Whether personal guarantor can walk away with paltry sum as repayment?

 NCLT Order on Mr.Subhash Chandra's liability as Personal Guarantor

Dissenting banks have grounds to challenge

News:
1. The National Company Law Board (NCLT) has allowed Zee Group founder and Chairman Subhash Chandra's (Mr. Chandra) plan to repay just ₹6.5 cr. against the admitted claims of ₹22,006 cr. This amounts to a recovery of around 0.03% of the admitted claims.

2. Mr. Chandra said the claims against him as personal guarantor were just ₹3,922 cr. and the claims pertain to, standing as personal guarantor to M/s.Vivek Infracon, Spirit Textiles and Churu Enterprises. He also said ₹620 cr. has already been settled and the borrowing entities had offered to pay ₹1,113 cr. to multiple lenders.

3. Scheduled Commercial Banks (SCBs) (both public and private) are considering an appeal against the NCLT's decision.

Impact: There is a wide spread impression that huge haircuts are witnessed in the lenders' books, in the resolution process under IBC. The debtors walk away with their dress intact, while creditors appear crestfallen. The average recovery percentage revolves around 25% with the recovery falling below even double digits in a few cases. In the above background, the current decision of the NCLT to allow Mr. Chandra to pay a token amount as per resolution plan approved by Resolution Professional (RP) and Committee of Creditors (CoC) has raised a few questions. They relate to RP's prudence in determining the ability of the guarantor to pay and whether the creation of IBC to ensure maximum recovery for creditors, while permitting the business to continue (instead of resorting to bankruptcy for liquidation) is achieved.

Bone of Contention of lenders, who opposed the repayment plan: Since this disturbed me mentally, I spent sometime in reading the order given by the NCLT. I found the following as interesting.

a. The order is passed by a third member, after it was referred by the Hon'ble President, NCLT, as there was difference of opinion between Hon'ble Judicial Member and Hon'ble Technical Member.

b. Indiabulls Housing Finance Ltd, which initiated the Insolvency Resolution Process originally in 2022, against the personal guarantor Mr. Chandra, has a share of 1.98% in the total claims of creditors, considered by CoC. It voted in favour of the repayment plan.

c. HDFC Bank contested that the vote share of five entities falling in the category of associates (related parties) of the debtor (totalling 61.78% of the claims in the total claims of creditors) cannot be taken into account, while counting the vote share in favour of the Repayment Plan.

d. The lenders, who opposed the repayment/resolution plan include Axis Bank, Canara Bank, HDFC Bank, LIC HF, RBL Bank, Union Bank of India (UK) Ltd and IDBI Trusteeship.

e. Some of the lenders have contended that the alleged guarantees are collusive arrangements entered into between the PG and some of the entities with the object of creating artificial and inflated in favour of the related parties. They also said the factual position is also that the guarantees were invoked only after the interim moratorium came into effect.

f. Hon'ble Member Technical of NCLT mentioned that the circumstances of the case necessitated the appointment of an independent forensic auditor as well as an asset tracking agency to determine the net worth of the personal guarantor. 

g. Whether the Adjudicating Authority (AA) has the power to independently review a repayment plan approved by CoC/send it back for reconsideration has been analyzed in detail. So is the matter relating to the role of the RP.

My Views: IBC Code 2016 with its subsequent amendments and the verdicts given by the NCLAT and SC from time to time unambiguously define the powers of AA, role of RP and who constitute the related parties, not to be considered for voting in CoC. After going through the order passed by the third member of the NCLT, I feel that the lenders, who opposed the repayment plan, have adequate grounds to prefer an appeal in the NCLAT, especially if they have adequate evidences to substantiate that 

(i) majority of the lenders, who supported of the plan, were related parties to the personal guarantor/debtor, 

(ii) there was a case to appoint an independent forensic auditor to determine the net worth of the personal guarantor before accepting the repayment plan and

(iii) the RP has not played his role diligently in determining the voting share within the CoC. 

I am also of the view that if only a miniscule amount can be recovered from the personal guarantor, through the resolution process, the better course for the CoC would be to proceed for liquidation as that will at least demonstrate that a 'signature of guarantee' is not another piece of paper but will in effect dampen the other business interests of the personal guarantor. 

Regarding my opinion on haircuts in IBC cases, please read my blog https://viswoice.blogspot.com/2024/11/ibc-resolution-and-haircuts.html 

Regards

V.Viswanathan
CGM Retd, 
e-SBT

30th August 2026





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