NCLT dismisses HDFC plea for insolvency proceedings against RHC Holding

HDFC had approached NCLT seeking repayment of Rs 410 million dues from RHC Holding

In a relief of sorts to the former promoters of Fortis Healthcare, Malvinder Mohan Singh and Shivinder Mohan Singh, the Principal Bench of the National Company Law Tribunal (NCLT) on Thursday dismissed a plea moved by HDFC to initiate insolvency proceedings against RHC Holding Private Ltd as the latter was a financial service provider and thus out of the purview of the Insolvency and Bankruptcy Code (IBC).  

Section 3 (7), which defines corporates of the IBC, excludes financial service providing companies from going into insolvency.

HDFC had in July this year moved NCLT to recover Rs 410 million from RHC Holding after the latter had stopped responding to its demand notices. In its petition, the housing finance company said it had lent around Rs 2 billion to RHC in April 2016. Though RHC Holding had paid the interest for the first quarter on time, it started defaulting on interest and further payments, HDFC said. Though some of the amount was recovered by HDFC by selling the shares pledged by RHC Holding, a payment of around Rs 410 million was still pending.

Opposing HDFC's insolvency plea against itself, RHC Holding had said that it was a non-banking financial company (NBFC) and thus, insolvency proceedings could not be initiated against it.

HDFC, on the other hand, had said that RHC Holding was not an NBFC per se as it was not in the business of giving out loans to third parties and that it was just a special purpose vehicle (SPV) for giving out loans to its own group companies.

The NCLT's Thursday order also comes as a relief of sorts for Daiichi Sankyo Co, which had moved an intervention application and opposed the insolvency plea of HDFC. In its application, the Japanese drugmaker had opposed HDFC's plea stating that it had a decree to recover money from RHC Holding, which would be rendered infructuous if the insolvency petition against the Singh brothers-owned company was admitted. Daiichi Sankyo had also pleaded that the NCLT should not pass an order until its execution petition against the Singh brothers, pending before the Delhi High Court, had been decided. 

The high court in January 2017 upheld an arbitration award passed by a Singapore Tribunal in favour of Daiichi Sankyo. In its order, the Singapore tribunal had held the Singh brothers guilty of not disclosing the full extent of the US Food and Drug Administration and Department of Justice's proceedings against Ranbaxy Laboratories. It had also ordered the two brothers to pay Rs 35 billion to Daiichi Sankyo.

Daiichi Sankyo had subsequently moved the Delhi High Court seeking an execution of the Singapore tribunal's award. Though the case is pending, the high court had ordered a status quo on RHC Holding's assets, in case they were to be sold to fulfil the Rs 35 billion award.