The National Company Law Tribunal’s (NCLT) decision approving a repayment plan for Essel Group founder Subhash Chandra has triggered a major debate over creditor recoveries and India’s insolvency framework.

Under the approved plan, creditors with admitted claims of around ₹22,006.57 crore are set to receive approximately ₹6.25 crore, along with ₹25 lakh towards insolvency process costs. This translates into a recovery of only about 0.03 per cent, or a haircut of nearly 99.97 per cent.

However, the case relates specifically to Chandra’s personal insolvency proceedings as a personal guarantor for loans taken by Essel Group-linked companies. It does not by itself extinguish the underlying corporate liabilities of the principal borrowers. LIC Housing Finance has also clarified that its security interests over the secured assets remain intact.

Why Was the Repayment Plan Approved?

The matter was heard under Section 114 of the Insolvency and Bankruptcy Code (IBC). The original two-member NCLT Bench delivered a split verdict, following which Nilesh Sharma was appointed as the third member to resolve the difference of opinion. Sharma ultimately approved the repayment plan.

A major factor was creditor voting. Creditors representing 80.81 per cent of the voting share supported the plan, while those opposing it collectively accounted for less than 20 per cent. The IBC does not prescribe a universal minimum recovery percentage or maximum permissible haircut for such a personal-guarantor repayment plan.

The tribunal also considered the value of Chandra’s personal estate and the prospects of recovery. It reasoned that rejecting the plan and pushing him into bankruptcy could potentially reduce recovery prospects for creditors.

LIC Housing Finance Faces Major Shortfall

LIC Housing Finance was among the prominent creditors opposing the plan. Its admitted claim stood at ₹1,322.39 crore, while the proposed repayment to it was only ₹38.09 lakh, equivalent to approximately 0.028 per cent of its admitted dues.

LIC Housing Finance had argued that such a negligible recovery made the plan unviable and unlawful. The lender has indicated that it retains its rights, security interests and recovery remedies over the secured assets.

Why Did the Tribunal Reject LIC Housing Finance’s Objection?

The tribunal’s decision was primarily based on the statutory insolvency process and the voting outcome rather than on any rule requiring creditors to receive a fixed percentage of their admitted claims.

The lenders opposing the plan also raised concerns over the recovery amount, the valuation of Chandra’s assets, the admission of certain claims, the voting process and the absence of a forensic audit. However, these objections did not prevent approval because the plan had received the required creditor support.

The case has now become a significant talking point in the insolvency sector, particularly over how personal guarantees are treated under the IBC and how creditors should balance maximum recovery with the practical possibility of recovering money from an individual guarantor.

Meanwhile, HDFC Bank and LIC Housing Finance are considering or pursuing legal avenues to challenge the NCLT decision, keeping the controversy alive.

The post Subhash Chandra Insolvency Case: Why Did NCLT Approve ₹6.25 Crore Plan Against ₹22,006 Crore Claims? appeared first on Odisha Connect.