The National Company Law Tribunal’s approval of Subhash Chandra’s Rs 6.5-crore repayment plan, against Rs 22,006 crore of admitted claims, was driven by the voting outcome among creditors and the tribunal’s reliance on their commercial wisdom.
While several financial creditors opposed the plan over the low recovery, creditors representing about 80% of the voting share backed it. The 144-page NCLT order sets out how the nature of Chandra’s personal guarantees, the claims admitted in the proceedings and the creditors’ voting ultimately shaped the decision.
There were 23 creditors in the process, of which seven financial lenders voted against the resolution plan submitted by Chandra. Six creditors did not vote, while 10 creditors, comprising LPs, trustees, advisers and distributors, voted in favour of the plan. The plan secured the requisite majority, leading to its approval by the NCLT.
Who approved Chandra’s resolution plan, who favoured it and who voted against it?
| Sr. No. | Name of Creditor | Voting | Item B3 (approval of Repayment Plan) |
|---|---|---|---|
| 1 | Anil Kumar | 0.67% | Favour |
| 2 | Axis Bank Limited | 2.86% | Against |
| 3 | Axis Trustee Services Limited | 0.04% | Did not vote |
| 4 | Axis Trustee Services Limited | 0.18% | Did not vote |
| 5 | Axis Trustee Services Limited | 0.11% | Did not vote |
| 6 | Canara Bank | 1.60% | Against |
| 7 | Catalyst Trusteeship (CINDA FPI) | 11.85% | Favour |
| 8 | Catalyst Trusteeship (HDFC Asset Mgt. Co.) | 0.06% | Did not vote |
| 9 | Corpcall Capital Advisors LLP | 10.30% | Favour |
| 10 | Direct Media Distribution Ventures Pvt. Ltd | 1.15% | Favour |
| 11 | HDFC Bank Limited | 3.17% | Against |
| 12 | IDBI Trusteeship (Edelweiss Fund) | 2.60% | Did not vote |
| 13 | IDBI Trusteeship (Franklin Templeton) | 3.36% | Against |
| 14 | Indiabulls Housing Finance Limited | 1.98% | Favour |
| 15 | IndusInd Bank Limited | 1.11% | Did not vote |
| 16 | Kautilya Traders Pvt Ltd | 1.02% | Favour |
| 17 | Lemonade Capital Advisors LLP | 16.85% | Favour |
| 18 | LIC Housing Finance | 6.09% | Against |
| 19 | RBL Bank Limited | 0.55% | Against |
| 20 | Sunil Jain | 0.18% | Favour |
| 21 | Union Bank of India (UK) Ltd. | 0.76% | Against |
| 22 | Veena Investments Private Limited | 4.99% | Favour |
| 23 | World Crest Advisors | 28.49% | Favour |
| 24 | Total | 100.00% |
Background: What is the case?
Various entities of the Essel Group, promoted by Dr Subhash Chandra, had raised credit from 23 creditors. These creditors included banks, NBFCs, HFCs, asset reconstruction companies, investment entities and individuals, among others.
Chandra had executed deeds standing as a personal guarantor for loans taken by these entities. He had not borrowed the money personally, but had provided personal guarantees for companies such as Vivek Infracon Pvt Ltd, which had borrowed from Indiabulls Housing Finance Ltd, now Sammaan Capital Ltd.
When the principal borrowers, including various Essel Group entities, failed to meet their repayment obligations, the creditors invoked Chandra’s personal guarantees under the IBC. The creditors subsequently filed claims aggregating Rs 22,006 crore in the proceedings. Sammaan Capital also approached the NCLT against Chandra.
Chandra’s proposal
Chandra subsequently submitted a proposal to the creditors offering Rs 6.5 crore against claims of Rs 22,006 crore. Several creditors opposed the proposal because of the low recovery and the resulting 99.97% haircut. However, the plan received support from creditors representing about 80% of the voting share.
‘Voting share’ here means the proportion of the total voting rights held by each creditor, based on the value of its admitted claim, rather than simply the number of creditors.
Judiciary view
The original two-member NCLT bench, comprising Judicial Member Ashok Kumar Bhardwaj and Member Reena Sinha Puri, differed in their views on the plan. The matter was subsequently referred to a third member.
Member Puri had raised concerns over associate-party participation and the adequacy of due diligence on the claims. NCLT President subsequently referred the matter to Judicial Member Nilesh Sharma as the third member.
In the final order, Sharma approved the plan proposed by Chandra under Section 114 of the IBC. The tribunal held that it could not substitute its judicial assessment for the commercial wisdom of the majority of creditors who had approved the plan.
The IBC requires approval by the prescribed majority of creditors by voting share. With creditors representing about 80% of the voting share supporting the plan, the proposal crossed the required threshold despite objections from other creditors.
Total amount of Rs 22,006 crore vs Chandra’s Rs 6.5 crore
The resolution professionals of the financial creditors that had lent to various Essel Group entities admitted aggregate claims of Rs 22,006 crore in the NCLT proceedings.
However, the claims backed by Chandra’s personal guarantees amounted to about Rs 3,992 crore. In other words, the total claims admitted in the proceedings were significantly higher than the amount for which Chandra had provided personal guarantees.
The largest creditor in the proceedings is LIC Housing Finance.
What happened to the money lent beyond the guarantees?
The important point is that the NCLT proceeding against Chandra does not wipe out the underlying corporate debt.
The principal borrowers remain liable for their loans. The Rs 6.25 crore repayment from Chandra’s personal estate relates to his liability as a personal guarantor, not to the entire outstanding debt of the borrowing companies. The underlying lenders can continue to pursue the principal borrowers and their available assets, subject to the applicable proceedings and recoveries.
