Why Banks Are Crying Foul Over Subhash Chandra’s ₹6.25-Cr Repayment Plan

The National Company Law Tribunal (NCLT) has approved a repayment plan under which Essel Group founder Subhash Chandra will pay ₹6.25 crore to creditors in his personal insolvency proceedings, with another ₹25 lakh earmarked towards insolvency-process costs. This is against admitted claims of about ₹22,006.57 crore.

The plan was approved after creditors holding 80.81% of the voting share backed it, despite several lenders voting against it. The lenders have objected to the low recovery as well as aspects of the creditor-voting process. The matter has now moved to the National Company Law Appellate Tribunal (NCLAT), with creditors approaching the appellate tribunal on August 31. NCLAT has agreed to hear the challenge on September 1.

But the ₹22,006.57-crore figure needs context. It does not mean Chandra personally borrowed ₹22,006 crore. The figure represents claims admitted against him in his capacity as a personal guarantor for borrowings by Essel/Zee-linked companies.

What Exactly Did Chandra Offer?

The proceedings concern personal guarantees given by Chandra for borrowings by companies associated with the Essel Group. When a principal borrower defaults, a lender can, subject to the applicable legal process, pursue a personal guarantor for the guaranteed obligations.

The repayment plan approved by the NCLT provides for ₹6.25 crore to be paid to creditors from Chandra’s side and another ₹25 lakh towards the insolvency process.

The plan was approved under Section 114 of the Insolvency and Bankruptcy Code (IBC) by NCLT judicial member Nilesh Sharma, who acted as the third member after the original two-member bench delivered a split verdict.

The plan concerns Chandra’s personal insolvency proceedings and does not by itself extinguish the liabilities of the underlying corporate borrowers.

LIC Housing Finance, for instance, said it continues to retain its security interests, enforcement remedies and recovery rights over secured assets. It also clarified that the NCLT order concerning Chandra as personal guarantor does not discharge or dilute the liabilities of the principal borrowers.

Why Is The ₹22,006-Crore Figure Confusing?

The most important distinction in the case is between corporate borrowing and personal-guarantee liability.

The ₹22,006.57 crore figure represents claims admitted against Chandra in the personal-guarantor proceedings. It is not ₹22,006 crore that he personally borrowed.

Government officials cited by The Economic Times (ET) said it would therefore be incorrect to conclude that banks had taken a 99.97% haircut on more than ₹22,000 crore of loans. The officials said the ₹22,006 crore represented claims against Chandra as guarantor for debt borrowed by several Essel/Zee-linked companies, while the principal borrowers remained separately liable.

The officials also said the repayment plan envisages around ₹1,494 crore being paid separately by the principal borrowers, in addition to ₹6.25 crore from Chandra personally.

They further said only about ₹2,574 crore of the admitted claims related to loans where Chandra’s personal guarantee was given at the time of the original borrowing, while most of the other guarantees were provided later as additional security.

This distinction matters when describing the nearly 99.97% haircut. The ₹6.25-crore recovery represents roughly 0.03% of the ₹22,006.57 crore of admitted claims in Chandra’s personal-guarantor proceedings. It should not automatically be described as a 99.97% write-off of the underlying corporate loans.

Creditors can continue to have recovery rights against principal borrowers, secured assets and other legally available sources, depending on the individual loan and security arrangements.

Why Are Banks Challenging The Plan?

The immediate concern for dissenting lenders is the extremely low recovery from Chandra’s personal insolvency estate.

LIC Housing Finance had an admitted claim of ₹1,322.39 crore in the proceedings, while the approved plan provides it about ₹38.09 lakh, according to the lender’s statement reported by The Indian Express. HDFC Bank also said it opposed the resolution and was exploring an appeal.

Other lenders that opposed the plan included Axis Bank, Canara Bank, RBL Bank and Union Bank.

However, the lenders’ objections go beyond the size of the payout. They also questioned whether certain entities that voted in favour of the plan should have been allowed to vote.

