A repayment proposal that offered creditors just Rs 6.25 crore against admitted claims of Rs 22,006.57 crore has run into a fresh legal hurdle, barely a week after the National Company Law Tribunal (NCLT) approved it. The proposal had already triggered sharp criticism over the extraordinarily low recovery for lenders and questions about the way creditor votes were counted.
Now, a newly constituted five-member NCLT bench has stayed the August 25 order that approved the plan and barred Essel Group founder Subhash Chandra from selling, transferring or otherwise dealing with his properties, directly or indirectly.
The development effectively puts the controversial settlement on hold and sends the case back for a fresh examination.
The numbers explain why the case has attracted so much attention.
Chandra’s repayment plan offered Rs 6.25 crore to creditors, plus Rs 25 lakh towards the insolvency resolution process, against admitted claims of Rs 22,006.57 crore. That means creditors would recover only around 0.03 percent of the admitted claims, implying a haircut of about 99.97 percent.
The figure, however, needs to be understood in the context of Chandra’s role in the case. The Rs 22,006 crore is not a personal loan taken by Chandra. It represents liabilities arising from loans borrowed by companies associated with the Essel Group, for which Chandra had furnished personal guarantees.
Chandra has maintained that he does not personally owe Rs 22,000 crore and has argued that the underlying borrowing remains the responsibility of the companies that took the loans. He has also said that group entities have assured him that they will reconcile and settle their outstanding dues with lenders.
For lenders, however, the personal guarantee is precisely what brought Chandra into insolvency proceedings.
The original NCLT proceedings were anything but straightforward. A two-member NCLT bench delivered a split verdict on the repayment proposal. The matter was subsequently referred to a third member, Nilesh Sharma, whose August 25 opinion favoured approval of the plan.
The problem was that the three members did not arrive at a common majority view. The original members subsequently took the position that their views and that of the third member were materially different, creating uncertainty over whether the August 25 order could legally be treated as a majority decision.
That disagreement has now resulted in the formation of the five-member special bench headed by NCLT president Anupinder Singh Grewal. The bench has made it clear that the earlier order cannot be implemented for the time being.
The size of the proposed recovery was not the only source of controversy.
Several lenders opposed the repayment plan and questioned the voting process. Banks alleged that entities linked to Chandra, including associates or related parties, had significant voting power and backed the proposal.
Five entities that supported the plan accounted for 61.78 percent of the votes cast. Banks opposing the proposal accounted for only 19.186 percent. Chandra’s office has denied allegations that entities connected to him improperly influenced the voting process.
The distinction is important because the plan was approved through the insolvency framework on the basis of creditor voting. Questions over who was entitled to vote and whether some creditors were connected to the guarantor have therefore become central to the dispute.
The five-member bench has also directed Chandra, in his capacity as guarantor, not to alienate his properties.
That means he cannot sell, transfer or otherwise dispose of his assets while the tribunal examines the matter afresh. The restriction is intended to preserve the asset position until the legal questions surrounding the repayment plan are settled.
The order came after creditors sought protection against the possibility of assets being transferred while the dispute was pending.
The dispute has also moved to the National Company Law Appellate Tribunal (NCLAT), where dissenting creditors have challenged the earlier approval.
Solicitor General Tushar Mehta appeared for the dissenting creditors before the appellate tribunal. Following the constitution of the five-member NCLT bench and its decision to stay the earlier order, the creditors are now considering whether to continue pressing their appeal before the NCLAT. The appellate tribunal is scheduled to take up the matter on September 2.
Beyond the fortunes of one of India’s prominent media and business entrepreneurs, the case raises a larger question for the insolvency system: how should lenders recover money when a promoter has given personal guarantees for corporate borrowings but claims that his own recoverable assets are limited?
The Chandra case has also drawn attention to the sharp divergence between the value of claims and the amount recoverable from the guarantor. Reports have highlighted questions about Chandra’s reported wealth, asset tracing and the circumstances in which the personal insolvency process arrived at such a low settlement. Chandra has maintained that he has no personal debt and that the underlying corporate borrowers remain responsible for repayment.
For now, the Rs 6.25-crore settlement is no longer a done deal. The five-member NCLT bench will hear the parties afresh, while the asset-freeze direction ensures that Chandra’s properties remain protected from disposal during the proceedings.
The case could ultimately become an important test of how India’s insolvency framework balances a guarantor’s actual ability to pay, creditor voting rights and lenders’ claims against personal guarantees.