HDFC Bank considers appeal to NCLAT against Subhash Chandra's debt repayment plan

HDFC Bank, the country's largest private lender, is examining the possibility of filing an appeal with the appellate tribunal following the approval by the National Company Law Tribunal (NCLT) of a debt repayment plan for Essel Group founder Subhash Chandra. This plan proposes a payment of only 6.25 crore rupees against recognized claims amounting to 22,000.57 crore rupees, which represents a reduction in claims of 99.97 percent.

In its statement, the lender noted that the share of recognized claims in the NCLT case under consideration was only 3.2 percent of the total claimed amount. It should be noted that this lender accepted this financial program, which was previously provided by HDFC Limited, and HDFC Ltd merged with HDFC Bank on July 1, 2023. The bank stated that it opposed this settlement and voted against the decision, which was approved by a majority vote.

The bank has informed that it is studying the filing of an appeal in the NCLAT. Furthermore, a senior banking official, who wished to remain unnamed, stated that the compensation is unacceptable to creditors, and that they are also considering filing an appeal in the NCLAT. However, Chandra refuted the bankruptcy claim of 22,000 crore rupees, asserting that the relevant claims amount to 3,992 crore rupees.

Chandra clarified that he personally did not take money from the creditors involved in the proceedings and is facing bankruptcy proceedings only as a personal guarantor for loans taken by companies associated with the Essel Group. He stated that 'there is no personal borrowing by Dr. Subhash Chandra from any of the creditors mentioned in the order, or from any other creditor/lender. I only signed personal guarantees.'

According to the statement, the total amount of signed guarantees was approximately 22,000 crore rupees, and the plan was approved by 80.814 percent of creditors when the insolvency professional conducted the voting. Moreover, 'many of the remaining 19.186 percent did not even vote when the voting was open for several days.'

Rahul Patel, a partner at Gandhi Law Associates, commented that '6.25 crore rupees is the distribution fund against recognized claims of approximately 22,006 crore rupees, which equates to a very small recovery and a claim reduction exceeding 99.9 percent. The distribution is generally proportional to the recognized eligible claims.'

Patel added that 'the NCLT order does not increase the 6.25 crore rupee fund. It requires the exclusion of certain unverified claims and the redistribution of their allocated share among eligible creditors, slightly increasing their recovery.'

An example of the recovery rate is demonstrated by the case of LIC Housing Finance (LICHFL). Its recognized claim was 1,322.39 crore rupees, while the repayment plan offered 38.09 lakh rupees, or about 0.028 percent of the recognized debt, according to the NCLT order. LICHFL strongly opposed the plan, stating that such a small repayment could not justify the approval of the plan, and described the payment terms as 'unviable and illegal.'

In a filing to the stock exchanges, LIC Housing Finance reported that it continues to hold and secure its right to the secured assets for which funds were provided, which are duly pledged/mortgaged in favor of LIC HFL. 'Accordingly, LICHFL continues to hold and maintain all its rights, security, enforcement funds, and recovery possibilities over the said secured assets in accordance with applicable provisions of law.'

Several large creditors objected to the repayment plan. LICHFL's voting share was 6.09 percent, HDFC Bank's was 3.17 percent, Axis Bank's was 2.86 percent, Canara Bank's was 1.60 percent, IDBI Trusteeship Services for the Franklin Templeton fund's was 3.36 percent, RBL Bank's was 0.55 percent, and Union Bank of India (UK)'s was 0.76 percent. All these creditors voted against the plan. IndusInd Bank, with a voting share of 1.11 percent, did not vote, while Indiabulls Housing Finance, with a share of 1.98 percent, voted in favor of the plan.

This case relates to the bankruptcy proceedings against Subhash Chandra as a personal guarantor for loans taken by companies associated with him. Indiabulls Housing Finance approached the NCLT with a request to initiate bankruptcy proceedings after the debts were not repaid. During the process, Chandra presented a repayment plan to settle the creditors' claims. The NCLT approved the plan considering changes in the list of eligible creditors and the redistribution of the amount. The plan is binding on the creditors to whom it applies, including those who voted against it. The order also states that after the discharge order is issued under Section 138 of the Insolvency and Bankruptcy Code (IBC), creditors cannot continue to pursue the personal guarantor for past debts covered by this discharge. This makes the possibility of an appeal important for dissatisfied creditors, as banks can challenge the approval of the plan, the voting process, and the handling of creditor claims in the NCLAT.

