Indiabulls’ Plea Against Chandra Tests Insolvency Code’s Teeth

The National Company Law Tribunal (NCLT) has constituted a five-member bench to hear Indiabulls Housing Finance’s insolvency plea against Subhash Chandra, sending shockwaves through the corporate world. This move comes at a time when the NCLAT is reviewing an NCLT order approving a Rs 6.5 crore payment by the Essel Group chairman over creditor claims of about Rs 22,007 crore in his personal insolvency resolution process.

The decision to set up a special bench highlights growing unease among lenders and creditors regarding the arbitrary exercise of power by promoters like Chandra, who have managed to wriggle out of substantial financial obligations. By appointing a five-member bench headed by Justice Anupinder Singh Grewal, the NCLT is signaling that it will not take Chandra’s plea lightly.

At its core, the dispute revolves around guarantees offered by Chandra to lenders. These guarantees were meant to provide assurance to creditors but have instead become a convenient tool for promoters like Chandra to stave off repayment of massive debts. The insolvency code was introduced with the intention of protecting lenders’ interests and preventing such malpractices.

However, instances like this one raise questions about its efficacy. Solicitor General Tushar Mehta’s involvement, representing public sector players LIC Housing Finance, Canara Bank, and Union Bank, underscores the gravity of the situation and highlights the need for swift action to prevent further erosion of lenders’ confidence. Mehta has pleaded for an urgent hearing in the second half of the day.

In contrast to other jurisdictions, India’s insolvency code has been criticized for its loopholes and leniency towards defaulters. This case serves as a stark reminder that even with overwhelming evidence, promoters like Chandra continue to exploit these weaknesses to their advantage. The NCLT’s decision to constitute a special bench is an attempt to plug this loophole and ensure lenders’ rights are protected.

Looking back at previous instances, leniency towards promoters has often led to catastrophic consequences for lenders. For instance, the recent Anil Agarwal-promoted Vedanta Resources Limited case saw the NCLAT reject a plea by Standard Chartered Bank and other creditors to recover Rs 15,000 crore from VRL’s parent company, Hindustan Zinc.

This story is part of a larger pattern of corporate malfeasance that has come to define India’s business landscape. As we watch the NCLT bench deliberate on this case, it becomes clear that the fate of lenders, creditors, and indeed the entire economy hangs precariously in the balance.

The insolvency code was designed to prevent such scenarios from playing out. However, with instances like Chandra’s continuing to surface, it is increasingly apparent that more needs to be done to ensure its effectiveness. By constituting a five-member bench and taking this plea seriously, the NCLT has finally begun to take concrete steps towards protecting lenders’ rights.

The outcome of this case will determine whether the special bench restores faith in India’s insolvency code or proves to be another instance of regulatory failure.