In a significant development in the personal insolvency proceedings against Essel Group chairman Subhash Chandra, a five-member bench of the National Company Law Tribunal (NCLT) on Tuesday issued notices to all parties involved. The case pertains to creditor claims exceeding Rs 22,000 crore, making it one of the largest personal insolvency cases in India since the Insolvency and Bankruptcy Code (IBC) came into force.
The bench, constituted for the first time in the NCLT's history, was formed after a two-member division bench failed to arrive at a majority view on Chandra's proposed repayment plan. The five-member bench is headed by NCLT President Justice Anupinder Singh Grewal, with members Bachu Venkat Balaram Das, Mahendra Khandelwal, Atul Chaturvedi, and Ravindra Chaturvedi. The composition of such a large bench underscores the legal complexity and financial magnitude of the case, which has drawn significant attention from the corporate and legal communities.
The matter centres on the legality and scope of a Rs 6.5 crore repayment plan proposed by Chandra in his personal insolvency resolution process against admitted creditor claims of approximately Rs 22,006.57 crore. The repayment plan, if accepted, would mean creditors receive a negligible fraction of their dues, leading to what has been described as a 99.97% haircut. Lenders, including LIC Housing Finance, Canara Bank, and Union Bank, have vehemently opposed the plan, calling it unviable and unlawful.
Subhash Chandra, a prominent media baron and founder of Zee Entertainment, has been battling financial difficulties for several years. The Essel Group, a diversified conglomerate with interests in media, infrastructure, and packaging, faced a severe liquidity crisis starting in 2019, triggered by a heavy debt burden and a sharp decline in the share prices of group companies. Promoters had pledged a significant portion of their holdings, and when the market value collapsed, lenders invoked margin calls, leading to defaults. This eventually pushed Chandra into personal insolvency proceedings initiated by creditors under the IBC.
The case has a complex procedural history. A division bench comprising Ashok Kumar Bhardwaj, Member (Judicial), and Reena Sinha Puri, Member (Technical), had earlier delivered differing views on whether to approve the repayment plan. The division bench's inability to reach a majority opinion prompted a referral to a third member, whose order dated August 26 backed the repayment plan. That order, however, did not settle the matter, as dissenting lenders challenged it before the National Company Law Appellate Tribunal (NCLAT).
The legal dispute hinges on the interpretation of Section 79(2)(g) of the IBC, which defines a repayment plan, and its interplay with Section 115(1), which deals with the approval of a repayment plan by creditors. The creditors argue that a plan offering only Rs 6.5 crore against admitted claims of over Rs 22,000 crore does not meet the statutory requirements under these provisions. They contend that the plan violates the very purpose of the personal insolvency framework, which seeks to balance the interests of the debtor and creditors while ensuring a fair and reasonable recovery.
On Monday, the NCLT referred the personal insolvency case to its president for fresh adjudication after the two-member bench failed to reach a majority view. This referral led to the constitution of the five-member bench. The tribunal's decision to form a larger bench reflects the significance of the questions involved, as the interpretation of key provisions of the personal insolvency code could set a precedent for future cases. Legal experts believe that the outcome of this case could shape the way personal insolvency proceedings are conducted in India, particularly for high-net-worth individuals with substantial debts.
The NCLAT has also been drawn into the dispute. Solicitor General Tushar Mehta, appearing for LIC Housing Finance, Canara Bank, and Union Bank, sought an urgent hearing before an NCLAT bench headed by Officiating Chairperson Justice Yogesh Khanna. The urgent hearing was requested to address the dissenting lenders' appeal against the third member's order backing the repayment plan. The lenders have argued that the approval of such a minuscule repayment plan would set a dangerous precedent, potentially allowing debtors to escape their obligations by offering token amounts while maintaining significant assets through benami holdings or other means.
In his defence, Subhash Chandra has maintained that he does not personally hold any significant assets. In an exclusive interview around the time the controversy broke, he stated, “Personally, I don’t have any assets. That is a stated fact.” Chandra has also shifted focus to settling Essel Group's debt, mentioning that he is exploring various options to repay creditors. However, lenders remain sceptical, pointing out the vast difference between the claimed recovery and the outstanding debts. They have accused Chandra of attempting to use the personal insolvency process to escape his liabilities while continuing to enjoy a luxurious lifestyle.
