DHFL case: SC stays NCLAT order; to hear appeals of Piramal, banks in May

The Supreme Court on Monday stayed the National Company Law Appellate Tribunal's (NCLAT) order which ruled a stipulation in the DHFL resolution plan as "illegal" on recovery of avoidance transactions.

Issuing a notice on appeals filed by Piramal Capital and Housing Finance Ltd (PCHFL) and some banks that formed part of the Committee of Creditors (CoC), an apex court bench headed by Chief Justice of India NV Ramana said the appeals will be heard on May 5.

Meanwhile, the order passed by the NCLAT in January will be stayed.

On January 27 this year, while delivering a verdict on 63 Moons technologies' petition, the NCLAT had directed the lenders of DHFL to reconsider their decision regarding the valuation of the financial firm's avoidable transactions, while approving the insolvency resolution plan submitted by PCHFL.

The approved resolution plan for DHFL stipulated that the proceeds from all avoidance transactions would go towards the successful resolution applicant PCHFL. The NCLAT ruled as illegal -- the stipulation in the DHFL resolution plan as regards to recovery of avoidance transactions going to the winning resolution applicant.

Later, the Piramal Group approached the apex court in an appeal against the NCLAT direction. Surprisingly, several top banks of the CoC also approached the Supreme Court against the NCLAT order that had given the entire set of financial creditors a seemingly better deal than what the CoC had agreed to in the resolution plan.

Expressing their surprise as to why banks challenged the NCLAT order when they stood to gain an enormous sum as a result of this order, several industry experts observed why Indian banks are content with Re 1 when they could potentially recover to themselves thousands of crore in the years ahead on account of avoidable transactions.

The company, 63 moons, which holds non-convertible debentures (NCDs) worth over Rs 200 crore issued by DHFL, had challenged the NCLAT's judgment on the grounds that the current resolution plan was "disappointing" for NCD holders. It had filed a petition in the NCLAT against Piramal ascribing Re 1 value to Rs 40,000 crore worth of recoverable assets in the DHFL case.

After the NCLAT passed the January order, 63 moons technologies stated that the CoC has to reconsider the provision of section 66 of IBC, which mandates that the benefit should go to all the creditors of DHFL. However, in its resolution plan, the CoC had overlooked this provision to the benefit of the Piramal Group.

63 moons, the only company that challenged the decision of the CoC in the NCLAT, pointed out that if the CoC considers this without alteration of provision of section 66 of IBC, all creditors of DHFL will be benefited.

It may be pointed out that in its resolution plan, Piramal had ascribed Re 1 value against Rs 40,000 crore assets that have been fraudulently diverted by erstwhile promoters of DHFL.

Under the Insolvency and Bankruptcy Code (IBC), avoidance transactions are those which are identified as undervalued, fraudulent, or extortionate by the former promoters.

The resolution plan, which was voted in favour by the CoC, was approved by the Mumbai bench of the National Company Law Tribunal (NCLT) on June 7, 2021. As per the plan, a notional value of Re 1 was given for all recoveries under Section 66 of the IBC whereby applications for recovery of assets worth over Rs 45,000 crore.

In September last year, PCHFL acquired DHFL for a total consideration of Rs 34,250 crore.

--IANS

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