NCLT five-member bench stays Subhash Chandra’s ₹6.5 crore repayment plan, says earlier order was not majority view

The National Company Law Tribunal (NCLT) on Tuesday stayed an earlier order approving Zee founder Subhash Chandra’s ₹6.5 crore repayment plan, reopening a challenge to a proposal opposed by several lenders.

A five-member special bench of the NCLT led by president Justice Anupinder Singh Grewal clarified that the order of member Nilesh Sharma, delivered on 25 August, could not be given effect because it did not constitute the majority view of the tribunal.

The bench, comprising Justice Grewal, judicial members Bachu Venkat Balaram Das and Mahendra Khandelwal Das and technical members Atul Chaturvedi and Ravindra Chaturvedi, restrained Chandra from selling or transferring any property held by him, directly or indirectly, during the pendency of the matter. The direction came after solicitor general Tushar Mehta appeared for the creditors and sought protection of Chandra’s assets.

The NCLT issued notices to the parties involved and said it would hear them at length before taking a final decision on the repayment plan. The next hearing is scheduled on 23 September. The outcome will determine the future of Chandra’s proposal, which seeks to settle claims linked to personal guarantees he provided for corporate borrowings.

“We have complete faith and confidence in our judicial system,” Chandra’s office said in response to Mint’s query.

The issue is whether Chandra’s repayment plan is binding on creditors who opposed it. Chandra’s plan proposed payment of ₹6.5 crore, of which ₹6.25 crore would go to creditors and ₹25 lakh towards insolvency process costs. It received 80.81% support from creditors by value. According to Sharma, the plan would be binding on dissenting creditors.

The creditors voting against the plan included LIC Housing Finance, IDBI Trusteeship Services, HDFC Bank, Axis Bank, Canara Bank, Union Bank of India (UK), and RBL Bank.

Queries sent by Mint to HDFC Bank, Axis Bank, LIC Housing Finance, IndusInd Bank and other creditors remained unanswered.

The NCLT had clarified on Monday evening that there was no majority view on the repayment plan.

Unusual development

According to insolvency lawyers, the setting up of such a large special bench is unprecedented in the NCLT’s history.

“This is the first time in NCLT's history that a bench of this size has been constituted,” said Anshul Verma, a partner at SKV Law Offices. “NCLT ordinarily functions through single-member benches for routine matters or two-member division benches – one judicial, one technical – as the norm.”

Somdutta Bhattacharyya, a partner at Argus Partners, said the development was unusual, although there was no legal difficulty in the tribunal reconsidering the matter.

“There has been a lot of public discourse and hype around the matter, which may have prompted the NCLT to constitute a five-member bench,” Bhattacharyya said.

According to Akshaya Bhansali, managing partner at Mindspright Legal, the case shows that the commercial value of a repayment plan cannot substitute for a legally sound process, which must ultimately produce a clear and reasoned majority view.

The creditors simultaneously challenged the repayment plan before the National Company Law Appellate Tribunal (NCLAT). Minutes after the NCLT special bench proceedings ended, Mehta appeared before the NCLAT for creditors including LIC Housing Finance, HDFC Bank and Union Bank of India.

Mehta asked the NCLAT to consider whether its intervention was needed now that the NCLT had stayed the earlier order. The NCLAT listed the matter for Wednesday.

Bhattacharyya from Argus Partners said the outcome of the matter before the tribunals would be watched closely, especially by the dissenting creditors.

“The best outcome would be to get clarity on the position of dissenting creditors in personal insolvency cases,” he said. “If you dissent against a repayment plan, what is your ultimate remedy? Can you pursue a separate recovery proceeding?”

Greater scrutiny

He also said the case could lead to greater scrutiny of personal guarantors.

“Personal guarantors would also now be on their toes to see if more protection thresholds are brought in for dissenting creditors or more diligent disclosure and forensic measures are introduced into the [Insolvency and Bankruptcy] Code to trace personal guarantees and linked assets,” he said.

The case concerns Chandra’s liability as a personal guarantor for loans taken by companies linked to the Essel Group and the Zee Group. In February, a two-member bench of the NCLT differed on whether his repayment plan would be binding on dissenting creditors. Sharma, who was brought in as the third member, approved the plan and held that it would be binding on dissenting creditors.

Government officials told Mint earlier that about ₹2,574 crore of the claims were related to loans for which Chandra had given personal guarantees when they were taken. Chandra has said he did not personally borrow the money and that his ₹31.79 crore net worth formed the basis of his repayment proposal.

There is also a dispute over the voting process. A creditor alleged that the resolution professional had wrongly admitted the claims of five entities—Veena Investments, Direct Media Distribution Ventures, World Crest Advisors, Lemonade Capital Advisors and Corpcall Capital Advisors—which together held 61.78% of the voting share and helped approve Chandra’s repayment plan.

Sharma, the third member, found no evidence establishing the entities as related parties. Chandra’s office said the companies belonged to Jawahar Goel, his younger brother, whose business interests were separated from Chandra’s during a family business separation in 2008-09.