The controversy surrounding Zee Group promoter Subhash Chandra’s personal guarantee case will make lenders more cautious while pursuing similar cases involving Anil Ambani, Venugopal Dhoot and the legacy case of Sanjay Singhal, former promoter of Bhushan Power and Steel.
Recovery gap
In the last six financial years, about 4,203 cases against personal guarantors involving claims worth ₹2.78 lakh crore were filed. Of these, resolution professionals were appointed in 1,832 cases, while 664 were admitted. Only 39 cases resulted in approved repayment plans, yielding creditors ₹129 crore, or 2.49 per cent of admitted claims.
The roots of the Chandra case go back to a loan taken by Vivek Infracon, for which he provided a personal guarantee for a ₹170-crore loan. When the loan turned bad, Indiabulls Housing Finance moved against Chandra, and the NCLT admitted the case in April 2024.
The NCLT verdict, which resulted in recovery of just ₹6.5 crore against claims worth ₹22,007 crore, tells a harsh story. For every ₹100 claimed, the approved plan offers only around three paise to lenders.
Akshaya Bhansali, Managing Partner, Mindspright Legal, said the verdict in Chandra’s case will make lenders more cautious in evaluating personal guarantees to ascertain corresponding recovery.
It could lead to greater scrutiny of promoter net worth, asset tracing and the actual recoverability of guarantees, both at the time of sanctioning credit and when deciding the most effective recovery strategy, she said.
Big Exposures
In June, the NCLT Mumbai admitted SBI’s personal insolvency proceedings against Anil Ambani to recover ₹1,200 crore against his alleged personal guarantees for loans to Reliance Communications, which entered insolvency in 2019.
In April, the SBI-led consortium initiated personal insolvency proceedings against Venugopal Dhoot over an estimated ₹61,000-crore exposure linked to the erstwhile Videocon Group.
Kaushal Parsekar, Partner at King Stubb & Kasiva, Advocates and Attorneys, said the fact that HDFC Bank opposed Chandra’s settlement and is considering an appeal indicates that the issue is far from settled.
“The mere magnitude of the haircut, by itself, should not determine its validity. Any appellate court would examine specific facts, the statutory framework, the conduct of the creditors and guarantor and whether the insolvency process has been correctly applied,” he added.
Amit Kumar Nag, Partner, AQUILAW, said the principal areas of contention going forward will be whether a substantial decline in net worth should trigger a mandatory independent valuation or verification before the creditors’ vote, rather than only after the votes are cast, he said.
Creditors will now place greater emphasis on forensic asset tracing and verification before the creditors’ vote, rather than raising such concerns only after the proposed plan has been approved, he added.