Subhash Chandra, the founder and chairman emeritus of the Essel Group, is currently facing challenges regarding a debt repayment proposal. This plan stipulates that he will pay Rs 6.25 crore in light of claims totalling approximately Rs 22,006 crore. HDFC Bank and LIC Housing Finance are reportedly preparing to challenge the approval of this plan by the National Company Law Tribunal (NCLT), as detailed in a report by The Economic Times.

The repayment structure includes around Rs 1,494 crore from the principal borrowers, alongside Chandra’s personal contribution of Rs 6.25 crore. Officials have clarified that Chandra did not directly borrow the Rs 22,000 crore; instead, this figure represents total claims against him as a personal guarantor for debts incurred by several companies linked to the EsselZee group.

In essence, the borrowing firms accessed loans with the backing of Chandra’s personal guarantees. Following difficulties faced by these borrowers in meeting their financial obligations, lenders pursued the guarantees provided by Chandra, leading to the current insolvency proceedings.

Contentions Against the Repayment Plan

The primary contention against Chandra’s repayment plan lies in the minimal payment being proposed. LIC Housing Finance has voiced its opposition, asserting that the proposed Rs 6.25 crore payment is disproportionately small when juxtaposed with the admitted claims of around Rs 22,006 crore. Specifically, LIC’s admitted claim amounts to Rs 1,322.39 crore, yet under the current plan, it would only receive Rs 38.09 lakh, equating to roughly 0.028 per cent of its claimed dues.

Other financial institutions, including HDFC Bank, Axis Bank, Canara Bank, RBL Bank, and Union Bank, have also expressed their dissent towards the proposal. HDFC Bank has confirmed its opposition and is considering an appeal to the National Company Law Appellate Tribunal (NCLAT) concerning the NCLT’s approval.

The response from the Committee of Creditors indicates a sharp divide, as approximately 80.8 per cent voted in favour of the repayment plan, despite significant opposition from several major lenders. The NCLT, therefore, dismissed the objections based on the creditors’ voting majority.

NCLT’s Rationale for Plan Approval

The NCLT’s reasoning for approving such a modest payment revolves around the overall valuations and recovery potential. An assessment by the resolution professional revealed that Chandra’s personal assets were significantly lower than the amount proposed in the repayment plan. The tribunal posited that rejecting the plan could lead to Chandra declaring bankruptcy, reducing the chances of recuperation for the creditors.

The NCLT’s approach focused on the long-term recovery prospects for lenders. Officials have indicated that a successful resolution of Chandra’s insolvency could help improve the recovery prospects from the principal borrowers in the future, benefiting the dissenting creditors in the long run.

As it stands, the tribunal’s order has binding effects on all creditors involved, meaning that dissenting creditors are unable to bypass the approved plan to pursue their original claims independently. This facet of the ruling adds significant weight to the upcoming appeals from HDFC Bank and LIC Housing Finance.

Clarification on the Nature of Claims

It is essential to delineate that the Rs 22,006 crore figure represents claims admitted against Chandra as a personal guarantor and not a personal loan taken by him. The plan anticipates approximately Rs 1,494 crore from the principal borrowers and Rs 6.25 crore from Chandra. Officials have advised caution in interpreting the situation as merely a 99.97 per cent haircut on loans due to the smaller payment proposed by Chandra.

Government sources have clarified that Chandra’s guarantees were provided for borrowings made by linked entities. The principal borrowers remain liable for their respective debts, which further complicates the repayment narrative. Thus, the repayment plan does not merely hinge on Chandra’s payment but includes additional obligations by the principal borrowers.

As the appeals progress, the complexities surrounding the insolvency proceedings and the repayment plan are likely to unfold further, with significant implications for the financial institutions involved.

Long or Short, get news the way you like. No ads. No redirections. Download Newspin and Stay Alert, The CSR Journal Mobile app, for fast, crisp, clean updates!

App Store –  https://apps.apple.com/in/app/newspin/id6746449540 

Google Play Store – https://play.google.com/store/apps/details?id=com.inventifweb.newspin&pcampaignid=web_share