NCLT: Subhash Chandra Personal Guarantor Liability Reduction Approved

• The NCLT has approved a repayment plan for Essel Group founder Subhash Chandra, significantly reducing his personal guarantor liability.
• Creditors are set to recover approximately 0.028% of their original claims, representing a nearly 99.97% haircut of about ₹22,000 crore.
• The plan allocates ₹6.25 crore to creditors against admitted claims totaling over ₹22,006 crore, with an additional ₹25 lakh for resolution costs.
• Indiabulls Housing Finance (now Sammaan Capital) initiated the insolvency proceedings in 2022 under IBC Section 95 after a ₹170 crore loan guaranteed by Chandra defaulted.
• The NCLT's decision followed a split opinion among its members, with a third member ultimately favoring the plan's approval on August 25.

Creditors are set to recover only about 0.028% of their original claims, translating into a staggering haircut of approximately 99.97%, or nearly ₹22,000 crore.

In a significant development for insolvency proceedings in India, the National Company Law Tribunal (NCLT) has approved a repayment plan for Essel Group founder Subhash Chandra, drastically reducing his personal guarantor liability. This decision means creditors are set to recover only about 0.028% of their original claims, translating into a staggering haircut of approximately 99.97%, or nearly ₹22,000 crore.

The approved plan allocates a mere ₹6.25 crore to creditors against their total admitted claims, which stand at approximately ₹22,006.57 crore. This outcome highlights the NCLT's willingness to sanction repayment proposals that involve substantial reductions in creditor recoveries, particularly in cases involving personal guarantors under the Insolvency and Bankruptcy Code (IBC).

An additional sum of ₹25 lakh has been earmarked to cover the costs associated with the insolvency resolution process. While the NCLT has given its nod to this arrangement, the final recovery figure for creditors could still see adjustments, as the plan allows for the exclusion of certain claims that are deemed unsupported from the creditors' list.

The insolvency proceedings against Subhash Chandra, a prominent figure in the Indian business landscape, were initiated in 2022 by Indiabulls Housing Finance Limited, now known as Sammaan Capital. The financial institution moved the NCLT under Section 95 of the Insolvency and Bankruptcy Code (IBC) after a loan for which Chandra had acted as a personal guarantor turned sour.

Chandra had provided a personal guarantee for a ₹170 crore loan extended to Vivek Infracon. When this loan subsequently defaulted, Indiabulls Housing Finance pursued legal action to recover its dues, leading to the commencement of insolvency proceedings against the Essel Group founder. The NCLT formally admitted the plea in 2024, setting the stage for the resolution process that has now culminated in this controversial repayment plan.

The NCLT's path to approving Chandra's repayment plan was not without internal disagreement. Earlier this year, the tribunal found itself with conflicting opinions from its members regarding the proposed plan, necessitating the appointment of a third member to break the deadlock. Judicial Member Ashok Kumar Bhardwaj had expressed support for the repayment plan, advocating for its approval.

Conversely, Technical Member Reena Sinha Puri raised significant objections, concluding that the plan suffered from serious legal and procedural defects. To resolve this impasse, Judicial Member Nilesh Sharma was brought in to provide a decisive vote. On August 25, Sharma ultimately sided with the approval of the repayment plan, thereby securing the necessary majority for its sanction and paving the way for the substantial reduction in Chandra's liability.

This NCLT ruling sets a notable precedent for how personal guarantor insolvency cases may be resolved under the IBC, particularly concerning the extent of haircuts creditors might face. The approval of a plan that offers creditors a recovery rate of just 0.028% against admitted claims totaling over ₹22,006 crore underscores the challenges in recovering dues from personal guarantors, even in high-profile cases.

The outcome highlights the complexities and potential for significant value erosion in insolvency resolution processes involving individuals. It signals to both creditors and personal guarantors the potential for substantial reductions in liability, even when the initial guaranteed amounts are considerable. This decision will likely influence future negotiations and legal strategies for all parties involved in personal insolvency proceedings across India.

This ruling highlights the NCLT's willingness to approve personal guarantor repayment plans under IBC Section 95, even with substantial haircuts for creditors, setting a precedent for how such cases may be resolved. Lawyers advising clients on personal guarantees or creditors pursuing claims against guarantors should note this outcome when assessing potential recoveries and negotiating repayment terms.

Source: Reporting from financial news outlets.