NCLT Delhi on Personal Guarantor Repayment Plan and Dissenting Creditors

1. Background and Procedural History

The matter in Indiabulls Housing Finance Limited Vs Dr. Subhash Chandra (NCLT Delhi) reached a Special Bench of the National Company Law Tribunal, New Delhi, due to a divergence of opinion between the Judicial Member and the Technical Member on the approval of a repayment plan in a personal guarantor insolvency proceeding.

The reference was made by the Hon’ble President, NCLT under Section 419(5) of the Companies Act, 2013, read with Rule 60(2) and (3) of the NCLT Rules, 2016, for opinion of a Third Member (Hon’ble Shri Nilesh Sharma, Member (Judicial)).

1.1 Initiation of Insolvency Proceedings against the Personal Guarantor

  • In 2022, Indiabulls Housing Finance Ltd. filed CP(IB)-97/ND/2022 under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC/Code) against Dr. Subhash Chandra, as personal guarantor (PG).
  • On 30.05.2022, the NCLT appointed Mr. Raj Kamal Saraogi as Resolution Professional (RP) for the debtor.
  • Subsequently, in WP(C) No. 567 of 2022, the Hon’ble Supreme Court passed an interim order dated 05.08.2022, which led the NCLT to keep the RP’s Section 99 report in abeyance by order dated 18.08.2022.
  • After the Supreme Court vacated its earlier interim order, the NCLT, by a detailed order dated 22.04.2024, admitted the Section 95(1) petition and formally commenced the personal insolvency resolution process of the PG.

1.2 Change of Resolution Professional and Filing of Repayment Plan

  • Following admission, the earlier RP, Mr. Saraogi, was replaced with Mr. Shiv Nandan Sharma via order dated 27.05.2024 in I.A.-2148/2024.
  • Mr. Sharma, upon completing the relevant process under the Code, moved I.A.-5505/2024 seeking approval of the repayment plan proposed by the PG.
  • Notice on I.A.-5505/2024 was issued to all creditors. Multiple creditors appeared, some opposing and others supporting the proposed plan.

1.3 Participation of Creditors and Procedural Directions

A number of financial creditors found that they had not been arrayed as parties in I.A.-5505/2024. Their replies were facing registry objections due to non-impleadment, compelling them to file individual interlocutory applications to place their objections on record.

Creditors such as IDBI Trusteeship Services Limited, HDFC Bank Limited, Canara Bank, among others, filed IAs objecting to the repayment plan. Supportive creditors also appeared, including entities like Corpcall Capital Advisors LLP, Catalyst Trusteeship, World Crest Advisors LLP, Direct Media Distribution Ventures Private Limited, Lemonade Capital Advisors LLP and Veena Investments Private Limited.

Recognising this difficulty, the Tribunal, by order dated 06.01.2025, directed the RP to file an amended memo of parties, impleading all creditors – both supporting and objecting – as parties to I.A.-5505/2024.

2. Debtor’s Stand and Tribunal’s Initial Directions

On 02.05.2025, Dr. Subhash Chandra personally appeared and argued that several admitted creditor claims were erroneous and that he did not owe liability to many of those who were opposing the repayment plan.

He further submitted that:

  • The concept of “related party” as invoked by some objecting creditors was not applicable in the context of a personal guarantor proceeding.
  • The repayment plan had received 80.814% of voting share in favour, and therefore, in his view, Section 114(1) of the IBC left no discretion to the Tribunal but to pass orders based on that majority decision.

Objecting creditors, represented by various senior counsel, contested this reading of Section 114. The Bench then:

  • Noted the rival submissions.
  • Directed RP Mr. Sharma to examine the pleas raised by the PG and to submit a report in sealed cover, including his independent remarks on the conduct of the process and issues raised.
  • Clarified that the report’s implications on procedure and merits under the IBC would be considered later.

3. Core Features and Justification of the Repayment Plan

In I.A.-5505/2024, the RP placed on record the repayment plan formulated by the PG along with his financial details and estate position. Key aspects from the RP’s application included:

3.1 Structure and Basis of the Plan

  • The PG’s plan was premised on combining the realizable value of his estate with his future income-generating potential.
  • The RP noted that, as per the disclosed position, the bankruptcy estate alone might not even cover expenses of a bankruptcy process, leaving creditors with negligible or no dividend in a bankruptcy scenario.
  • The PG proposed to liquidate the few assets/deposits that he owned and contribute the entire amount of Rs 6.5 crores towards the repayment plan, asserting that he was putting all available resources into the proposal.

3.2 Commercial Rationale and PG’s Position

The plan was projected as:

  • A commercial compromise designed to close all mutual disputes and litigations between the PG and creditors.
  • A mechanism to save legal costs and create a framework for future business relationships.
  • A solution that, compared to bankruptcy, purportedly offered better economic recovery to creditors given the limited value of the bankruptcy estate.

The PG asserted:

  • He had not engaged in asset stripping or creation of undisclosed wealth.
  • He was maintaining a “normal” lifestyle while attempting to settle disputes and honour familial responsibilities.
  • There was no commercial reason, in his view, for creditors to reject the plan when weighed against the anticipated value from bankruptcy proceedings.

Multiple financial creditors filed detailed objections and IAs, raising both legal and factual challenges:

4.1 Debtor’s Defence to Indiabulls’ Claim (Extracted in RP’s Report)

In response to the earlier RP’s report (I.A.-2892/2022), the PG had already advanced several defences concerning the deed of guarantee and transactions with Indiabulls Housing Finance Limited, including:

  • Allegations that the deed of guarantee was obtained through misrepresentation, coercion, undue influence, and fraud.
  • Reliance on an undertaking dated 29.11.2018, by which, according to the PG, payment conditions by borrowers, if not fulfilled, altered the circumstances and discharged him from guarantee liability.
  • Arguments that subsequent or prior undertakings and notices affected the enforceability and subsistence of the personal guarantee dated 05.12.2018.
  • Contention that a later settlement regarding the Loan Agreement dated 13.12.2016 between Indiabulls and the principal borrower undermined the basis for pursuing him as personal guarantor.
  • Claims that payment of Rs. 225 crores and release of two securities indicated an understanding that the personal guarantee stood discharged.
  • Objections that the Section 99 report was premature and did not credibly record his defences.

These points were part of the wider factual and legal contest between the PG and Indiabulls but were distinct from the core reference question on the repayment plan’s approval.

4.2 Canara Bank – I.A.-6125/2024

Canara Bank opposed the repayment plan on several grounds:

  • Although the plan was approved by 80.814% voting share, it was alleged to be prejudicial to genuine creditors because the plan value was said to approximate only 0.028% of the PG’s stated asset value.
  • Reference was made to a 2018 net worth certificate indicating that the PG’s net worth then was ₹40,562 Crores, suggesting a major erosion or non-disclosure.
  • The bank argued that votes in favour appeared to be cast mainly by related or associate entities.
  • It highlighted that all banks had either voted against or not voted, with their total share forming 19.186% of the vote, while supportive votes came from other categories of creditors.