The National Company Law Tribunal (NCLT), New Delhi, has held that a repayment plan approved under Section 114 of the Insolvency and Bankruptcy Code, 2016, is binding on all creditors—including those who voted against the proposal—and cannot be selectively applied only to consenting creditors.
The bench of Judicial Member Nilesh Sharma, acting as the Third Member following a difference of opinion in the original Division Bench, supported the approval of the repayment plan submitted by personal guarantor Dr Subhash Chandra. The approval was made subject to the exclusion of unsupported claims filed on behalf of 1,260 individuals and the consequential redistribution of the repayment amount among the remaining eligible creditors.
The matter arose from an insolvency application filed by Indiabulls Housing Finance Limited under Section 95 of the IBC against Dr Subhash Chandra in his capacity as a personal guarantor. The proceedings were initiated in 2022 and the insolvency petition was ultimately admitted on April 22, 2024.
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After completion of the personal insolvency resolution process, Resolution Professional Shiv Nandan Sharma filed an application seeking approval of the repayment plan proposed by the personal guarantor. The plan was approved by creditors representing 80.814% of the voting share.
However, several financial creditors, including Canara Bank, HDFC Bank, RBL Bank, IndusInd Bank, IDBI Trusteeship Services Limited and STCI Finance Limited, raised objections to the plan and the manner in which the resolution process had been conducted.
The original Division Bench delivered differing opinions on the validity of the repayment plan and its treatment of dissenting creditors. The matter was consequently referred by the NCLT President to Judicial Member Nilesh Sharma as the Third Member under Section 419(5) of the Companies Act, 2013.
Banks allege claims worth nearly ₹21,697 crore scrutinised in six days
The objecting creditors contended that they had been given only about six days to scrutinise the repayment plan and claims aggregating approximately ₹21,697 crore. They argued that such a short period was inadequate considering the magnitude and complexity of the claims.
The creditors further questioned the sharp difference between the personal guarantor’s previously declared net worth and his financial position disclosed during the insolvency process.
According to the objections recorded in the order, a net-worth certificate issued in 2017 had placed the guarantor’s net worth at USD 7.17 billion, or approximately ₹45,888 crore. Another certificate issued to Canara Bank in 2018 reportedly assessed his net worth at ₹40,562 crore. In contrast, his present net worth was stated to be approximately ₹31.79 crore.
The creditors alleged that the Resolution Professional accepted the substantially reduced valuation without conducting an adequate forensic investigation into the guarantor’s assets and financial affairs.
They also questioned the participation of certain entities in the voting process, alleging that Veena Investments Private Limited, Direct Media Distribution Ventures Private Limited, World Crest Advisors LLP, Lemonade Capital Advisors LLP and Corpcall Capital Advisors LLP were associates of the personal guarantor. Their votes, according to the objectors, ought to have been excluded while calculating the majority supporting the plan.
Another objection concerned the admission of claims submitted through Anil Kumar on behalf of 960 individuals and Sunil Jain on behalf of 300 individuals. The creditors argued that those claims lacked supporting documents and had distorted the list of creditors as well as the voting process.
Tribunal finds no material irregularity capable of invalidating plan
The Third Member held that procedural irregularities would justify rejection of a repayment plan only when they were material enough to affect its consideration, voting or implementation, or rendered the plan contrary to the IBC.
The NCLT found no material statutory or procedural violation serious enough to declare the entire personal insolvency resolution process void ab initio. It noted that nearly all the creditors had participated in voting and that the plan had obtained approval from creditors representing 80.814% in value, comfortably exceeding the statutory threshold of 75%.
The Tribunal rejected the plea that creditors had been denied sufficient time to examine the proposal. It observed that all creditors had an opportunity to participate in the meeting, raise objections and vote on the plan. The voting period had also been kept open for longer than the minimum period prescribed under the applicable regulations.
The order stated that creditors who exercised their voting rights could not subsequently challenge the process merely because the result was contrary to their expectations, unless they demonstrated actual prejudice or a material violation of the statutory framework.
Associate definition cannot be expanded by judicial interpretation
The NCLT also rejected the contention that the votes of the allegedly associated entities should be excluded.
It held that Section 79(2)(g), which defines an “associate” of a debtor, must be applied according to the express statutory test laid down by Parliament. A purposive interpretation could explain the object of the provision, but could not enlarge its requirements to cover every company in which an associate of the personal guarantor had an interest.
The Tribunal observed that expanding the provision in the manner suggested by the objecting creditors would amount to rewriting the law rather than interpreting it.
As the objectors failed to establish that the disputed entities satisfied the statutory definition of associates, their participation in the meeting of creditors and their votes in favour of the repayment plan could not be disregarded.
Unsupported claims of 1,260 individuals ordered to be excluded
The Third Member nevertheless found a specific irregularity in the admission of claims submitted through Anil Kumar and Sunil Jain on behalf of 960 and 300 individuals, respectively.
