NCLT admits Indiabulls' personal insolvency plea against Zee's Subhash Chandra

NCLT admits Subhash Chandra to personal insolvency

The National Company Law Tribunal (NCLT) in Delhi on April 22 admitted  Indiabulls Housing Finance's (IBHF)  personal insolvency plea against Zee Entertainment Enterprises Limited (ZEEL) chairman emeritus Subhash Chandra over guarantees given to a company called Vivek Infracon.

The tribunal also rejected pleas by IDBI Trusteeship and Axis Bank against Chandra being admitted to personal insolvency.

As a result of Chandra being admitted to moratorium, no litigation can be initiated against him. Chandra also cannot alienate or sell any of his assets and the Resolution Professional (RP) will now process the claims of those who intend to recover money from him.

IBHF claimed that while Chandra indicated of a settlement being reached  in the dispute, it has not fructified even after months. Thus, they are constrained to revive the personal insolvency plea. The plea was filed under the Insolvency and Bankruptcy Code, 2016 (IBC).

IBHF had moved a petition to initiate personal insolvency against Subash Chandra in 2022 after a loan of Rs 170 crore it had given to Vivek Infracon had turned into non-performing assets. Chandra argued that NCLT cannot rule on an individual's insolvency.

On May 30, 2022, the tribunal ruled that it had the powers to rule on Chandra's solvency and appointed a resolution professional to consider Indiabulls' application. However, the case had gone into cold storage after provisions relating to personal guarantee under IBC were challenged in the Supreme Court. The apex court had in June 2022 asked the resolution professionals of personal guarantors not to act on their mandates.

In November 2023, it upheld the validity of these provisions making way for companies to revive cases against personal guarantors. Thus IBHF revived the plea.

Who are personal guarantors and what does the IBC say about them?

A personal guarantor is a person who gives a written assurance to a lender that a company will repay the loan/ credit facility it has obtained. In the event the company does not repay the loan/credit facility, his personal assets can be attached by the lender.

In 2019, the government brought in new provisions in the IBC that enabled a creditor or the RP of a company to move applications under the IBC to enforce personal guarantees. For instance, if a company has been admitted into the insolvency resolution process and its promoter had given a personal guarantee to its lenders, the lenders, either on their own or through the RP, can move an insolvency plea against the promoter.

The NCLT will then appoint another RP to represent the personal guarantor. The RP will collate the information related to the nature of the loan given to the company, the amount in default and the role of the personal guarantor. The NCLT, upon analysis of the RP’s report, will determine whether the personal guarantor must be admitted into the insolvency process or not.