The case also brings attention to the broader issue of promoter accountability in India's corporate insolvency regime. The IBC was designed as a time-bound and debtor-driven process to resolve insolvencies, but personal insolvency provisions have rarely been tested in such high-profile circumstances. The five-member NCLT bench will now examine whether Chandra's repayment plan meets the requirements of the law and whether creditors have the right to reject it. The bench will also need to consider the previous orders of the division bench and the third member, which have created conflicting opinions.
The creditors' submissions before the NCLT are likely to focus on the procedural and substantive aspects of the case. They have argued that the repayment plan was not backed by credible evidence of Chandra's financial condition. LIC Housing Finance and other dissenting creditors have contended that a payout of about Rs 6.25 crore against admitted claims of approximately Rs 22,006.57 crore is so disproportionate that it cannot be considered a bona fide effort to repay debts. They have also questioned the manner in which the plan was presented, alleging that it lacked transparency and failed to disclose all assets and income sources.
On the other hand, Chandra's legal team is expected to argue that the repayment plan is a legitimate proposal under the IBC, which allows individuals to propose plans as part of the resolution process. They may also emphasise that the third member's order supported the plan, and that the creditors are attempting to derail the process by seeking appellate remedies. The NCLT's five-member bench, with its diverse expertise, is expected to provide a comprehensive ruling that addresses these conflicting arguments.
The implications of this case extend beyond the parties involved. For the banking sector, it represents a test of whether the IBC can be effectively used to recover debts from individuals who control large business empires but claim personal insolvency. For corporate governance, it raises questions about the separation between a company's liabilities and the personal assets of its promoters. Many had believed that the IBC's corporate insolvency provisions were sufficient to address such situations, but the involvement of a personal guarantee has brought the personal insolvency framework to the fore.
Earlier, Chandra had also made headlines for dropping allegations against Reliance Industries chairman Mukesh Ambani, shifting his focus to settling Essel Group's debt. This move was seen as an attempt to ease tensions with potential investors and facilitate a smoother resolution of the group's financial troubles. The NCLT proceedings, however, are separate and revolve entirely around Chandra's personal liabilities. The tribunal is expected to examine the repayment plan in detail, including the feasibility of sourcing even the small amount promised, given Chandra's contention that he has no personal assets.
The five-member bench's decision to issue notices means that all parties, including Chandra, the creditors, and any other stakeholders, will now have an opportunity to present their submissions. The next hearing is awaited with keen interest, as it will determine the future course of the personal insolvency case. If the repayment plan is rejected, Chandra could face harsher consequences, including the possibility of being declared an undischarged insolvent, which would restrict his ability to manage businesses or hold board positions. If the plan is approved, it could set a controversial benchmark for personal insolvency resolutions, encouraging other debtors to propose similarly low settlement amounts.
The NCLT's composition, with the president himself leading the bench, indicates the gravity of the situation. Ravindra Chaturvedi and Atul Chaturvedi, both experienced members, along with Bachu Venkat Balaram Das and Mahendra Khandelwal, bring a wealth of judicial and technical expertise to the bench. Their collective judgement will be closely scrutinised by the corporate and legal fraternity. As the case unfolds, it is likely to attract even more attention, especially from financial institutions with significant exposure to promoter-driven businesses and from legal experts monitoring the evolution of insolvency jurisprudence in India.
For now, the NCLT has set the wheels in motion by issuing notices. The creditors, particularly LIC Housing Finance, Canara Bank, and Union Bank, are expected to push for a swift resolution, given the size of the dues. Subhash Chandra, on his part, continues to assert that he is committed to resolving the matter. The coming weeks will reveal whether the five-member bench can untangle the legal knots and provide a clear direction, or whether the case will remain mired in litigation, further delaying any recovery for the lenders and adding to the uncertainty surrounding one of India's most prominent business families.
Source:MSN News