According to The Indian Express, HDFC Bank and IDBI Trusteeship Services argued that five entities — Veena Investments, Direct Media Distribution Ventures, World Crest Advisors, Lemonade Capital Advisors and Corpcall Capital Advisors — were associates or related parties of Chandra and that their votes should not have been counted.

These five entities together held 61.78% of the voting share and backed the repayment plan. World Crest had a 28.49% voting share, Lemonade 16.85%, Corpcall 10.30% and Veena Investments 4.99%.

These were objections raised by the dissenting lenders. Chandra’s office rejected the allegation, saying some of the entities were associated with Jawahar Goel and that their businesses had been separated from Chandra’s through a family-business separation process in 2008-09.

The NCLT also found discrepancies in 1,260 individual claims that had been admitted without adequate documentary verification, according to The Indian Express. The tribunal also raised concerns regarding the admission and verification of certain claims involving entities whose voting rights were disputed.

But How Did The Plan Still Get Approved?

Despite the objections, the plan received the required creditor support.

As many as 23 creditors participated in the voting. Creditors holding 80.814% of the voting share backed the plan, while those opposing it accounted for 19.186%, according to The Indian Express.

This is why individual lenders could not block the plan on their own. The insolvency framework operates through a collective creditor process. Once the required majority approves a repayment plan and the tribunal sanctions it, dissenting creditors are generally bound by the approved plan rather than being able to demand a separate settlement.

The NCLT also considered whether rejecting the plan would actually produce a better outcome for creditors. According to ET and ET BFSI, the tribunal considered the realisable value of Chandra’s personal estate and whether bankruptcy could result in an even lower recovery.

The IBC does not prescribe a universal minimum recovery percentage that every repayment plan must provide. The question is therefore not simply whether creditors are receiving a particular percentage of their claims, but whether the statutory process has been followed and whether there are legal grounds to reject the plan.

What Happens Now?

The NCLT approval is now being challenged before the NCLAT.

Creditors including LIC Housing Finance and several banks approached the appellate tribunal on August 31. Solicitor General Tushar Mehta, appearing for the creditors, sought an urgent hearing, following which NCLAT agreed to hear the matter at 10 am on September 1, according to Mint.

The challenge means the NCLT’s approval is not necessarily the end of the legal dispute. The appellate tribunal will now consider the lenders’ objections to the approved repayment plan.

Meanwhile, Chandra has disputed the way his liabilities are being portrayed. His office initially said that the claims specifically raised by dissenting creditors amounted to ₹3,992 crore rather than ₹22,000 crore.

In his latest statement, reported by The Indian Express, Chandra’s office put the figure at ₹4,262 crore. It said the difference arose because some accounts had not been considered earlier as they neither voted for nor against the plan. His office also said borrowers associated with his guarantees had assured him they would reconcile their accounts with lenders and settle the balance.

The ₹3,992 crore and ₹4,262 crore figures are Chandra’s position, not alternative figures determined by the NCLT. The ₹22,006.57 crore figure remains the admitted claims figure referred to in his personal-guarantor insolvency proceedings.

What Does This Mean For Banks?

The Chandra case highlights the difference between the face value of a personal guarantee and the amount a lender can actually recover from the guarantor.

A personal guarantee gives lenders an additional recovery route when a corporate borrower defaults. But it does not necessarily mean that the guarantor has sufficient realisable personal assets to cover the entire guaranteed amount.

That is the central issue in this case. The ₹22,006.57 crore represents admitted claims in Chandra’s personal-guarantor proceedings, while ₹6.25 crore is the amount allocated to creditors under his personal repayment plan. The underlying corporate borrowers, secured assets and other recovery avenues remain a separate part of the recovery picture.

The NCLAT hearing will now determine whether the lenders’ objections warrant further intervention, making the case an important test of how personal-guarantor insolvency proceedings balance creditor recovery with the collective nature of the insolvency process.