The National Company Law Appellate Tribunal (NCLAT) will hear on Tuesday a challenge by several financial institutions against the National Company Law Tribunal's (NCLT) approval of a repayment plan submitted by Essel Group founder Subhash Chandra in his personal insolvency proceedings.
The appeal was mentioned before the appellate tribunal on Monday by Solicitor General Tushar Mehta, representing lenders including LIC Housing Finance, HDFC Bank and Union Bank of India. The NCLAT agreed to list the matter for hearing on Tuesday.
The lenders are seeking to overturn an NCLT order that allows Chandra to settle claims admitted in his personal insolvency proceedings with a payment of Rs 6.25 crore to creditors, besides Rs 25 lakh towards the insolvency process. The admitted claims before the tribunal stood at about Rs 22,006.57 crore.
The proposed payout amounts to roughly 0.03 per cent of the admitted claims, implying a recovery shortfall of nearly 99.97 per cent.
"There are two or three important questions to which are decided you know and if those findings are correct then my lord, possibly we will be having complete loss of intent and purpose of Insolvency and Bankruptcy Code(IBC)," Mehta told the appellate tribunal while seeking an urgent hearing.
Background of the Insolvency Proceedings
The proceedings against Chandra originated in 2022 when Indiabulls Housing Finance approached the NCLT under Section 95 of the Insolvency and Bankruptcy Code (IBC) in relation to a personal guarantee given by Chandra for a corporate borrowing.
The Rs 22,006.57 crore amount does not represent loans personally taken by Chandra. It relates to personal guarantees he provided for loans raised by Essel Group companies. When the principal borrowers defaulted, creditors invoked the guarantees and filed claims against Chandra.
Chandra disputed the headline figure, stating that the claims attributable to him as a personal guarantor were substantially lower, around Rs 3,992 crore. His side said several underlying borrowers have already repaid substantial sums, and remaining liabilities should be recovered from the borrowing companies. Chandra has also maintained that some creditors filed claims even after receiving their entire dues.
Lenders' Opposition and NCLT Stay
Several creditors opposed the repayment proposal before the NCLT. HDFC Bank, Axis Bank, Canara Bank, RBL Bank and Union Bank of India were among those that voted against the plan. Despite this, the proposal secured 80.81 per cent support in the committee of creditors.
Dissenting lenders questioned the voting entitlement of certain financial creditors, including Veena Investments, Direct Media Investments, Lemonade Capital Advisors and Corpcall Capital Advisors, alleging they are connected to Chandra or his family.
LIC Housing Finance led the opposition to the repayment plan, calling it "unviable and illegal". Against its admitted claim of Rs 1,322.39 crore, the lender was reportedly offered only Rs 38.09 lakh. HDFC Bank expects to recover only about 2 per cent of its claim under the plan.
In a related development, a five-member bench of the NCLT has stayed the approval of Chandra's repayment plan. The bench, headed by NCLT President Justice Anoopinder Singh Grewal, observed that the August 25 order did not reflect a clear majority opinion, as the three members who had considered the case earlier expressed different views. Judicial member Ashok Kumar Bhardwaj supported approving the plan only for consenting creditors; technical member Reena Sinha Puri rejected it because of procedural deficiencies, while member Nilesh Sharma approved it with modifications.
The tribunal also restrained Chandra from directly or indirectly selling, transferring or creating third-party rights over any of his assets. Notices have been issued to all parties concerned.
The stay means Chandra cannot presently dispose of his assets, while the proposed settlement remains suspended pending further proceedings.
What's Next
The NCLAT will hear the lenders' challenge on Tuesday. The outcome could have significant implications for the enforcement of personal guarantees under the IBC.