Banks Under Scrutiny for Subhash Chandra Case
An Indian School of Business (ISB) finance professor, Prasanna Tantri, has publicly questioned the role of lenders in the insolvency proceedings of Essel Group founder Subhash Chandra. Tantri's critique follows the National Company Law Tribunal's (NCLT) approval of a repayment plan that would see Chandra pay just Rs 6.5 crore against admitted creditor claims exceeding Rs 22,000 crore — a staggering haircut of nearly 99.97% for the banks.
The Role of Personal Guarantees and Asset Monitoring
Professor Tantri specifically highlighted banks' reliance on personal guarantees without adequate scrutiny. He questioned why lenders would accept such guarantees from an individual without verifying sufficient underlying assets, or why they failed to monitor those assets if their value subsequently declined.
“If his assets subsequently eroded, why did the banks not monitor him and demand additional collateral when their value breached agreed thresholds?” Tantri asked, emphasizing that relying on a guarantee does not absolve lenders of their responsibility to conduct due diligence and ongoing monitoring.
IBC: A Tool, Not a Cure-All
Tantri also cautioned against viewing the Insolvency and Bankruptcy Code (IBC) as a universal solution to pre-default problems. He stated that the IBC is effective in preventing disorderly resolution and reducing losses after a default has occurred, but it "cannot compensate for poor screening, weak guarantees, or inadequate monitoring before default."
Subhash Chandra Clarifies His Position
In a separate statement dated August 30, Subhash Chandra addressed what he termed a "wrong perception" regarding his personal insolvency. He clarified that he had not personally borrowed Rs 22,000 crore. Instead, he had signed personal guarantees totaling approximately that amount.
Chandra explained that only about Rs 4,800 crore of these guarantees were signed when the underlying loans were originally taken out by borrowing entities. The remaining guarantees were executed after defaults had already occurred. He asserted that his own personal borrowing stood at zero, with the borrowing entities having already repaid Rs 3,803 crore, leaving an outstanding balance of around Rs 998 crore from the initial Rs 4,808 crore.
Creditors Challenge NCLT Ruling
The NCLT's decision to approve Chandra's repayment plan under Section 114 of the IBC faced strong opposition from several financial institutions. Banks like HDFC Bank, Axis Bank, Canara Bank, RBL Bank, and Union Bank of India had voted against the proposal, citing the exceptionally low recovery rate.
Consequently, some creditors have now challenged the NCLT order before the National Company Law Appellate Tribunal (NCLAT). Solicitor General Tushar Mehta, representing the creditors, sought an urgent hearing, which the appellate bench agreed to conduct.