Subhash Chandra gets relief in personal guarantee case as leading banks face 99% haircut

In a highly controversial Insolvency & Bankruptcy Code (IBC) outcome, Zee Media Group founder and erstwhile media baron Subhash Chandra has secured an order to settle his personal guarantee worth ₹22,006.57 crore due to creditors by offering to pay only ₹6.5 crore thus making the creditors, which include top banks, to forcibly take more than 99% haircut.

The National Company Law Tribunal (NCLT) New Delhi Bench third judge Nilesh Sharma, who passed the order, went by the decision of 80.814% creditors who had approved Mr. Chandra’s offer, forcing the dissenting creditors to abide by the decision.

Mr. Sharma was appointed as the Third Member as difference of opinion arose between Judicial Member Ashok Kumar Bhardwaj and Technical Member Reena Sinha Puri, in the present matter involving Indiabulls Home Finance and Personal Guarantor Mr. Chandra.

While delivering the order the court did not come up with its own commercial plan, but left the commercial decision to the Committee of Creditors (CoC), majority of which seemed to have chosen the offer for reasons best known to them.

Allegedly they are related party and associated with Mr. Chandra and a large segment of creditors from Haryana whose claims were admitted by the RP without examining the manner in which the alleged debts had arisen.

“The Repayment Plan submitted by the Personal Guarantor is required to be approved ...subject to exclusion of the claims submitted through Anil Kumar on behalf of 960 individuals and Sunil Jain on behalf of 300 individuals from the final list of creditors and consequential redistribution of the repayment amount amongst the remaining eligible creditors...,” the order stated.

“The Resolution Professional (RP) is required to prepare and place on record the revised and final list of creditors after giving effect to the aforesaid exclusions and take necessary consequential steps for redistribution of the approved Repayment Plan value,” it said.

“The approved Repayment Plan will be binding upon all the creditors, whether assenting or dissenting to the Repayment Plan... and shall have all consequences contemplated under the Code,” it added.

Now the matter be placed before the Original Division Bench for passing appropriate orders in terms of the majority opinion.

In this case over 88% creditors willingly approved Mr. Chandra’s proposal and their credentials had been challenged by leading creditors.

The creditors which opposed the repayment plan included Axis Bank, RBL Bank, IndusInd Bank, IDBI Trusteeship (for Franklin Templeton), LIC Housing Finance and Union Bank of India having collective vote share of 19.186%.

Those supported and approved it included Appearance Corpcall Capital Advisors LLP, Catalyst Trusteeship, World Crest Advisors LLP, Direct Media Distribution Ventures Private Limited, Lemonade Capital Advisors LLP and Veena Investments Private Limited, allegedly associated with Mr. Chandra.

The HDFC Bank which opposed the plan had raised that Veena Investments Direct Media Distribution Ventures, World Crest Advisors, Lemonade Capital Advisors and Corpcall Capital Advisors fall in the category of associates of the debtor (Mr. Chandra) and their vote share cannot be taken into account while counting the vote share in favour of the Repayment plan.

It was submitted that multiple creditors had raised objections against the inclusion and voting rights of certain associate and related entities of the Personal Guarantor which together held approximately 61.78% voting share in the CoC.

“The repayment plan was approved by number of vote shares i.e. 80.814% vote share, there is no option left open to this Tribunal but to pass an order on the basis of the plan which is based on the decision taken in the CoC,” the Judge mentioned in the 144 page order.

According to the RP Shiv Nandan Sharma, the Personal Guarantor’s (Mr. Chandra’s) estate, in the event of bankruptcy, may not be enough even to cover the expenses of the process. Therefore, the creditors may not be able to receive any dividend from the bankruptcy trustee so they had accepted it.

As per him Mr. Chandra had proposed to sell the few assets/deposits he owns and utilise the entire amount of ₹6.5 crore towards the Repayment Plan and “thus has put everything he has into the proposal”.

“In these circumstances, the Personal Guarantor (Chandra) honestly believes that the creditors do not have any commercial reasons not to accept the proposed Repayment Plan. However, they have absolute authority not to approve it.” the RP had stated.

But a net worth certificate furnished to RBL Bank Ltd. in the year 2017 reflected the net worth of Mr. Chandra at $7.17 billion, (₹45,888 crore). Likewise, a separate net worth certificate provided to Canara Bank in the year 2018 assessed his net worth at ₹40,562 crore. Suddenly how he became so poor, the creditors had wanted to know.

Canara Bank had opposed the value proposed under the plan stating it constitutes only approx. 0.028% of the value of the assets of Mr. Chandra.

In the year 2022, Indiabulls Housing Finance Ltd had moved the NCLT against Personal Guarantor Subhash Chandra to recover dues. Eventually the petition was admitted in 2024.

Given that the RP’s valuation report shows the debtor’s personal estate is worth significantly less than the total amount offered under the proposed Repayment Plan, the Bench failed to see how dissenting creditors could expect to benefit from a rejection.

It was observed that if the plan was approved and the debtor’s insolvency was resolved, putting him back on his feet, the objectors would ultimately stand a better chance of recovering their debts directly from the Principal Debtors for which Mr. Chandra gave personal guarantee.

Anil Kumar and Sunil Jain had submitted claims on behalf of 960 and 300 individuals from Haryana, Mr. Chandra’s native, and it has been alleged that the RP admitted those claims without undertaking any due diligence or inquiry into the relationship of the concerned individuals with Mr. Chandra or examining the manner in which the alleged debts had arisen.

After admitting the aforesaid unverified and unsubstantiated claims of entities alleged to be related or associate parties, the RP proceeded to include such entities in the Meeting of Creditors and permitted them to participate in the voting process concerning the Repayment Plan, the objecting creditors had submitted.

It has been submitted that documents clearly demonstrate the related-party status of Veena Investments, Direct Media Distribution Ventures , World Crest Advisors, Lemonade Capital Advisors and Corpcall Capital Advisors with Mr. Chandra.

Despite the existence of such material, the RP disregarded the same and instead relied upon the contention advanced by Mr. Chandra that following a “family settlement”, these entities no longer remained related to him.

LIC Housing Finance had stated that the payment terms under the Repayment Plan are unviable and unlawful. It had submitted that, against admitted claims of approximately ₹22,006.57 crore, the repayment plan proposed payment of only ₹6.25 crore to creditors and ₹25 lakh towards process costs.

“In the case of LICHFL, whose admitted claim stood at ₹1322.39 crore, the proposed repayment was merely ₹38,09,294, amounting to approximately 0.028% of its admitted dues.” it had stated.

Despite repeated objections raised through emails, meeting minutes, and legal notices by creditors, including RBL Bank, HDFC Bank, IDBI Trusteeship, and Edelweiss, the RP failed to conduct any proper inquiry and permitted these entities to vote on the repayment plan in violation of Section 109 of the IBC, the dissenting creditors had stated.

This case involves Personal Guarantee given by Mr. Chandra for loans availed by Essel Group companies. Now that two of the three members have approved the Repayment Plan, it is likely to be passed unless the case takes a different turn. The principal borrowers are still liable to pay to creditors.