The National Company Law Tribunal (NCLT) order that approved Zee founder Subhash Chandra’s proposal to pay just Rs 6.25 crore to creditors in personal insolvency proceedings came after the majority of creditors supported the repayment plan.

But banks now say that at least five entities — which held 61.78% of the votes cast and backed the repayment plan — are linked to Chandra either as associates or related parties.

As many as 23 creditors participated in the voting under the insolvency mechanism, and banks which opposed the plan, got a vote share of only 19.186%.

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The admitted claims amounted to approximately Rs 22,006.57 crore. But the approved repayment plan proposed payment of only Rs 6.25 crore to creditors and Rs 25 lakh towards process costs.

Much of the liability relates to personal guarantees and indemnities given in connection with borrowings by companies associated with the Essel Group.

Under the resolution mechanism of the Insolvency and Bankruptcy Code (IBC), once the requisite majority of creditors approves a repayment plan and the tribunal sanctions it, individual dissenting creditors cannot simply walk away from the process and demand a different settlement.

The votes

In its application, IDBI Trusteeship Services said the votes cast by the creditor Veena Investments Pvt Ltd, and its subsidiaries Direct Media Distribution Ventures Pvt. Ltd and World Crest Advisors LLP, ought not to have been considered by the resolution professional. It said these entities allegedly fall within the category of associate parties.

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A resolution professional is a person appointed to manage the affairs of a company undergoing the insolvency process and facilitate its resolution.

HDFC Bank said Veena Investments Pvt. Ltd, Direct Media Distribution Ventures, World Crest Advisors LLP, Lemonade Capital Advisors LLP and Corpcall Capital Advisors LLP fall in the category of associates of the debtor and that their vote share cannot be taken into account while counting the vote share in favour of the repayment plan.

When contacted, Subhash Chandra’s office said in a statement: “We would like to state that this claim is not true and inaccurately represents the facts. Some of the associate entities referenced in the reports, belonged to Jawahar Goel, whose business interests were separated from Subhash Chandra in 2008-09 through a family business separation process.”

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“The separation process and subsequent division of the business was duly informed to the stock exchanges and the regulator. Further, the term ‘associate entity’ is well-defined in the Insolvency and Bankruptcy Code statutes. In accordance with the provisions of the Code, the companies concerned do not qualify as associate entities of the Group,” the statement said.

World Crest has a vote share of 28.49 per cent, Lemonade 16.85 per cent and Corpcall 10.30 per cent share in the voting. Veena Investments has 4.99 per cent share. Catalyst Trusteeship (CINDA FPI) with a vote share of 11.85 per cent also favoured the repayment plan. The plan was approved with a majority of 80.814 per cent votes favouring the plan.

All the banks voted against the repayment plan. However, they only had a 19.186% vote share. Among banks and NBFCs, HDFC Bank had 3.17% vote share, LIC Housing Finance 6.09% share and Canara Bank 1.60%.

Voting for the repayment plan

 The debtor’s counsel argued that Direct Media and World Crest are corporate subsidiaries of Veena Investments. Legally, if the parent company itself cannot be classified as an associate of the debtor due to a lack of direct ownership or control by the PG, its downstream subsidiaries automatically escape the associate classification.

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“It is stated that Direct Media Distribution Ventures Pvt Ltd and World Crest Advisors LLP are subsidiaries of Veena Investments Pvt Ltd, which is allegedly controlled by Sushila Devi Goel, wife of Jawahar Goel, the brother of the Personal Guarantor,” the order says.

The claims submitted by Lemonade Capital Advisors LLP and Corpcall Capital Advisors LLP are stated to be founded upon deeds of guarantee allegedly executed by the PG in connection with financial facilities availed by another group entity — Churu Enterprises LLP. It has further been contended that the proximity and relationship between these entities and the PG stand reinforced by the fact that the partners of these two entities are also directors in companies disclosed as “other related parties” in the consolidated financial statements of Veena Investments Pvt Ltd for the financial year 2020–2021, the order says.

Additionally, it is an admitted factual position that the guarantees relied upon by the said entities were invoked only after the interim moratorium had come into effect, thereby rendering such invocation legally untenable and void, it says.

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The National Companies Law Tribunal.

“In view of these surrounding circumstances, it has been alleged that the guarantees in question were collusive arrangements entered into between the PG and the said entities with the intention of creating artificial liabilities and debts in favour of related parties,” it says.

According to Member (T) of NCLT, despite the existence of such material circumstances, and without undertaking adequate examination of the supporting documentation necessary to establish a valid, enforceable and legally subsisting liability of the PG, the resolution professional proceeded to admit the claims of the two entities (Lemonade Capital Advisors LLP and Corpcall Capital Advisors LLP) merely on the basis of assertions and confirmations attributed to the PG, without conducting the requisite scrutiny and verification mandated under law.

Lapses in admission of claims 

The NCLT found discrepancies in 1,260 individual claims against Essel group founder Subhash Chandra which were admitted without adequate documentary verification. The tribunal said the resolution professional Shiv Nandan Sharma’s admission of these claims was without undertaking any meaningful due diligence or inquiry into the relationship of the concerned individuals with the Personal Guarantor (Subhash Chandra).

The clearest finding concerns claims filed through Anil Kumar and Sunil Jain on behalf of 960 and 300 individuals respectively. The claims were admitted by the resolution professional. The individuals apparently had no documentary evidence supporting their claims. The explanation was that they had worked for Chandra or his establishments and that Chandra had verbally committed financial assistance to them.

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“After admitting the aforesaid unverified and unsubstantiated claims of entities alleged to be related or associate parties, the Resolution Professional proceeded to include such entities in the Meeting of Creditors and permitted them to participate in the voting process concerning the Repayment Plan,” the NCLT order says.

Creditors also alleged that claims of Veena Investments, Direct Media Distribution Ventures, World Crest Advisors, Lemonade Capital Advisors and Corpcall Capital Advisors were inadequately scrutinised and that some were effectively related/associate entities. “The claims of Veena Investments Pvt Ltd, Direct Media Distribution Ventures Pvt Ltd, World Crest Advisors LLP, Lemonade Capital Advisors LLP and Corpcall Capital Advisors LLP were so fundamentally defective that their admission alone vitiated the entire process,” the order says.

“Veena Investments Pvt Ltd is stated to be controlled by Sushila Devi Goel, who is the wife of Jawahar Goel, the brother of the Personal Guarantor (Subhash Chandra). Consequently, the wife of the PG’s brother squarely falls within the category of a relative/associate,” it says.