The Tribunal observed that these claims had been admitted despite the absence of adequate supporting documentary material. Their admission was inconsistent with the Resolution Professional’s statutory obligation to verify claims and amounted to a lapse in the discharge of his functions.
However, the NCLT found that the irregularity was not sufficiently material to invalidate the entire voting process or defeat the repayment plan.
The order accordingly directed that the claims of all 1,260 individuals be removed from the final list of creditors. The Resolution Professional was asked to prepare a revised list and redistribute the approved repayment-plan value among the remaining eligible creditors.
The Tribunal noted that even after the exclusion of these claims, the voting share of creditors supporting the plan would remain significantly above the statutory requirement for approval.
Claims based on guarantees cannot be rejected merely on suspicion
The Tribunal separately considered objections to the claims of Veena Investments, Direct Media, World Crest Advisors, Lemonade Capital Advisors and Corpcall Capital Advisors.
These claims were based on guarantees and indemnities allegedly extended by the personal guarantor in connection with financing transactions involving group entities. The objecting creditors contended that the guarantees were collusive, were not reflected in the financial statements of the concerned entities and had been invoked during the interim moratorium.
The NCLT held that mere suspicion could not justify rejection of claims otherwise supported by guarantees and indemnities and acknowledged by the personal guarantor. The underlying financing transactions were not denied, and the objectors failed to produce evidence establishing collusion.
It further observed that invocation of a guarantee was not necessary for filing and admitting a claim against a guarantor. Therefore, the allegation that the guarantees were invoked during the interim moratorium did not, by itself, make the claims inadmissible.
The Tribunal also rejected the argument that interest calculated at 12% from the date of invocation was extortionate, observing that such a rate could not be treated as abnormal in a financing transaction.
Repayment plan cannot be selectively binding
Addressing the principal legal issue, the Third Member held that the binding effect of an approved repayment plan flows directly from Section 115 of the IBC.
Once a repayment plan is approved under Section 114, the Adjudicating Authority cannot restrict its operation to creditors who supported the plan while allowing dissenting creditors to pursue recovery of their entire original debt independently.
The order observed that such selective application would undermine the statutory insolvency-resolution framework. The rights of dissenting creditors must be determined in accordance with the approved plan and the consequences expressly provided under the IBC.
The Tribunal said that an approved plan is binding upon all creditors whose dues are dealt with in it, irrespective of whether they assented to, dissented from or abstained from voting on the proposal.
It rejected the suggestion that dissenting creditors could be permitted to continue separate recovery proceedings while consenting creditors remained bound by the restructured debt. According to the Third Member, the Adjudicating Authority has no power to create such an exception to Section 115.
No mandatory forensic audit in every personal insolvency case
The Tribunal also declined to accept the argument that the Resolution Professional was legally bound to undertake a forensic investigation solely because of the substantial difference between the guarantor’s historical and present net worth.
The earlier net-worth certificates, it observed, could not be treated as conclusive proof that the guarantor presently owned or controlled assets of the same value. A historical statement of wealth did not automatically establish the continued existence or ownership of those assets.
Although the discrepancy warranted examination, the creditors had not produced sufficient evidence identifying undisclosed assets or transactions that would make a forensic audit legally indispensable.
The NCLT clarified that a forensic examination could not be ordered merely on the basis of suspicion. The objecting creditors were required to place tangible material showing concealment, diversion or improper transfer of assets.
RP’s failure to record objections criticised but held non-fatal
The Third Member found that the Resolution Professional had not appropriately recorded all material objections raised by creditors or placed them with his responses in the final report under Section 112 of the IBC, despite having reportedly assured creditors that he would do so.
The Tribunal said this omission was not condoned. However, it held that the lapse had not caused prejudice because the creditors’ objections were subsequently placed before the NCLT and independently examined on their merits.
The omission, therefore, did not warrant cancellation of the process or rejection of the repayment plan.
The Tribunal ultimately concluded that the Resolution Professional’s conduct could not, as a whole, be characterised as capricious, partisan or hasty. Except for the admission of unsupported claims on behalf of the 1,260 individuals, no material violation capable of invalidating the process was established.
Matter sent back to original Bench for majority order
The Third Member opined that the repayment plan should be approved under Section 114 of the IBC, subject to the exclusion of the unsupported claims and redistribution of the plan amount.
The Resolution Professional was directed to place a revised and final list of creditors on record and take the consequential steps required to redistribute the approved repayment-plan value.
The NCLT further held that the approved plan would bind all assenting and dissenting creditors under Section 115 and carry all consequences contemplated by the Code.
Since the order represents the opinion of the Third Member appointed to resolve the split in the original Division Bench, the matter has been sent back to that Bench for passing an appropriate order in accordance with the majority opinion. The Third Member’s order and the differing opinions of the original members were also directed to be placed before the NCLT President for any necessary administrative action.
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