IBC: The personal guarantee puzzle

The Subhash Chandra episode doesn't show that the Insolvency and Bankruptcy Code (IBC) has failed - but that there's a gap, when it comes to voting, which can be used by any promoter

A ₹6.5 crore repayment plan by a personal guarantor, which the lenders interpret as a 99.97 per cent haircut, is in the eye of the storm. The guarantor is Subhash Chandra, often called the “father of Indian television” – founder of the Essel Group that owns Zee Media. While lenders and insolvency resolution filings list an amount of ₹22,000 crore figure as the total debt guaranteed by him, Chandra has clarified that he never personally took those loans himself. “These numbers are incorrect and falsely represent the matter,” he says.

 

How much would the lenders get if their claim is correct? Here’s just one example: LIC Housing Finance Ltd, whose admitted claim was ₹1,322.39 crore, would receive just over ₹38 lakh – about 0.028 per cent.

 

While the debate is on, here’s what happened: On 25 August, a member of the Delhi National Company Law Tribunal (NCLT) approved the ₹6.5 crore repayment plan – ₹6.25 crore for creditors and ₹25 lakh for processing costs – against admitted claims of ₹22,006.57 crore. The plan had 80.814 per cent support of the creditors, but banks allege that entities associated with Chandra accounted for 61.78 per cent of the votes cast.

 

Since then, there have been a few developments:

 

 # A couple of days after the NCLT decision, a group of dissenting bankers moved to the National Company Law Appellate Tribunal (NCLAT) challenging the order.

 

# On August 31, a two-member NCLT bench declared that no clear majority opinion had emerged among the judges regarding Chandra’s personal insolvency repayment plan and referred the matter back to the NCLT president.

 

# On September 1, the NCLT president constituted a five-member bench, which stayed the original order approving the repayment plan and restrained Chandra from transferring his assets.

 

# On September 2, Chandra's legal counsel challenged the NCLT’s action, arguing that the NCLT lacks the legal power to constitute a five-member bench to review the single-member order.

 

# On September 12, the Insolvency and Bankruptcy Board of India (IBBI) issued directives warning against the misuse of bankruptcy proceedings and proposed four major structural amendments to personal guarantor regulations.

 

# Finally, the Enforcement Directorate is preparing to start a drive against fraud under the IBC, including cases of alleged collusive resolutions which have led to disproportionately large haircuts helping defaulting promoters re-acquire assets.

 

Chandra acknowledges (through a statement on 30 August on X) signing personal guarantees for ₹22,000 crore – out of this, guarantees were signed at the time of borrowing ₹4,800 crore and the rest signed post-default.

 

“The repayment plan was prepared by the RP (Resolution Professional) considering total assets and funds available with the PG (personal guarantor). He investigated how the declared funds/assets of PG in Parliament of India in 2016 of ₹39.08 crore were reduced to ₹31.79 crore (including a residential house valued at ₹25 crore, which was also mortgaged) hence leaving liquid assets worth ₹6.79 crore.” Chandra was an independent Member of Parliament in the Rajya Sabha, from August 2, 2016 to August 1, 2022.

 

However, Canara Bank has challenged Chandra's valuation of his personal estate, quoting historical net-worth records: A 2017 net-worth certificate valued his net worth at ₹45,888 crore and a 2018 net-worth certificate valued his net worth at ₹40,562 crore.

 

Chandra explained the ₹22,006.57 crore figure using lender-wise exposures. Going by his version, the group companies had received ₹4,808 crore, repaid ₹3,803 crore, leaving a balance of only ₹998 crore. But he has faced ₹5,311 crore in personal-guarantee claims. Claims of ₹1,049 crore from Indiabulls Housing Finance Ltd and Axis Bank had been settled, leaving a contested amount of ₹4,262 crore. His statement also added that "all borrowers" had assured him that they would settle that balance "after reconciliation with lenders".