Similar stories

business-standard.comAugust 27, 07:00

NCLT Approves Repayment Plan for Subhash Chandra: Creditors to Receive 6.5 Crore Against Claims of 22.006 Crore

The National Company Law Tribunal (NCLT) has approved a repayment scheme for Subhash Chandra, the founder and chairman of Zee Group. Under this plan, creditors will receive only 6.5 crore rupees against recognized claims amounting to approximately 22,006.57 crore rupees. This means that creditors will incur losses of almost 99.97 percent, as reported by the news agency PTI.

Nilesh Sharma, an NCLT member (judge) serving as the third member of the tribunal, approved the plan on Tuesday in accordance with Section 114 of the Insolvency and Bankruptcy Code (IBC). He rejected the objections raised by creditors who considered the proposed compensation too insignificant for approval.

Tribunal Rejects Creditor Objections

Previously, the case led to a disagreement between two members of the NCLT. Subsequently, the tribunal president appointed Sharma as the third member to make the decision. Sharma dismissed the objections put forth by LIC Housing Finance, which characterized the proposed payment as 'unviable and illegal.'

This creditor pointed out that with recognized claims of approximately 22,006.57 crore rupees, the plan provided for a payout of 6.25 crore rupees and 25 lakh rupees to cover procedural expenses. The NCLT order noted that in the case of LICHFL, whose recognized claim was 1,322.39 crore rupees, the proposed repayment amounted to only 38,09,294 rupees, which is approximately 0.028 percent of the recognized debt. It was stated that such a negligible repayment could not receive approval from this tribunal.

Creditors also argued that the plan designated the sum of 6.5 crore rupees as an estimate, not a final figure, making the offer uncertain and unsuitable for approval. However, the tribunal observed that the objecting creditors collectively constituted less than 20 percent of the voting share. Meanwhile, the repayment plan received approval from creditors holding 80.81 percent of the voting share.

NCLT States Creditors May Receive More Later

In its 144-page order, the tribunal indicated that the valuation conducted by the resolution professional showed that Chandra's personal assets are significantly less than the amount proposed in the repayment plan. The tribunal also ruled that rejecting the plan is unlikely to improve the position of the dissenting creditors. If the plan fails, Chandra may face bankruptcy, which would reduce the likelihood of debt recovery from his financial assets.

The tribunal emphasized that it cannot substitute its own assessment of the settlement amount's sufficiency for the commercial judgment of the creditors. It also noted that 'the commercial decision of the creditors operates within, not outside, the legal framework.' The NCLT stated: 'AA (NCLT) does not replace the commercial wisdom of the creditors nor conduct a wide-ranging investigation into allegations that are not supported by reliable material. Its role is supervisory, corrective, and judicial, not investigative, unless the law requires it.'

Furthermore, the NCLT clarified that after the repayment plan is approved, it will apply to all creditors under Section 115 of the IBC, including those who opposed it. The matter will now return to the original bench, which will issue the official order according to the majority opinion under Section 419(5) of the Companies Act, 2013.

What is the Case About?

Bankruptcy proceedings began after Indiabulls Housing Finance filed a suit in 2022 against Chandra, which provided a personal guarantee for a loan of 170 crore rupees to the company Vivek Infracon, which subsequently became non-performing. In April 2024, the NCLT accepted the application for personal bankruptcy. Indiabulls Housing Finance Ltd was renamed Sammaan Capital Ltd in 2024.

Earlier, Chandra had argued that the NCLT did not have the authority to decide on personal bankruptcy. The tribunal rejected this argument in May 2022 and appointed a resolution professional. Chandra challenged this decision in the NCLAT, but the issue was closed after Indiabulls announced reaching an agreement. However, this agreement was never implemented. After the Supreme Court upheld relevant provisions of the IBC in November 2023, Indiabulls resumed the bankruptcy case in February 2024.