NCLAT urges CoC rethink on Piramal ascribing Re 1 value to DHFL's bad loans

63 Moons Technologies had moved tribunal over the low valuation ascribed to assets worth Rs 40,000 cr, with DHFL lenders getting nothing if Piramal group recovered from these loans later

The National Company Law Appellate Tribunal (NCLT) on Thursday ordered DHFL’s committee of creditors to reconsider Piramal Capital and Housing Finance, the acquirer of the failed housing company,  ascribing a value of only Rs 1 to Rs 45,000 crore worth of bad loans of DHFL.

As any recovery from these default loans in future will not go to the lenders, but instead go to Piramal, 63 Moons Technologies — a lender of DHFL — had moved NCLAT.

DHFL, a Mumbai-based housing finance company, had collapsed after it failed to repay its debt worth Rs 90,000 crore to the Indian lenders and was sent for debt resolution under the IBC (insolvency and bankruptcy code) in November 2019. Piramal won the mandate to acquire DHFL in March 2021 with an offer of Rs 37,250 crore.

An audit by Grant Thornton, an independent audit firm appointed by the administrator, found that the promoters had diverted funds from the company via various fictitious accounts and from a non-existent branch in Bandra, Mumbai. The Central Bureau of Investigation, the Enforcement directorate and the Ministry of Corporate Affairs are separately investigating these transactions.

63 Moons Technologies, earlier known as Financial Technologies (India), had Rs 200 crore of debt exposure in DHFL. 63 Moons argued that the resolution plan of Piramal values the recoveries from the fraudulent transactions, in respect of which applications for recovery of more than Rs 45,000 crore at Rs 1 notional value and seeks to appropriate the future recoveries from these transactions. In other words, by valuing these transactions at an unrealistic and arbitrary value of Rs 1, Piramal has attempted to appropriate massive recoveries that are likely to result from the avoidance applications filed by DHFL, 63 Moons argued.

With the NCLAT order, the CoC will have to reconsider the provision of Section 66 of the IBC, which mandates that the benefit should go to all DHFL creditors and the acquirer. However, the CoC had, in its resolution plan, overlooked this provision to the benefit of Piramal Group, 63 Moons said in a statement.

If CoC considers this without alteration of provision of Section 66 of the IBC, all creditors of DHFL will be benefited but interestingly it was only 63 Moons, which challenged the decision of the CoC in NCLAT.

“In the circumstances, it is of utmost importance to see that there should not be any unjust enrichment at the cost of lakhs of creditors of the company whose money has been defrauded by the corporate debtor’s promoters. It is also important to mention that the CBI, a Special Fraud Investigation officer of the Ministry of Corporate Affairs and other agencies are also investigating the fraudulent transfers of money from the corporate debtor account to the shell companies rerouting them from there. In such a scenario, chances of recovery are very high,” said a statement by 63 Moons.

The NCLAT said as it had concluded that the outcome of the avoidance transaction cannot be given to the successful resolution applicant and it must go to the company’s creditors, it is essential to send back the resolution plan for reconsideration by the CoC. With 63 Moons’ efforts, lakhs of creditors will stand to benefit from this Rs 45,000 crore by way of recovery, the statement said.

The Piramal group did not comment on the NCLAT order till going to press.