Subhash Chandra effect: IBBI proposes tighter safeguards for personal guarantor insolvency

The Insolvency and Bankruptcy Board of India (IBBI) has proposed tighter safeguards for insolvency proceedings involving personal guarantors, including independent valuation of their assets, scrutiny of transactions that could erode creditors’ recovery and mandatory recording of reasons for approving repayment plans. The proposals come amid controversy over Essel Group chairman Subhash Chandra’s repayment plan, under which creditors with admitted claims of Rs 22,006.57 crore would receive just Rs 6.25 crore — a 99.97% haircut.

A key proposal is to bar related parties of a personal guarantor from voting on the repayment plan. The IBBI has proposed assigning such creditors a nil voting share and requiring the resolution professional to separately identify them in the list of creditors.

Under the current framework, an “associate” of a personal guarantor is barred from voting, but the regulator noted that the definition of associate is narrower than that of a “related party”. This could allow certain connected entities to vote on a plan that determines how much of the guarantor’s debt is discharged.

The IBBI has also proposed that resolution professionals examine whether the guarantor was involved in undervalued, fraudulent, preferential or extortionate credit transactions. Their findings, with supporting details, would have to be placed before creditors before they vote on the repayment plan.

With creditors’ approval, the resolution professional would also be able to take action against such transactions at the resolution stage, rather than wait for bankruptcy proceedings.

Another major change is mandatory valuation of the guarantor’s assets. A registered valuer would determine the fair and realisable value of the assets, with the valuation report placed before creditors along with the repayment plan. This would give creditors an independent basis to assess the proposed recovery against the amount that could potentially be recovered through bankruptcy.

The regulator has further proposed that creditors record the deliberations and reasons behind their decision, rather than merely recording how each creditor voted. The assessment would include the admitted claims, proposed repayment, duration and certainty of payments, the guarantor’s assets and liabilities, income and future repayment capacity, and any conduct affecting recovery.

The proposals assume significance as the NCLT deals with the Chandra case. The tribunal earlier failed to arrive at a majority view on his repayment plan and referred the matter back to the NCLT President.

The two-member bench had earlier delivered a split verdict, after which the case went to a third member. The third member approved the plan in an August 25 order. However, the original bench said the third member had passed an independent order and no majority view had emerged.

The IBBI said its proposals seek to address broader gaps in the personal guarantor insolvency framework. Public comments have been invited till October 3, 2026.