruptcy Code, 2016?

1. The term is not defined in the Code: The IBC nowhere defines a haircut. Banking practice uses the word for the percentage reduction in the value of an asset pledged as collateral, applied to protect the lender against loss.
2. What the Code was enacted to do: The IBC was enacted in 2016 to rescue companies under financial stress or heavy debt through resolution and repayment to creditors.
3. A creditor majority binds the minority: Once the required majority of creditors approves a repayment plan and the tribunal sanctions it, a dissenting creditor cannot walk away and demand a separate settlement.

Why has the Chandra order revived the haircut debate?

1. The size of the write down: The order of 25 August approved payment of Rs 6.5 crore to creditors, plus Rs 25 lakh towards the costs of the process.
2. The liability arises from personal guarantees: Much of the admitted claim relates to personal guarantees and indemnities given for borrowings by companies associated with the Essel Group.
3. The route is personal insolvency: The proceedings ran against the individual promoter as a personal guarantor rather than against a corporate debtor.
4. Lenders are weighing a challenge: Banks are considering an appeal against the approval before the NCLAT.

What does the recovery record under the Code look like?

1. Cases resolved and value realised: Between 2021-22 and 2025-26, 1,077 cases were resolved under the IBC, with a realisation of Rs 2.47 lakh crore for creditors.
2. The five year average: Average recovery against admitted claims across those five years was close to 29 per cent.
3. The year wise trend: Recovery was 24 per cent in 2021-22, 39 per cent in 2022-23, 28 per cent in 2023-24 and 37 per cent in 2024-25, before falling to 20 per cent in 2025-26, the lowest in five years.
4. What the figure means for a lender: A bank may hold claims running into thousands of crore rupees and receive only a fraction of what it is owed.

Why do the banks contest the vote that approved the plan?

1. The margin of approval: Twenty three creditors participated in the voting, and the plan was approved with 80.814 per cent of the votes cast in its favour.
2. Every bank voted against: The banks that opposed the plan held a combined vote share of only 19.186 per cent.
3. The related party allegation: Banks say at least five entities holding 61.78 per cent of the votes cast, all of which backed the plan, are linked to the debtor as associates or related parties.
4. The exclusion sought: A trustee company argued that the votes of an investment company and its two subsidiaries should not have been counted. A resolution professional is the person appointed to manage the affairs of an entity under insolvency and to facilitate its resolution.
5. The subsidiary argument: The debtor’s counsel argued that a parent company that is not itself an associate of the debtor cannot pass that classification to its downstream subsidiaries.
6. The debtor’s response: Chandra’s office rejected the allegation as inaccurate. It said the entities referenced belonged to a relative whose business interests were separated in 2008-09, and that they do not qualify as associate entities under the Code.

Is the Code meant to maximise recovery, or to resolve?

1. The government’s position: The Ministry of Corporate Affairs holds that the primary objective of the Code is resolution and not recovery.
2. Why claims are treated as the wrong benchmark: The Ministry told the standing committee on finance in December 2025 that the assets available on the ground are the better measure, since the market values what a company brings to the table and not what it owes.
3. What an admitted claim contains: A claim often includes a non performing asset (NPA) that may be fully written off, the interest on that asset, and both a loan and the guarantee given against it.
4. The value that is not counted: Realisation figures exclude the value that may come from equity holdings after a resolution.
5. The indirect gain claimed: The Code is credited with creating credit discipline, which has contributed to reducing the gross non performing assets of banks.
6. The banks’ counter: Banks argue that the problem lies in the valuation of stressed companies, that all assets should be included and properly valued, and that the process is opaque.
7. The valuation mechanism in dispute: At least two valuers are appointed to give a fair value and a liquidation value, based on records and physical examination of the assets. The Chairman of the State Bank of India told the standing committee that valuation should reflect enterprise value instead of liquidation value.

Challenges to the Insolvency and Bankruptcy Code, 2016

1. Delay erodes the value a resolution can fetch: A stressed company loses value for every year it stays unresolved, so the price a resolution applicant will pay falls with time. Eg. Videocon Industries was resolved in 2021 at about five per cent of admitted claims, and the NCLAT stayed the approved plan on that ground. Fix. Tie admission to a fixed outer date from the default so the asset reaches the market before it is stripped of value.
2. Liquidation remains a more common outcome than rescue: A large share of admitted cases ends in liquidation rather than in an approved resolution plan, which inverts the Code’s stated purpose. Eg. The Insolvency and Bankruptcy Board of India’s quarterly newsletters have consistently reported more closures by liquidation than by resolution. Fix. Extend the pre-packaged insolvency route, available to micro, small and medium enterprises since 2021, to larger firms so a rescue is negotiated before value is lost.
3. The individual insolvency framework is only partly in force: Part III of the Code was notified in December 2019 for personal guarantors to corporate debtors alone, and the remaining provisions for individuals and partnership firms have not been brought into force. Eg. A defaulting individual who is not a personal guarantor has no route under the Code at all. Fix. Notify the remaining Part III provisions along with a designated adjudicating forum for individual cases.

Conclusion

The appeal now being prepared will decide whether the disputed votes were correctly counted, and that is the next milestone in this case. Valuation is the point on which the recovery and resolution positions turn, and shifting stressed asset valuation to enterprise value is still only a suggestion before the committee.

Matching Previous Year Question

“[2017] Which of the following statements best describes the- term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’, recently seen in the news? (a) It is a procedure for considering ecological costs of developmental schemes formulated by the Government. (b) It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties. (c) It is a disinvestment plan of the Government regarding Central Public Sector Undertakings. (d) It is an important provision in ‘The Insolvency and Bankruptcy Code’ recently implemented by the Government. ANSWER: (b)”