DHFL resolution: Lenders move NCLAT against Kapil Wadhawan's offer

Reserve Bank of India (RBI)-appointed administrator and the lenders to Dewan Housing Finance (DHFL) have moved National Company Law Appellate Tribunal (NCLAT) against the order of the Mumbai Bench of the National Company Law Tribunal (NCLT) that directed the committee of creditors (CoC) to examine the offer of the erstwhile promoter on merit, said sources.
 
The Piramal Group, whose resolution plan was approved by the lenders, RBI, and Competition Commission of India (CCI), is also likely to file an appeal against the NCLT order in the NCLAT, a source said. However, the group will file an appeal independently. The matter is expected to come up for hearing this week.
 
“Lenders are not happy with the NCLT order and never anticipated that such an order could be passed. This order will open a Pandora’s box because other promoters will start quoting this case and derail the resolution process. Hence, we appealed against the order. This will unnecessarily delay the process,” said a banker aware of the development.
 
The lenders, through their petition, have asked NCLAT to set aside the order of the NLCT, which directs the administrator to place the offer of the erstwhile promoter before CoC for consideration because it’s outside the jurisdiction of NCLT and contrary to the Insolvency and Bankruptcy Code (IBC). Also, they are asking the NCLAT to direct NCLT to approve the resolution plan they have approved, which has been reserved for orders by the bankruptcy tribunal, said a source aware of the development. 
 
There is a process under the IBC, which allows a former promoter to put forward an offer and that does not include the promoter writing letters saying consider the plan. Also, financial service providers are in a slightly different IBC regime, because the RBI has filed the insolvency application. So, under 12A of IBC, even if there was to be a settlement in this case, the withdrawal of application has to be done by the applicant, in this case, the RBI. The committee of creditors cannot do it. Also, it requires a high threshold of approvals from the CoC. So, the ex-promoter is coming in at the last moment to scuttle the process. 

 
This comes after the NCLT said the second proposal of erstwhile promoter Kapil Wadhawan deserves 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 within days and had scheduled the next hearing for May 31.
 
The lenders were mulling their options since the order came in last week. Appealing against the order in the appellate tribunal was one of the options they were exploring. This is because the CoC had already voted in favour of a resolution plan.
 
Bankers were apprehensive of considering the settlement offer of the promoter because the account was already declared as “fraud” by them.
 
According to the lenders, they had considered the proposal of the erstwhile promoter, but rejected it based on their commercial wisdom. Wadhawan is still languishing in jail on money laundering charges.
 
In its written order, the tribunal said, “...the adjudicating authority is of the considered view that the second proposal deserves to be examined on merits and put for deciding, voting of the members of CoC. If the same is commercially found not favourable with the CoC members, then the proposal can be rejected.”
 
In the order, the tribunal said the settlement proposal of Wadhawan at Rs 91,158 crore is much higher than the offer of the next highest bidder, Piramal Group, which 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 or CoC,” the order said.
 
The tribunal also observed that with the settlement proposal, thousands of small investors and fixed deposit holders would be paid fully, thereby thousands of small investors would get 100 per cent of their principal sum outstanding.
 
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 lenders failed to find a resolution under the June 7 circular of the RBI. Creditors of DHFL have claimed dues to the tune of Rs 87,000 crore. The liquidity crisis, after the collapse of IL&FS in 2018, led to DHFL’s downfall. Prior to that, it was one of the largest mortgage lenders in the country.