This is a proposed recovery under personal insolvency resolution process, not a final settlement of every debt owed to every lender. The plan was approved by the creditors, but conflicting orders of the National Company Law Tribunal (NCLT) has been stayed and referred to a five-member NCLT Bench.
This raises serious questions about the present insolvency regime. Can the law deal with complicated relationship between corporate borrowing, personal guarantees, family-controlled assets and the financial system’s own due diligence.
Corporate Debt Became Personal Liability
There is a distinction between money borrowed by companies and obligations undertaken by their promoters. The Rs 22,606 crore in admitted claims did not represent money that Subash had personally borrowed. It arose from personal guarantees given for loans taken by companies associated with the Essel Group. Subash had given a guarantee to pay if the borrowers failed to meet their debt obligations. Lenders have recovery rights against both the corporate borrower and the guarantor, subject to the terms of the guarantee under contract law. The IndiaBulls Housing Finance, now Sammaan Capital, initiated the proceedings in relation to a guarantee associated with Vive Infracom. The application was filed in 2022 and the process remained entangled in litigation for several years. The supreme court’s intervention in the broader personal guarantor insolvency framework eventually enabled the proceedings to move forward.
The Voting Question
The proceedings became more controversial after the NCLT’s adjudicating members differed over the repayment plan. With no majority view, the matter has been referred to a five-member Bench, leaving the legal position uncertain.
The most consequential dispute concerns the voting rights of associates. Reports indicate that 78.28 per cent of voting power supported the plan, above the 75 per cent threshold. Family-linked entities accounted for 61.78 per cent that included Veena Investments, Direct Media, World Crest, Lemonade Capital and Corp Call. Major lenders including HDFC Bank, Axis Bank, Canara Bank, Union Bank and LIC Housing Finance opposed it. The central legal question is whether the statutory definition of associates captures commercially significant control. Part II of the IBC excludes related parties in corporate insolvency, while Part III, governing personal guarantors, uses the narrower concept of associates.
A further dispute concerns Rs 1260 crore in claims allegedly admitted without proper scrutiny. Their exclusion could have altered the voting arithmetic, raising questions over whether creditors voted on a properly constituted and verified set of claims.
Erosion of net worth
The financial story begins with net worth certificates submitted to lenders. Records show certificates of Rs 45,888 crore for RBL Bank in 2017, Rs 59,113 crore for LIC in 2018 and Rs 40,562 crore for Canara Bank in 2018. While using shareholdings as financial backing is common in corporate lending, such assets are not equivalent to cash. Their realisable value depends on market conditions and the terms of security.
The Essel Group’s liquidity crisis exposed this distinction. As lenders invoked pledged shares and market values declined, the reported family holding in Zee Entertainment fell from 41 per cent to 4 per cent. At Dish TV, Yes Bank invoked a 24.19 per cent pledged stake, leaving promoters with a reported 4.23 per cent. Essel Propack was sold to Blackstone. Other group companies experienced insolvency proceedings that resulted in steep erosion in market value. Against this backdrop, the reported valuation of Subash’s personal estate at Rs 31.79 crore in 2024 raises questions about the basis and verification of earlier net worth assessments.
The case exposes a weakness in personal insolvency law and the limited investigative powers available to the resolution professional. Unlike corporate insolvency, there is no comprehensive framework to trace past asset transfers, investigate family linked transactions or examine wealth erosion before creditors vote. While the absence of a forensic audit may be legally defensible, it highlights a significant policy weakness.
What Dissenting Creditors Can Do?
The dissenting lenders have still several possible avenues. They can challenge the repayment plan before the five member NCLT Bench, appeal to the National Company Law Appellate Tribunal (NCLAT) and pursue the bankruptcy route in case repayment plan is rejected. They may also continue recovery proceedings against the corporate borrowers and enforce security interests, subject to applicable law.
The Subhash Chandra case highlights liquidity constraints and the difference between direct ownership and beneficial interest. Three major reforms can help to strengthen future cases. First, the definition of associates should be widened to capture genuine control, including indirect ownership and family-controlled entities. Second, resolution professionals in personal insolvency cases should have express powers and duties to investigate suspicious transactions, trace assets and examine transfers to connected persons. Third, lenders must improve their own due diligence.
A net worth certificate based on listed shares should identify encumbranceserable cash. The regulations should be amended to ensure that creditors receive adequate notice and a meaningful opportunity to scrutinise the plan. The reported reduction of the statutory notice period from 14 days to seven is a procedural issue that needs to be plugged.
India’s personal insolvency regime was intended to provide an orderly resolution of financial distress. Its credibility will depend on whether it can do so without becoming a mechanism for strategic voting, inadequate investigation or the premature conclusion of claims that have not been properly adjudicated.
