NCLT OKs Subhash Chandra’s Debt Plan, IBC ‘Associate’ Test Debated
By Business Desk
NCLT approves Subhash Chandra’s personal insolvency plan, granting a 99.97% creditor haircut and igniting debate over the IBC’s ‘associate’ test.
The National Company Law Tribunal (NCLT) recently approved a personal insolvency repayment plan for media tycoon Dr. Subhash Chandra. This decision resulted in a significant 99.97% haircut for creditors, who will receive only Rs 6.5 crore against Rs 22,000 crore in admitted claims.
The ruling has drawn attention to the interpretation of India’s Insolvency and Bankruptcy Code (IBC), particularly regarding entities with financial ties to the debtor. A key element of the NCLT’s judgment was allowing five specific entities to vote in the committee of creditors (CoC).
The ‘Associate’ Test Under Scrutiny
These five entities, which held approximately 61.78% of the voting power, were permitted to participate despite their connections to Chandra. NCLT Judge Nilesh Sharma determined that they did not meet the narrow legal definition of an “associate” under the IBC.
- Veena Investments Private Limited
- Direct Media Distribution Ventures Private Limited
- World Crest Advisors LLP
- Lemonade Capital Advisors LLP
- Corpcall Capital Advisors LLP
The IBC’s definition focuses strictly on direct ownership and legal control, rather than broader commercial influence. Dissenting banks, including LIC Housing Finance, HDFC Bank, Axis Bank, Canara Bank, and RBL Bank, argued that this allowed related parties to compromise the CoC’s independence and influence the repayment plan.
Chandra’s Defense and NCLT’s Acceptance
Legal experts, such as Alay Razvi from Accord Juris and Nishant Nigam from 3Sixty Law Group, suggest this ruling exposes a potential loophole in the IBC. They argue it could enable debtors to structure their affairs to favor repayment plans offering minimal creditor recovery.
Dr. Chandra clarified that the proceedings were against him as a personal guarantor, not a direct debtor, and stated the Rs 22,000 crore figure was misleading regarding his personal liability. He added that most of the Essel Group’s total debt had already been repaid, and the 99.97% haircut applied only to personal recovery actions.
- Objecting banks were owed: Rs 3,992 crore
- Amount settled: Rs 620 crore
- Further offer from borrower entities: Rs 1,063 crore
Chandra also addressed the significant drop in his net worth, from over Rs 45,000 crore in 2017-2018 to Rs 31.79 crore. He explained that higher figures reflected market capitalization of group companies, not his personal wealth, and he had used most available capital to repay group company loans since the 2019 debt crisis.
The NCLT accepted Chandra’s explanation and rejected demands for a forensic audit, stating that a discrepancy alone does not constitute legal proof of fraud or concealment. The judge noted that if creditors genuinely believed wealth was concealed, their remedy was to vote against the plan and push him into bankruptcy.
Calls for Legislative Review
Legal experts advocate for a legislative review to align the “associate” definition in personal insolvency cases with the “related party” concept used in corporate insolvency. Such a review aims to prevent similar outcomes in the future and ensure greater creditor protection.