NCLAT stays NCLT order asking CoC to consider Kapil Wadhawan's offer

NCLAT clarified that such appeals should not come in the way of the NCLT deciding on the approval of the resolution plan given by the Piramal Group which has already been approved by the lenders.

Giving a relief to the lenders, Piramal Group, and the administrator, the National Company Law Appellate Tribunal (NCLAT) on Tuesday stayed the order of the Mumbai Bench of the National Company Law Tribunal (NCLT), which had directed the DHFL administrator to place the settlement offer of the erstwhile promoter, Kapil Wadhawan, before the committee of creditors (CoC) while it (NCLT) decided on the appeal.

The NCLAT has asked the respondents — in this case Kapil Wadhawan — to file their reply within two weeks. The matter will be heard again on June 25.

DHFL became the first financial services company to be referred to the NCLT by the RBI in November 2019 after it defaulted on its payments and the lenders failed to find a resolution under the June 7 circular of the RBI.

The creditors have claimed dues of Rs 87,000 crore. The liquidity crisis after the collapse of IL&FS in 2018 led to DHFL’s downfall. Before that, it was one of the largest mortgage lenders in the country.

The tribunal has said the pendency of the appeal before it should not come in the way of the NCLT passing orders in approving the resolution plan, on which hearing has concluded and the order is reserved.

The resolution plan of Piramal Group has been approved by the lenders, the Reserve Bank of India (RBI), and the Competition Commission of India (CCI).

The Bench, presided over by Justice A I S Cheema and Justice V P Singh, in its written order said: “... here the matter had proceeded to the stage where even (the) resolution plan had been approved and was before (the) adjudicating authority. There would be no end if such reversals are allowed. There is no dispute regarding the fact that the resolution plan has already been approved and is before the adjudicating authority. Without deciding the same, the present order has been passed.”

Senior advocates representing the lenders argued the fabric of the IBC would be destroyed if such an order passed by the NCLT became a precedent.

Tushar Mehta, solicitor general, and senior counsel Shyam Divan appearing on behalf of Union Bank and the CoC argued that the impugned order was a unique one where the original promoter who was ineligible under Section 29A of the IBC sent settlement proposals not even in accordance with the provisions under Section 12A of the IBC, to stall the Corporate Insolvency Resolution Process (CIRP).

The lenders and the RBI-appointed administrator had moved the NCLAT on Monday, challenging the order passed by the tribunal, saying there was no basis in law for such an order or the NCLT could not direct the CoC to consider a plan.

Piramal Group, whose resolution plan for DHFL has been approved by all the stakeholders and was only awaiting the tribunal’s nod for closure of the process, moved the appellate tribunal on Tuesday, challenging the NCLT order.

In its application, Piramal Group said “the impugned order throws open floodgates of litigation from all sundry … the adjudicating authority had no jurisdiction to entertain any application while ignoring the statutory timelines under Section 12A of the IBC”.

According to reports, lenders in their appeal stated that if the order were allowed to operate, it would create a process contrary to the express provisions of the IBC.

“The NCLAT ought to declare the NCLT order illegal, given that the Wadhawan proposal has the potential to sideline the settled processes and timelines under the IBC, as well as creating doubts on the concept of CoC autonomy,” said Jay Parikh, partner, L&L Partners.

Ashish Pyasi, associate partner, Dhir and Dhir Associates, said: “In view of the stay granted, the lenders will not be required to consider the proposal at least till the time the appeal is decided. And, as it has been clarified by the appellate tribunal that the appeal will not be an impediment to approving the resolution plan, it will give some respite to the lenders and the resolution applicant, Piramal, as the plan can be approved by the authority. The option available to Wadhawan is that he can approach the Supreme Court.”

The NCLT on May 19 had passed an order in which it said the second proposal of Wadhawan deserved to be examined on merits and put to vote by the CoC. The order asked the administrator of DHFL to present the offer of the erstwhile promoter before the CoC in 10 days and had scheduled the next hearing for May 31.

The lenders were mulling their options since the order came last week. Appealing the order in the appellate tribunal was one. This is because the CoC had voted in favour of a resolution plan. The bankers were apprehensive of considering the settlement offer of the promoter because the account was declared “fraud” by them.

Wadhawan is in jail on money-laundering charges.