 

Every bank in the creditor body chose to dissent from the single-member NCLT order. Along with other institutional lenders, the opposing bloc held 19.186 per cent of the loan. They argue that at least five entities should not have been allowed to vote, which decided the haircut.

 

Which are the five entities that supported the resolution? They are Veena Investments Pvt Ltd, Direct Media Distribution Ventures Pvt Ltd, World Crest Advisors LLP, Lemonade Capital Advisors LLP, and Corpcall Capital Advisors LLP. Together, they held 61.78 per cent of the voting share.

 

Chandra’s office has said that the businesses belonged to his younger brother Jawahar Goel and both had separated their businesses in FY2008-09.

 

Banks and other creditors allege they are associates or related entities of Chandra, and counting their votes has breached the IBC norms. They claim that documentary evidence establishing the connections was disregarded in favour of Chandra’s family-settlement explanation.

 

The NCLT announced the judgment on 25 August 2026, but the voting on the repayment plan had closed at 12:01 pm on 1 November 2024. The dissenting institutions included HDFC Bank Ltd, Axis Bank, RBL Bank Ltd, IndusInd Bank Ltd, IDBI Trusteeship acting for Franklin Templeton, LIC Housing Finance, Canara Bank, and Union Bank of India. They didn’t just say that ₹6.25 crore was too little; they even challenged the constitution of the approving majority.

 

Beyond the size of the haircut, the incident raises a structural question: Can parties close to a key beneficial owner use their voting power to extinguish or sharply reduce the owner’s liabilities, even as the financial institutions whose money is at risk unanimously object?

 

The banks allege that this is what happened. Chandra disputes their premise. We are eagerly waiting for the final act of the drama.

 

This is a classic case of applying creditor democracy to a disputed creditor body. In normal circumstances, a super-majority vote is treated as a commercial judgment. But this case is different as the dissenters say that the overwhelming majority was in favour of such a steep haircut because entities allegedly associated with Chandra dominated the ballot.

 

How did it all start? Indiabulls Housing Finance had lent about ₹170 crore to Vivek Infracon Pvt Ltd under an agreement dated 13 December 2016, with Chandra as personal guarantor. In a separate transaction, STCI Finance Ltd financed Essel Corporate Resources Pvt Ltd and Jayneer Infrapower & Multiventures Pvt Ltd for about ₹250 crore.

 

Indiabulls had initiated legal action against the personal guarantor (Chandra) at the New Delhi bench of NCLT in May 2022. The NCLT appointed a resolution professional by end-May, but the Supreme Court stayed the matter in August 2022. Almost two years later, in April 2024, the Supreme Court vacated the stay and the NCLT immediately admitted the petition. The rest, as they say, is history.

 

The five-member NCLT bench is scheduled to hear the plan on 23 September and the NCLAT is due to hear the lenders’ appeal against the stayed approval on 7 October. We will wait and watch how both bodies deal with the appeal and the legality of the voting process.

 

Under Part III of the IBC, 2016, Section 95 provides a dedicated framework allowing financial creditors to initiate personal insolvency proceedings against individual personal guarantors of defaulted corporate loans.

 

The Chandra proceedings do not signal that the IBC has failed. The stay and rehearing of the reconciliation case show that a contested order can be corrected, but it exposes a gap in the resolution architecture that can be used by any promoter. Creditor control works only if the creditors exercising it are genuinely independent, claims are rigorously verified, and votes reflect the capital actually at risk.

 

The five-member bench will have to decide whether the ₹6.5 crore plan represented a legitimate commercial choice or was distorted by allegedly connected/associated voters. Should Chandra be allowed an honourable exit while the loans reportedly guaranteed by him remain unpaid by the borrowers?

 

The outcome will signal whether a personal guarantee remains meaningful or control over the ballot box can decide everything – and not the promise made to the creditors. 

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The writer is an author and senior advisor to Jana Small Finance Bank Ltd. His latest book: Roller Coaster: An Affair with Banking. To read his previous columns, log on to www.bankerstrust.in. X: @TamalBandyo