Kapil Wadhawan's 2nd proposal must be tested on merit, put to vote: NCLT

Directs administrator to place proposal before the CoC and inform the outcome within 10 days

The Mumbai bench of the National Company Law Tribunal (NCLT) in its order in the Dewan Housing Finance Limited (DHFL) matter has said the second proposal of the erstwhile promoter, Kapil Wadhawan, deserves to be examined on merits and put to vote by the committee of creditors (CoC).

In its written order, the tribunal has said, "...the Adjudicating Authority is of the considered view that the 2nd proposal deserves to be examined on merits and put for deciding, voting of the members of CoC and if the same is commercially found not favourable with the COC members then the proposal can be rejected”.

In its order, NCLT directed the administrator to place the second proposal of the erstwhile promoter before the CoC for its consideration, decision, voting and inform the tribunal the outcome of the same within 10 days from the date of the order.

It has also rejected the Reserve Bank of India (RBI)-appointed administrator’s claim that the settlement proposals of the Kapil Wadhawan were considered by the CoC, as the claim was not supported by any record or evidence.  

“Though the letters, settlement proposals were addressed to the administrator, CoC it is seen from the records that AZB Partners, the legal team of the DHFL, have written/replied to him and apparently the same is communicated without the knowledge, approval of the administrator, the members of CoC therefore, the same cannot be treated as a reply from the Administrator, CoC, appropriate authority”, the tribunal observed.  

In the order, the tribunal said the settlement proposal of Wadhawan at Rs 91,158 crore is more than the Rs 54,512 crore offered by the next highest bidder, Piramal Group, who offered Rs 37,250 crore.

“Since this settlement proposal is substantially higher / more than one-and-a-half-times the value of the highest bidder the same needs due consideration/reconsideration by the  Administrator/COC,” the order said.

The tribunal also observed that with the settlement proposal thousands of the small investors, fixed deposit holders would be paid fully, thereby thousands of small investors would get 100 per cent of their principal sum outstanding.

“....we are conscious about our jurisdiction that this adjudicating authority cannot substitute its view of over the commercial wisdom that may be exercised by the CoC in respect of the present applicant, however, there appears to be some procedural irregularity by not considering a settlement proposal which is around 150 per cent higher value of the resolution plan approved”, the bench said in its order.

Clearing the air around the legality of the erstwhile promoter submitting an offer for the corporate debtor, the bench in its order has said that contention of the respondents (RBI, CoC, and the administrator) that Wadhawan has not submitted a resolution plan for the consideration of the CoC is not legally tenable because the applicant has submitted an offer/proposal for settlement akin to One Time Settlement (OTS) and there is no express legal bar under the provision of IBC to a promoter (applicant) for making a proposal for settlement.

“In case if this settlement proposal is accepted by the COC with its requisite majority then a withdrawal application can be filed under section 12A of the Code by the applicant in main IB Petition (herein the RBI through Administrator)”, the order said.