The efficacy of the Insolvency and Bankruptcy Code is often measured by realisation value versus admitted claims. Critically analyse the reasons behind steep haircuts in India's insolvency resolution process.

Resolved cases under the IBC, 2016 have yielded creditors only about 33% of admitted claims, with haircuts of up to 95% in some resolutions [1][2]. The steepness reflects structural and procedural failures, but the metric itself needs careful reading.

Reasons for steep haircuts

• Delay-driven value erosion: CIRPs ending in a resolution plan take an average of 602 days against the Code's 330-day outer limit, and 78% of ongoing cases exceed 270 days [2]. A depreciating, idle firm fetches progressively less.
• Institutional capacity deficit: the Standing Committee on Finance (2021) found over 50% of NCLT's sanctioned strength vacant, with 71% of pending IBC cases beyond 180 days [1] — adjudicatory bottlenecks convert going concerns into scrap value.
• Late admission of already-eroded assets: firms enter insolvency after years of evergreening, so admitted claims include long-accumulated interest against depleted assets.
• Shallow distressed-asset market: few credible resolution applicants means weak bidding tension and low realisations.
• Creditor-democracy design: a plan cleared by the requisite majority binds dissenters. In the personal-guarantor track under the IBBI Regulations, 2019, a majority-approved repayment plan similarly binds minority creditors [3], and recent NCLT proceedings have raised concerns over related-party voting and inadequate claims verification by resolution professionals.

A critical counterview

• Realisation equals about 171% of liquidation value [2] — measured against what assets are actually worth, the IBC outperforms the alternative.
• "Admitted claims" is an inflated denominator, swelled by accrued interest and creditors joining after admission.
• The Code's larger gain is behavioural: debtor discipline and settlements before admission, which no recovery ratio captures.

Steep haircuts are therefore less an indictment of the Code's design than of delay and capacity gaps in its implementation. Filling NCLT vacancies, enforcing timelines, and operationalising the creditor-initiated, group and cross-border insolvency reforms proposed in 2025 [2] can raise realisations. Judged by value maximisation rather than book recovery, the IBC remains India's most effective credit-discipline instrument.