New Delhi: The National Company Law Tribunal (NCLT) on Monday failed to pass a final order in the personal insolvency proceedings against Essel Group Chairman Subhash Chandra, with its two-member bench unable to arrive at a majority view after a third member gave an independent opinion on a repayment plan involving creditor claims of about Rs 22,006.57 crore.
The matter has now been referred back to the NCLT President under the provisions governing a difference of opinion between members. The President may either nominate another member to resolve the divergence or deal with the matter in accordance with the applicable procedure.
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The development leaves unresolved the legal fate of a repayment plan under which creditors would receive around Rs 6.5 crore against admitted claims of over Rs 22,000 crore. The tribunal has not passed a final order approving the plan, and the proceedings therefore cannot yet be treated as a completed resolution of Chandra's liabilities.
The case, which has been pending for around four years, had earlier produced a split verdict from the division bench comprising Ashok Kumar Bhardwaj, Member (Judicial), and Reena Sinha Puri, Member (Technical).
The matter was subsequently placed before a third member, who passed a 144-page order on August 25. The third member approved the repayment plan, taking a view that the provisions of the Insolvency and Bankruptcy Code (IBC) would extinguish the claims of creditors upon approval of the plan.
However, the third member's order did not produce the majority opinion required for the division bench to issue a final order.
In its order on Monday, the original bench said the third member had "consciously passed an independent order" and, consequently, "no majority view emerges".
"While Member (Technical) rejected the plan, the Member (Judicial) confined the plan to those who accepted and approved it and accorded liberty to dissenting creditors to recover their debt," the bench said.
According to the bench, the judicial member had not extinguished the claims of banks, financial institutions and dissenting creditors against the principal debtor or personal guarantor. The third member, however, approved the plan while applying Section 115(1) of the IBC uniformly, resulting in extinguishment of the rights of all creditors.
"All said and done, no majority view has emerged in the matter. In the wake, no order can be passed at this stage," the bench said, adding that it had no option but to make a fresh reference to the President under Section 419(5) of the Companies Act.
At the heart of the dispute is the interpretation of Section 79(2)(g) of the IBC and its interaction with Section 115(1), which deals with approval of a repayment plan.
In his original order, Bhardwaj had approved the repayment plan only in respect of creditors who had voted in its favour. These creditors represented around 80.8 per cent of the claims.
He had, however, allowed dissenting banks and financial institutions, representing roughly 19.2 per cent of the creditors, to pursue recovery of their dues independently against Chandra outside the repayment plan.
The third member took a materially different position, holding that Section 115(1) applied uniformly once the repayment plan was approved. This would have the effect of extinguishing the claims of all creditors, including those who had opposed the plan, against the personal guarantor.
The third member also differed from the original members on the extent of the adjudicating authority's jurisdiction to examine the Section 112 report submitted by the resolution professional concerning the meetings of creditors.
The dispute had been particularly contentious among dissenting lenders, led by LIC Housing Finance, which opposed the proposed payout as "unviable and unlawful".
The dissenting creditors had pointed to admitted claims of approximately Rs 22,006.57 crore against a repayment proposal comprising only Rs 6.25 crore for creditors and Rs 25 lakh towards process costs.
The third member, however, rejected their objections, relying in part on the resolution professional's assessment of Chandra's personal estate.
The order noted that the valuation of Chandra's personal assets indicated that his estate was worth substantially less than the amount proposed under the repayment plan. It further held that rejecting the plan could leave creditors facing a bankruptcy process, without necessarily improving their recovery prospects.
The proceedings have drawn attention because of the stark difference between the admitted creditor claims and the proposed repayment. But the numbers need to be viewed carefully.
The approximately Rs 22,006.57 crore figure represents claims admitted in the insolvency proceedings, while the roughly Rs 6.5 crore represents the amount contemplated under the repayment plan. The difference between the two figures should not, by itself, be described as a Rs 22,000 crore loan write-off or an immediate loss suffered by banks.
Whether and to what extent dissenting creditors can recover their claims, and what the eventual legal treatment of those claims will be, remains part of the unresolved dispute before the NCLT.
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The immediate question before the tribunal is therefore not simply whether creditors have accepted a near-total haircut, but whether the repayment plan can legally bind dissenting creditors and extinguish their claims in the manner proposed by the third member.
Until the NCLT reaches a final majority decision, the legal consequences of the proposed repayment plan remain unsettled.
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