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Subhash Chandra's 99.972% Plan Stayed as NCLT Finds No
In a dramatic twist in the insolvency resolution of personal guarantees, the has stayed the controversial proposed by Subhash Chandra, the promoter of the . The plan, which offered creditors a recovery of just 0.028%—amounting to a 99.972% on claims exceeding ₹22,000 crore—has been put on hold after a split bench failed to produce a clear . A five-member bench of the NCLT has now taken up the matter afresh, issuing a against Chandra from alienating any property.
The development marks a significant setback for what was widely seen as an extreme example of creditor haircuts under the . The case also raises fundamental questions about the binding nature of resolution plans for personal guarantors and the threshold for majority approval in multi-member tribunals.
Background: Personal Guarantees and the Essel Debt
The case stems from personal guarantees executed by Subhash Chandra for loans taken by companies. When those companies defaulted, creditors—including financial institutions and bondholders—initiated insolvency proceedings against Chandra as a . The total claims admitted were a staggering ₹22,006.57 crore.
Under the IBC, a 's insolvency is distinct from corporate insolvency, but the process mirrors many features, including the submission of a by the guarantor. Chandra proposed to pay just ₹6.25 crore to creditors and ₹25 lakh towards insolvency-process costs. This meant creditors would recover only 0.028% of their dues, with a of approximately 99.972%.
Despite the minuscule recovery, the plan received approval from 80.81% of the creditors by value, a significant majority. Under the IBC, a for personal guarantors requires approval from at least 75% of voting creditors. However, the real battle lay not with the creditors but within the NCLT itself.
The Split Bench and Conflicting Views
The NCLT’s original two-member bench was divided. Judicial Member Ashok Kumar Bhardwaj favoured approving the plan—but only for those creditors who had voted in favour of it. He reasoned that dissenting creditors should not be bound by a plan they rejected. Technical Member Reena Sinha Puri, on the other hand, rejected the plan outright, holding that a 99.972% was unconscionable and could not be imposed on any creditor, even those who had assented.
To break the deadlock, the matter was referred to a third member, Nilesh Sharma, who took a middle position. He approved the plan and ruled that it would bind all creditors—both assenting and dissenting. This seemed to resolve the conflict, but the original bench subsequently examined Sharma’s order and reached a surprising conclusion.
On , the original bench held that no had emerged because all three members had taken materially different positions. Judicial Member Bhardwaj’s view was not the same as Sharma’s, and Technical Member Puri’s rejection stood in opposition. The bench declared that the requisite majority under the IBC—which requires at least two members to agree on the core outcome—had not been achieved. As a result, Sharma’s approval was not a valid order.
Five-Member Bench Steps In
The following day, a five-member bench of the NCLT took of the situation. It stayed the operation of Sharma’s ruling and decided to hear the case afresh. The bench issued notices to all parties and imposed a on Chandra, barring him from “directly or indirectly alienating any property” until further orders.
The five-member bench’s intervention effectively nullifies—at least for now—what was previously reported as an approved insolvency plan. The source material explicitly states: “The proposed has therefore not attained finality. Chandra’s case should no longer be presented as an approved or settled insolvency plan in the ranking.”
Legal Analysis: and
The case exposes a critical ambiguity in the IBC’s framework for personal guarantee insolvency. deals with approval of repayment plans by the , but it does not expressly address how a split decision among members should be resolved. The NCLT’s own practice of referring matters to a third member is derived from the , which provide that if members differ on a point, the opinion of the majority shall prevail. However, when the third member’s view differs from both original members, determining what constitutes a “majority” becomes problematic.
In this case, the original bench’s ruling suggests that a requires at least two members to concur on the same operative outcome. Since Judicial Member Bhardwaj approved only for assenting creditors, Technical Member Puri rejected entirely, and Member Sharma approved for all creditors, no two members shared the same conclusion. The five-member bench will now have to decide whether the IBC permits such a fractured outcome to stand.
Another critical issue is the of a on dissenting creditors. The IBC for personal guarantors—governed by Part III—provides that a plan approved by the requisite majority of creditors and confirmed by the binds all creditors. But the NCLT’s own jurisprudence has wavered on whether dissenting creditors can be forced to accept a hair cut of 99.972%. Some argue that such extreme haircuts amount to a deprivation of property without , potentially violating .
Impact on Legal Practice and Creditor Strategy
For legal practitioners, this case serves as a cautionary tale about the risks of relying on single-member or split-bench approvals in personal guarantee matters. The lack of clarity on majority opinions may lead to increased litigation and delays. Creditors who vote in favour of a plan may find themselves in limbo if the tribunal fails to produce a binding order.
The case also underscores the importance of judicial consistency. The IBC was designed to promote timely resolution, but procedural complexities such as those seen here can frustrate that objective. Lenders may now be more cautious about accepting steep haircuts in personal guarantee plans, knowing that the NCLT may step in to review the fairness of the outcome.
For insolvency professionals, the NCLT’s against Chandra is noteworthy. It demonstrates the tribunal’s willingness to use its under to preserve the pending final determination. This could become a common tool in personal guarantee cases where there is a risk of asset dissipation.
Conclusion
The Subhash Chandra case is far from over. The five-member NCLT bench will hear the matter afresh, and the outcome could set an important precedent for personal guarantee insolvencies. Whether the 99.972% will ultimately stand, or whether dissenting creditors will secure better treatment, remains to be seen. What is clear is that the NCLT’s internal disagreement has exposed a gap in the IBC’s procedural architecture—one that may require legislative clarification or judicial intervention at a higher level.
For now, the proposed plan remains stayed, and Subhash Chandra is under a property restraint. The legal community will be watching closely as the NCLT works to forge a coherent from the divergent views already expressed.
