The recovery plan secured 80.81 per cent of creditors’ votes, mostly consisting of private lenders, exceeding the statutory threshold. However, the proposed recovery of 0.03 per cent attracted wide criticism as it is exceptionally low and makes a mockery of the Indian insolvency law
The National Company Law Tribunal’s approval for a plan providing Rs 6.25 crore to creditors and Rs 25 lakh for process costs, against claims stated in the proceedings at about Rs 22,006.57 crore, appears to be set for an imminent legal challenge. A day after HDFC Bank announced its decision to appeal NCLT’s decision, Union Bank of India, Canara Bank and LIC Housing Finance have joined suit.
The recovery plan secured 80.81 per cent of creditors’ votes, mostly consisting of private lenders, exceeding the statutory threshold. However, the proposed recovery of 0.03 per cent attracted wide criticism as it is exceptionally low and makes a mockery of the Indian insolvency law.
Any business involves inherent risk. A business person employs people and becomes an essential part of the economy, while taking the entire risk oneself. As a result, insolvency law aims to protect a business person who incurred losses by making bona fide expenditures for the company. Therefore, most lenders and the NCLT cannot reject a lender’s demand for scrutiny, including a forensic audit, merely because the recovery plan has secured overwhelming support.
The NCLAT also does not appear to have examined why the company’s net worth, earlier showing vastly larger figures, collapsed to about Rs 31.79 crore now. The tribunal should also look into allegations that private lenders, who approved the recovery plan, have connections with Essel Group chairman Subhash Chandra.
The recovery plan has also become controversial because two-thirds of its support came from lenders owned by Chandra’s younger brother Jawahar Goel. Five entities — Veena Investments, Direct Media Distribution Ventures, World Crest Advisors, Lemonade Capital Advisors and Corpcall Capital Advisors — have 61.78 per cent voting share in the committee of creditors and voted in favour of the beleaguered plan.
The NCLT, therefore, must restrain itself from approving the recovery plan merely on technicalities and proceed with caution. Otherwise, fraudsters will come up in no time to make use of this loophole and loot the lenders.
