NCLT’s Subhash Chandra order: When ₹22,000 crore of claims becomes a ₹6.5 crore recovery

There is something deeply uncomfortable about the latest Subhash Chandra insolvency order. Not because the National Company Law Tribunal has done something outside the law. It has not. The discomfort comes from what the numbers say about the way creditors — particularly lenders — are emerging from the Insolvency and Bankruptcy Code.The numbers in this case are almost surreal.

The NCLT has approved a repayment plan under which Subhash Chandra will pay ₹6.5 crore against admitted creditor claims of ₹22,006.57 crore. That works out to a recovery of roughly 0.03%, or a haircut of nearly 99.97%. LIC Housing Finance, for instance, had an admitted claim of ₹1,322.39 crore, against which the proposed recovery was only about ₹38 lakh.That is not merely a large haircut. It is almost a clean wipe-out.

And this is precisely why the order deserves to be looked at beyond the legal question of whether the plan meets the requirements of the IBC.The tribunal’s reasoning is understandable. The plan had the required voting support — 80.81% — and the NCLT has rightly reminded everyone that its role is not to substitute its own commercial wisdom for that of creditors. It also noted that the valuation of Chandra’s personal estate suggested that creditors could potentially recover even less if the process ended in bankruptcy.

All of that may be legally sound.But there is a larger banking question that cannot simply be wished away.What happened to ₹22,000 crore?The IBC was sold to the banking system as a regime that would fundamentally alter the balance of power between borrowers and lenders. The old system allowed promoters to drag cases through courts and tribunals for years.

The IBC was supposed to change that. It was supposed to create fear among defaulters, force timely recognition of stress and maximise recovery for creditors.Nearly a decade into the IBC, the Subhash Chandra case offers a rather sobering counterpoint.The problem is not that every insolvency case must produce a 100% recovery. That would be unrealistic. Businesses fail, assets lose value and creditors take losses.

That is the very nature of lending.The problem arises when the loss becomes so disproportionate that one begins to wonder whether the process is functioning primarily as a mechanism for recognising the lender’s loss rather than recovering the lender’s money.There is another uncomfortable dimension here.Subhash Chandra is not an unknown businessman whose enterprise collapsed overnight. He built one of India’s most prominent media groups.

His name, influence and access to capital were once considerable. The very scale of the financial claims involved tells us something about the confidence lenders had placed in the group and its promoters.Banks and financial institutions took those risks. Ultimately, depositors and shareholders bear part of the consequences when such loans go bad.

This is where the moral hazard question becomes unavoidable.A promoter can borrow thousands of crores during the good years. When the business fails, assets are valued, claims are admitted, negotiations take place and eventually creditors may be asked to accept a tiny fraction of what was originally owed.For the lender, the loan is real money. For the promoter, the liability can eventually become a fraction of the original number.

That asymmetry should worry policymakers.The defenders of the IBC will rightly point out that the alternative could be worse. If the tribunal had rejected the plan and the debtor had gone into bankruptcy, creditors might have recovered even less. The NCLT itself has made that argument.Fair enough.But that raises an even bigger question: why was the recoverable value of the personal estate so low in the first place against such a staggering quantum of claims?

That is the question bankers, regulators and policymakers should be asking.The answer cannot always be that the creditors voted for it.Voting is a procedural answer. It is not necessarily an economic answer.If 80.81% of voting creditors approve a plan because the alternative is even worse, that does not automatically make the outcome a good recovery. It merely means that the creditors have chosen the least painful option available to them.

And there is a danger in celebrating such cases as successful resolutions simply because they have finally reached a legal conclusion.Resolution is not the same thing as recovery.This distinction matters enormously for banks.Every large haircut eventually finds its way into somebody’s balance sheet. The lender takes the hit through provisions and write-offs. The capital that could have financed another entrepreneur is consumed by an old loan.

The cost ultimately gets distributed among shareholders, depositors and, indirectly, the economy.This is why the Subhash Chandra case should not be viewed merely as another celebrity insolvency story.It is a test of what the IBC has really delivered to creditors after nearly a decade.The Code has unquestionably changed India’s credit culture. It has made default more consequential and forced many promoters to negotiate rather than simply ignore lenders.

But cases such as this remind us that there is still a vast distance between giving lenders the legal power to drag a promoter into insolvency and giving them the economic ability to recover what they are owed.And perhaps that is the uncomfortable lesson from the Subhash Chandra case.The IBC may have changed the fear of default. It has not yet changed the arithmetic of recovery enough.

When ₹22,006 crore of admitted claims ends up producing ₹6.5 crore, it is difficult to call that a victory for creditors.It is, at best, a reminder that the system has managed to close a case.The more important question is whether it has managed to recover the money.For banks, that distinction is everything.