NCLT bars Subhash Chandra from selling assets as insolvency bench fails to reach majority

The National Company Law Tribunal (NCLT) on Tuesday issued notices to all parties in the personal insolvency case of Essel Group Chairman Subhash Chandra and directed him not to alienate his properties, either directly or indirectly, as it sought to examine the dispute over his repayment plan. The five-member special NCLT bench, headed by President Justice Anupinder Singh Grewal, said there was no majority view among its members and, therefore, no final order could yet be given effect to.

The bench said it wanted to hear all parties, including creditors who have opposed the repayment plan. "Let notice be issued to all the parties," the NCLT said. The bench also ordered, "We also direct that the guarantor shall not alienate the properties, either directly or indirectly." Justice Grewal said the tribunal was issuing notices to understand the scope of the matter before taking up the questions arising from the dispute at the next hearing.

A split bench and a third member's order

The latest development comes days after the NCLT approved a repayment plan under which creditors are expected to recover about Rs 6.25 crore from Chandra's personal estate, against claims of around Rs 22,006 crore. The matter had been referred to a Third Member after a two-member division bench comprising Ashok Kumar Bhardwaj (Member Judicial) and Reena Sinha Puri (Member Technical) delivered a split verdict on the repayment plan.

The Third Member's order dated August 26, which backed the Rs 6.5 crore repayment plan, was sent back to the original division bench for a formal order in line with the majority opinion, as required under Section 419(5) of the Companies Act, 2013. However, the division bench on Monday said no majority view has emerged despite reconsidering the matter, following a differing opinion from a Third Member of the tribunal, and referred the matter back to the NCLT President. The bench said the Third Member consciously passed an independent order.

While Member (Technical) rejected the plan, the Member (Judicial) confined the plan to those who accepted and approved it and accorded liberty to dissenting creditors to recover their debt. He did not extinguish the claim of banks/financial institutions/dissenting creditors with respect to the principal debtor or guarantor. The Third Member, however, approved the plan but extinguished the right of all the creditors by applying Section 115(1) of the Code uniformly, the bench noted.

NCLAT plea

Earlier on Tuesday, as a precautionary measure, dissenting lenders of Subhash Chandra moved the insolvency appellate tribunal NCLAT based on the Third Member's order approving a Rs 6.5 crore payment by the Essel Group chairman against creditor claims of about Rs 22,006.57 crore in his personal insolvency resolution process.

Solicitor General Tushar Mehta, appearing for LIC Housing Finance, mentioned the matter before an NCLAT bench comprising Officiating Chairperson Justice Yogesh Khanna and sought an urgent hearing in the second half of the day. The NCLAT agreed to list the matter for hearing on Wednesday. Mehta argued that allowing the order to continue would defeat the purpose of the Insolvency and Bankruptcy Code.

The dispute over the repayment plan

The dispute centres on Section 79(2)(g) of the IBC and its interplay with Section 115(1), which deals with approval of a repayment plan. In the original order, Member (Judicial) confined the repayment plan to creditors who accepted and approved it, allowing dissenting financial institutions and banks to recover their debt outside the plan. The Third Member, however, approved the plan but extinguished the claims of all creditors, including dissenting banks and financial institutions, against the personal guarantor by applying Section 115(1) uniformly to all creditors.

The Third Member's order rejected the claims of dissenting creditors led by LIC Housing Finance, which argued the payout was unlawful. The order noted that the resolution professional's valuation showed Chandra's personal estate was worth significantly less than the amount offered under the plan, and held that dissenting creditors were unlikely to recover more by rejecting the plan, as Chandra would face bankruptcy.

Chandra has maintained that the Rs 22,006 crore figure has been widely misunderstood. According to him, the amount represents claims arising from personal guarantees he had given for loans taken by companies associated with the Essel Group, rather than money he had personally borrowed.