Insolvency and the law: Subhash Chandra case raises wider questions about IBC
The matter has taken an unusual and unprecedented institutional turn - a five-member NCLT bench headed by the tribunal’s President has been set up to hear the dispute.
- Sep 1, 2026,
- Updated Sep 1, 2026 9:47 PM IST
The insolvency proceedings involving Essel Group Chairman Subhash Chandra have raised questions that extend well beyond the proposed repayment plan at the centre of the dispute. The case has brought into focus how the National Company Law Tribunal (NCLT) handles split decisions, what constitutes a legally enforceable majority, how personal-guarantor repayment plans should be assessed, and whether India's insolvency framework contains adequate safeguards when creditors face potentially enormous haircuts.
The matter has taken an unusual and unprecedented institutional turn - a five-member NCLT bench headed by the tribunal’s President has been set up to hear the dispute. The development follows a split decision by a two-member bench and a subsequent order by a third member, who was brought in to resolve the difference of opinion.
India Today spoke to legal experts to get an insight into the various legal issues and ramifications on Insolvency Law in India.
Also Read: ‘My borrowing is ₹0’: Subhash Chandra explains ₹22,000 crore personal guarantee controversy
Why a five-member bench?
NCLT normally functions through two-member benches. Section 419(5) of the Companies Act, 2013 provides a mechanism for dealing with a difference of opinion between members, including reference of the matter to another member.
In the Subhash Chandra case, the original two-member bench reportedly took divergent positions on the personal guarantor’s repayment plan. The matter was therefore referred to a third member. However, the third member gave an opinion that seemed to approve of the proposed resolution plan, leading to a huge controversy that prompted the setting up of a 5 Member bench.
According to Neeha Nagpal, Founding & Managing Partner at N & Company Legal, the third member did not simply adopt either of the positions taken by the original members. This, she argues, meant that there was no combination of two members supporting a single operative outcome. The constitution of a five-member bench can therefore be seen as an attempt to resolve a statutory and institutional deadlock and provide an authoritative determination on the issues involved.
Ketan Mukhija, Partner and Co-Head of PE & VC at Kochhar & Co., describes the larger bench as an “exceptional development reflecting the need for procedural and legal certainty where divergent views have significant consequences for creditors and other stakeholders.”
According to Mukhija, the significance of the move is therefore larger. It raises questions about the functioning of the statutory mechanism for resolving split verdicts and what should happen when that mechanism does not result in a coherent majority.
That is the legal issue now assuming importance. The order passed by the 5-member bench on September 1 has held that " as per Section 419 (5) of the Companies Act, 2013, there is no clear majority view capable of being given effect to..."
This is the reason why the new bench has issued a stay on the 25 August decision and agreed to re- hear all stakeholders.
Shashwat Anand, Advocate on Record at the Supreme Court of India, says that the unprecedented 5 Judges bench illustrates an important distinction in tribunal decision-making: a legally enforceable majority is not necessarily created simply because three judges have expressed opinions. There must be a majority on the operative issue that determines the outcome.
Personal insolvency: a framework still evolving
The case also highlights the relatively underdeveloped jurisprudence surrounding personal insolvency. Part III of the Insolvency and Bankruptcy Code (IBC) governs insolvency and bankruptcy of individuals and partnership firms, including personal guarantors to corporate debt.
While corporate insolvency jurisprudence has developed substantially, the law surrounding personal guarantors remains comparatively nascent.
One concern raised by Nagpal relates to valuation and disclosure. Personal insolvency proceedings do not have an identical valuation framework to corporate insolvency proceedings, making the quality of information supplied about a guarantor’s assets and financial position particularly important.
That becomes critical where there is a huge difference between admitted liabilities and the amount proposed to be repaid.
In the present case, the controversy arose due to a proposed repayment of approximately ₹6.25 crore against admitted liabilities exceeding ₹22,000 crore.
All the experts agree that this case raises questions about how the guarantor’s assets, income, liabilities and repayment capacity were assessed by the Resolution professional and the Tribunal, and whether creditors had access to sufficient independently verified information.
The Documentation and arguments raised by the creditor Banks had suggested that the banks had opposed the proposed plan, and have even questioned the asset assessment.
The case has also revived the debate over large "haircuts" in insolvency settlements.
There is, however, an important distinction: a haircut, by itself, is not evidence of an improper insolvency process. Insolvency resolution routinely involves creditors accepting less than the face value of their claims where that represents a better recovery than the alternatives.
The more difficult question is how the haircut is determined and who approves it.
Nagpal argues that scrutiny should focus on valuation, claim verification, disclosure, and the independence of the creditor decision-making process.
This becomes particularly important if claims are admitted without adequate verification or if creditors with potential conflicts of interest participate in deciding the repayment plan.
Anand, on the other hand, says that extremely high haircuts exceeding 99% in personal guarantee cases, can represent a “severe systemic hazard to the credit ecosystem.”
