The National Company Law Tribunal has controversially approved media baron Subhash Chandra’s personal insolvency resolution plan, which proposes a mere Rs 6.5 crore settlement against over Rs 22,000 crore in admitted creditor claims, amidst strong objections regarding the voting influence of family-linked entities.
Key Points
- The NCLT has approved Subhash Chandra’s personal insolvency plan, which offers Rs 6.5 crore against admitted creditor claims of about Rs 22,006.57 crore.
- Dissenting lenders, including HDFC Bank and Canara Bank, alleged that five entities linked to Chandra’s family, controlling 61.78 per cent of the voting share, were instrumental in approving the plan.
- These five entities (Veena Investments, Direct Media Distribution Ventures, World Crest Advisors LLP, Lemonade Capital Advisors LLP, and Corpcall Capital Advisors LLP) were argued to be ‘associates’ or ‘related parties’ and thus disqualified from voting.
- The NCLT’s third member, Nilesh Sharma, ruled in favour of the plan, rejecting the objections by observing that an entity is an ‘associate’ only if the debtor personally holds 51 per cent or more of its share capital or directly controls its board.
- One NCLT member, Reena Sinha Puri, had questioned the conduct of the resolution professional, citing procedural irregularities and violations of the IBC.
Dissenting lenders have alleged that five entities linked to media baron Subhash Chandra’s family together controlled 61.78 per cent of the voting share and were instrumental in pushing through his personal insolvency resolution plan, which proposes to pay just Rs 6.5 crore against admitted creditor claims of about Rs 22,006.57 crore.
The lenders contended that the five entities were associates or related parties of Chandra and should have been barred from voting on the repayment plan.
Their votes helped the plan secure an overall 80.814 per cent approval in the committee of creditors (CoC), according to a 144-page order of the National Company Law Tribunal (NCLT).
Allegations of Related Party Influence
The five entities are Veena Investments Pvt Ltd, Direct Media Distribution Ventures Pvt Ltd, World Crest Advisors LLP, Lemonade Capital Advisors LLP and Corpcall Capital Advisors LLP.
The objections were rejected by Nilesh Sharma, the third member of the NCLT bench, who ruled in favour of the repayment plan after a split verdict between Judicial Member Ashok Kumar Bhardwaj and Technical Member Reena Sinha Puri.
Dissenting lenders led by HDFC Bank and IDBI Trusteeship Services, representing Edelweiss and Franklin Templeton funds, argued that the five entities fell within the definition of “associates” under the Insolvency and Bankruptcy Code (IBC) and their votes should not have been counted.
HDFC Bank, with 3.2 per cent of the total claim amount, has already said it is mulling an appeal against the NCLT’s order.
Other dissenting lender Canara Bank too stated that it is filing an appeal in NCLAT against the NCLT order.
Canara Bank (1.60 per cent voting share) along with other public sector entities Union Bank of India (0.76 per cent voting share) and LIC Housing Finance Ltd (6.09 per cent voting share), opposed and voted against the repayment plan submitted by Subhash Chandra for Rs 6.25 crore, Canara Bank said in a statement.
However, the repayment plan was approved by other private creditors with a majority vote of 80.81 per cent voting shares.
In fact, Canara Bank demanded a forensic audit, but the same could not be allowed in view of its minority voting share, the statement said.
NCLT’s Split Verdict and Third Member’s Decision
After a split opinion between Judicial Member Ashok Kumar Bhardwaj and Technical Member Reena Sinha Puri, in the matter, it was sent to a third member, Nilesh Sharma, who ruled in favour of the resolution plan, in which Chandra will pay just Rs 6.5 crore to settle admitted creditor claims of about Rs 22,006.57 crore in his personal insolvency resolution process.
It is to be noted that Reena Sinha Puri, Member (Technical) of the two-member bench, who did not consent to the plan, took a critical view and questioned the conduct of the resolution professional (RP), saying he violated Section 106(4) of the IBC and other provisions, flagged serious procedural irregularities in the repayment plan, and raised concerns over his conduct.
However, Chandra, issuing a statement on Thursday, said the total claim against him in the personal insolvency proceedings is only “Rs 3,992 crore”, for which he was only a personal guarantor and not the borrower. He has refuted claims of Rs 22,000 crore.
The order passed by the third member recorded the submission of dissenting creditors, where they alleged Veena Investments is said to be controlled by Sushila Devi Goel, wife of Jawahar Goel – Chandra’s brother – while Direct Media Distribution Ventures and World Crest Advisors are its subsidiaries.
Their claims against Chandra were founded on indemnity letters and guarantee deeds he had allegedly executed in their favour over pledged group shares linked to credit facilities extended by IndusInd Bank to Spirit Textiles Pvt Ltd, another group entity.
Moreover, “the claims submitted by Lemonade Capital Advisors LLP and Corpcall Capital Advisors LLP are stated to be founded upon deeds of guarantee allegedly executed by the Personal Guarantor (PG) in connection with financial facilities availed by another group entity, namely Churu Enterprises LLP,” the NCLT order recorded.
It has further been contended that the proximity and relationship between the aforesaid entities and the PG (Subhash Chandra) stand reinforced by the fact that the partners of these two entities are also directors in companies disclosed as “other related parties” in the consolidated financial statements of Veena Investments for the financial year 2020-2021.
Creditor Objections and NCLT’s Rationale
The NCLT order recorded that Respondent No 13, which is one of dissenting creditor “contended that the Resolution Professional wrongfully admitted the claims of five associate entities of the Personal Guarantor — Veena Investment, Direct Media Distribution Ventures, World Crest Advisors LLP, Lemonade Capital Advisors LLP, and Corpcall Capital Advisors LLP — which collectively held around 61.78 per cent voting share in the CoC and were instrumental in approving the repayment plan.”
It was argued that these entities were “associates” and “related parties” within the meaning of Sections 79(2), 5(24A), and 109(4)(b) of the IBC, and were therefore disqualified from voting, NCLT recorded.
The dissenting lenders further contended that the guarantees underlying all five entities’ claims were invoked only after the interim moratorium had kicked in – which they argued made the invocations legally void – and that the entities’ own financial statements filed with the Ministry of Corporate Affairs did not reflect any liability owed by Chandra, features they said pointed to collusive, artificially created debt.
However, these submissions were rejected by the third member, Nilesh Sharma, a Member (Judicial), by observing that an entity is an “associate” only if the debtor personally holds 51 per cent or more of its share capital, or directly controls its board.
“It was also urged that the Resolution Professional had failed to appropriately scrutinise the claims and voting rights of certain creditors before taking the plan into consideration for approval. On such premises, the Applicant sought reconsideration of the approval process,” the NCLT noted in its order.
RBL Bank along also “substantially reiterated and adopted issues akin to those raised” by the two dissenting creditors and questioned the fairness and viability of the Repayment Plan and contended that the same was prejudicial to the interests of the genuine creditors.
IndusInd Bank assailed the manner in which the voting shares had been computed by the Resolution Professional.
It also raised issues with regard to the “commercial viability, fairness and adequacy of the Repayment Plan, particularly in view of the alleged disparity between the value proposed under the plan and the financial standing and asset base of the Personal Guarantor/Debtor”.
The matter will now go back to the original division bench for a formal order in line with the majority opinion, as required under Section 419(5) of the Companies Act, 2013.
