Govt Source Says Subhash Chandra Haircut Not as Steep as Reported

The reported 99.97% haircut on more than ₹220 billion of claims against Essel Group founder Subhash Chandra overstates the losses faced by lenders because the insolvency case relates to his liability as a personal guarantor and does not extinguish claims against the principal borrowers, a government source said.

The National Company Law Tribunal-approved repayment plan provides for about ₹62.5 million to be recovered from Chandra’s personal estate. It also envisages about ₹14.94 billion of payments by the principal corporate borrowers, the source said.

Creditors retain the right to pursue recoveries against the principal borrowers, securities and other available corporate assets, the source added.

The ₹220.06 billion figure widely cited as lender exposure represents total claims admitted against Chandra in his capacity as personal guarantor for debts of several Essel- and Zee-linked companies, rather than loans borrowed personally by him, according to the source.

Only about ₹25.74 billion of those claims relate to loans for which Chandra’s personal guarantee was provided at the time of the original borrowing. Most of the other guarantees were given later as additional security, the source said.

The government source said describing the difference between the ₹220.06 billion of admitted claims and the ₹62.5 million recovery from Chandra’s estate as a 99.97% loss on bank loans was therefore misleading.

The insolvency proceeding was initiated against Chandra as a personal guarantor after a default on a loan to Vivek Infracon.

The repayment plan received support from creditors holding 80.81% of voting rights. LIC Housing Finance, HDFC Bank, Axis Bank, Canara Bank, RBL Bank and Union Bank were among creditors that opposed the plan, according to media reports.

Creditors had also questioned the sharp decline in Chandra’s disclosed net worth. Historical certificates showed net worth of ₹458.88 billion in 2017 and ₹405.62 billion in 2018, compared with about ₹317.9 million currently disclosed, according to the source.

The NCLT nevertheless held that the objections were insufficient to overturn the plan approved by the required majority of creditors.

Chandra has separately said Essel Group companies have paid about ₹430 billion to creditors so far, the government source said.

The source also said the case should not be viewed as representative of recoveries under the Insolvency and Bankruptcy Code because it involves resolution of a personal guarantor rather than a corporate debtor.