According to Anand, allowing guarantors to discharge disproportionately large debts via token settlements could undermine banking recovery metrics, socialize large corporate losses onto public and financial institutions, and would “encourage moral hazard across corporate borrowing structures.”
The related-party question
One of the most significant legal issues raised by the case concerns related-party creditors. Section 21 of the IBC contains safeguards restricting related-party creditors from participating in the Committee of Creditors in corporate insolvency. One of the arguments raised by the creditor banks is that the 'related party' Creditors have been allowed to participate and even drive the decision relating to the proposed resolution in this case.
Nagpal points out that there is no equivalent express provision in the personal insolvency framework. If related parties can participate in a personal insolvency Committee of Creditors, questions may arise about whether creditors with interests connected to the guarantor can influence a repayment plan in which they themselves have a stake. This may ultimately require legislative clarification rather than leaving tribunals to address the issue on a case-by-case basis.
A wider test for India’s insolvency regime
The IBC places considerable emphasis on creditor decision-making and judicial restraint. But that principle cannot necessarily resolve questions about whether statutory requirements have been met.
The Subhash Chandra case, therefore, tests the boundary between commercial wisdom and judicial oversight. Can creditors approve an exceptionally low repayment plan and expect the tribunal to defer to that decision? Or, where questions arise about valuation, disclosure, conflicts or the legal effect of the plan, must the adjudicating authority undertake a more searching examination?
According to Anand, the Tribunal seems to be signaling that the principle of non-interference in creditors' commercial wisdom is not absolute and cannot serve as an automatic shield where statutory mandates, asset disclosures, or creditor rights remain unsettled
The case also highlights a fundamental tension within the IBC: the need for speed versus the need for legal certainty.
Mukhija argues that expedition cannot come at the expense of a legally sustainable determination. Nagpal, meanwhile, points to the burden created by repeated rounds of litigation and argues that legislative amendments may ultimately be necessary to address gaps in the personal insolvency framework.
For lenders, the stakes are particularly high. Personal guarantees are intended to provide an additional layer of security and accountability when corporate borrowing goes wrong. If extremely large guarantee obligations can routinely be discharged through very small repayments, questions could arise about the practical value of personal guarantees and the incentives created for promoters.
At the same time, legitimate insolvency law must distinguish between an unfair settlement and a genuine assessment that a guarantor has limited realizable assets and therefore cannot pay the face value of the guarantee.
These proceedings, therefore, present an important test not only of one repayment plan, but of the institutional and legal framework governing personal insolvency in India.
The insolvency proceedings involving Essel Group Chairman Subhash Chandra have raised questions that extend well beyond the proposed repayment plan at the centre of the dispute. The case has brought into focus how the National Company Law Tribunal (NCLT) handles split decisions, what constitutes a legally enforceable majority, how personal-guarantor repayment plans should be assessed, and whether India's insolvency framework contains adequate safeguards when creditors face potentially enormous haircuts.
The matter has taken an unusual and unprecedented institutional turn - a five-member NCLT bench headed by the tribunal’s President has been set up to hear the dispute. The development follows a split decision by a two-member bench and a subsequent order by a third member, who was brought in to resolve the difference of opinion.
India Today spoke to legal experts to get an insight into the various legal issues and ramifications on Insolvency Law in India.
Also Read: ‘My borrowing is ₹0’: Subhash Chandra explains ₹22,000 crore personal guarantee controversy
Why a five-member bench?
NCLT normally functions through two-member benches. Section 419(5) of the Companies Act, 2013 provides a mechanism for dealing with a difference of opinion between members, including reference of the matter to another member.
In the Subhash Chandra case, the original two-member bench reportedly took divergent positions on the personal guarantor’s repayment plan. The matter was therefore referred to a third member. However, the third member gave an opinion that seemed to approve of the proposed resolution plan, leading to a huge controversy that prompted the setting up of a 5 Member bench.
According to Neeha Nagpal, Founding & Managing Partner at N & Company Legal, the third member did not simply adopt either of the positions taken by the original members. This, she argues, meant that there was no combination of two members supporting a single operative outcome. The constitution of a five-member bench can therefore be seen as an attempt to resolve a statutory and institutional deadlock and provide an authoritative determination on the issues involved.
Ketan Mukhija, Partner and Co-Head of PE & VC at Kochhar & Co., describes the larger bench as an “exceptional development reflecting the need for procedural and legal certainty where divergent views have significant consequences for creditors and other stakeholders.”
According to Mukhija, the significance of the move is therefore larger. It raises questions about the functioning of the statutory mechanism for resolving split verdicts and what should happen when that mechanism does not result in a coherent majority.
That is the legal issue now assuming importance. The order passed by the 5-member bench on September 1 has held that " as per Section 419 (5) of the Companies Act, 2013, there is no clear majority view capable of being given effect to..."
