NCLT approves Subhash Chandra’s Rs 6.5-crore repayment plan against Rs 22,006 crore dues 

In finance, a haircut refers to the percentage reduction in the amount that a debtor owes to its lenders. 

NCLT third party Nilesh Sharma approves the plan

NCLT member (Judicial) Nilesh Sharma, appointed as the third member of the case, approved the pan under Section 114 of the Insolvency and Bankruptcy Code (IBC) on Tuesday, August 26. Sharma rejected the claims of lenders, stating that the recovery amount was too small for legal approval. 

Prior to this, two NCLT members had given a split verdict on the case, following which Sharma was selected for a third-party opinion. LIC Housing Finance, which was one of the creditors involved in the case, argued that the payout was “unviable and unlawful”. 

The HFC-NBFC had contended that the proposed plan comprised payment of only Rs 6.25 crore to creditors and Rs 25 crore to process costs, against the claims of more than Rs 22,006 crore.

 “In the case of LICHFL, whose admitted claim stood at Rs 1,322.39 crore, the proposed repayment was merely Rs 38,09,294, amounting to approximately 0.028 per cent of its admitted dues. It was contended that such a negligible repayment could not receive the approval of this tribunal,” PTI cited the NCLT order recording its submission.

While creditors objected to the repayment plan, stating the proposed amount to be tentative and incapable of approval, NCLT noted that the objecting creditors together held less than 20 per cent of the voting share, and the plan had been approved by creditors holding 80.81 per cent of the voting share.

NCLT says creditors can recover the amount later

In a 144-page-long order, Sharma showed that the resolution professional’s valuation showed that the value of Chandra’s real estate was way less than the repayment amount offered in the plan, and by rejecting the recovery amount, the opposing creditors were unlikely to recover more, as the tribunal noted that Chandra would face bankruptcy instead of being able to pay from a position of financial recovery. 

“If the plan is approved and the debtor’s insolvency is resolved, putting him back on his feet, the objectors would ultimately stand a better chance of recovering their debts directly from the Principal Debtors,” PTI quoted NCLT in its report.

The tribunal said its role was not to substitute its own commercial judgment, and for that, creditors need to assess whether the recovery amount is sufficient.  It also said that “the commercial decision of the creditors operates within, and not outside, the statutory framework”.

“The AA (NCLT) neither substitutes its own commercial wisdom for that of the creditors nor does it conduct a wide-ranging investigation into allegations that are unsupported by reliable material. Its role is supervisory, corrective, and judicial, not investigative unless the statute so requires,” PTI quoted NCLT as saying. 

Once approved plan would bind all creditors

The tribunal added that once approved, the plan would apply to all the creditors under Section 115 of the IBC, regardless of whether they voted in favour of it or not. 

“Once the Repayment Plan is approved under Section 114, its binding effect is governed by Section 115 of the Code. The Adjudicating Authority (NCLT) cannot make the plan binding only on the creditors who voted in its favour while allowing dissenting creditors to independently pursue recovery of their full original debt,” PTI cited NCLT.

Giving a nod to the plan, the tribunal said: “In view of the above findings, the Repayment Plan submitted by the Personal Guarantor, in my opinion, is required to be approved under Section 114 of the Insolvency and Bankruptcy Code, 2016¦”.

It added that the case will now return 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 

With inputs from PTI