This is the reason why the new bench has issued a stay on the 25 August decision and agreed to re- hear all stakeholders.
Shashwat Anand, Advocate on Record at the Supreme Court of India, says that the unprecedented 5 Judges bench illustrates an important distinction in tribunal decision-making: a legally enforceable majority is not necessarily created simply because three judges have expressed opinions. There must be a majority on the operative issue that determines the outcome.
Personal insolvency: a framework still evolving
The case also highlights the relatively underdeveloped jurisprudence surrounding personal insolvency. Part III of the Insolvency and Bankruptcy Code (IBC) governs insolvency and bankruptcy of individuals and partnership firms, including personal guarantors to corporate debt.
While corporate insolvency jurisprudence has developed substantially, the law surrounding personal guarantors remains comparatively nascent.
One concern raised by Nagpal relates to valuation and disclosure. Personal insolvency proceedings do not have an identical valuation framework to corporate insolvency proceedings, making the quality of information supplied about a guarantor’s assets and financial position particularly important.
That becomes critical where there is a huge difference between admitted liabilities and the amount proposed to be repaid.
In the present case, the controversy arose due to a proposed repayment of approximately ₹6.25 crore against admitted liabilities exceeding ₹22,000 crore.
All the experts agree that this case raises questions about how the guarantor’s assets, income, liabilities and repayment capacity were assessed by the Resolution professional and the Tribunal, and whether creditors had access to sufficient independently verified information.
The Documentation and arguments raised by the creditor Banks had suggested that the banks had opposed the proposed plan, and have even questioned the asset assessment.
The case has also revived the debate over large "haircuts" in insolvency settlements.
There is, however, an important distinction: a haircut, by itself, is not evidence of an improper insolvency process. Insolvency resolution routinely involves creditors accepting less than the face value of their claims where that represents a better recovery than the alternatives.
The more difficult question is how the haircut is determined and who approves it.
Nagpal argues that scrutiny should focus on valuation, claim verification, disclosure, and the independence of the creditor decision-making process.
This becomes particularly important if claims are admitted without adequate verification or if creditors with potential conflicts of interest participate in deciding the repayment plan.
Anand, on the other hand, says that extremely high haircuts exceeding 99% in personal guarantee cases, can represent a “severe systemic hazard to the credit ecosystem.”
According to Anand, allowing guarantors to discharge disproportionately large debts via token settlements could undermine banking recovery metrics, socialize large corporate losses onto public and financial institutions, and would “encourage moral hazard across corporate borrowing structures.”
The related-party question
One of the most significant legal issues raised by the case concerns related-party creditors. Section 21 of the IBC contains safeguards restricting related-party creditors from participating in the Committee of Creditors in corporate insolvency. One of the arguments raised by the creditor banks is that the 'related party' Creditors have been allowed to participate and even drive the decision relating to the proposed resolution in this case.
Nagpal points out that there is no equivalent express provision in the personal insolvency framework. If related parties can participate in a personal insolvency Committee of Creditors, questions may arise about whether creditors with interests connected to the guarantor can influence a repayment plan in which they themselves have a stake. This may ultimately require legislative clarification rather than leaving tribunals to address the issue on a case-by-case basis.
A wider test for India’s insolvency regime
The IBC places considerable emphasis on creditor decision-making and judicial restraint. But that principle cannot necessarily resolve questions about whether statutory requirements have been met.
The Subhash Chandra case, therefore, tests the boundary between commercial wisdom and judicial oversight. Can creditors approve an exceptionally low repayment plan and expect the tribunal to defer to that decision? Or, where questions arise about valuation, disclosure, conflicts or the legal effect of the plan, must the adjudicating authority undertake a more searching examination?
According to Anand, the Tribunal seems to be signaling that the principle of non-interference in creditors' commercial wisdom is not absolute and cannot serve as an automatic shield where statutory mandates, asset disclosures, or creditor rights remain unsettled
The case also highlights a fundamental tension within the IBC: the need for speed versus the need for legal certainty.
Mukhija argues that expedition cannot come at the expense of a legally sustainable determination. Nagpal, meanwhile, points to the burden created by repeated rounds of litigation and argues that legislative amendments may ultimately be necessary to address gaps in the personal insolvency framework.
For lenders, the stakes are particularly high. Personal guarantees are intended to provide an additional layer of security and accountability when corporate borrowing goes wrong. If extremely large guarantee obligations can routinely be discharged through very small repayments, questions could arise about the practical value of personal guarantees and the incentives created for promoters.
At the same time, legitimate insolvency law must distinguish between an unfair settlement and a genuine assessment that a guarantor has limited realizable assets and therefore cannot pay the face value of the guarantee.
These proceedings, therefore, present an important test not only of one repayment plan, but of the institutional and legal framework governing personal insolvency in India.