DHFL administrator moves tribunal challenging NCLT order on Wadhawan offer; lenders may follow suit

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The Reserve Bank of India-appointed administrator of Dewan Housing Finance Ltd (DHFL) has appealed to a higher court in Mumbai challenging the order of a bankruptcy court that asked lenders of the troubled shadow lender to consider former promoter Kapil Wadhawan’s settlement offer.

Moneycontrol has reviewed a copy of the appeal filed by R Subramaniakumar at the Mumbai office of the National Company Law Appellate Tribunal (NCLAT), the body that is authorised to review decisions of National Company Law Tribunal (NCLT).

DHFL’s lenders are also looking to move NCLAT with a similar appeal, according to persons familiar with the development. It is expected that NCLAT will hear the appeal at the earliest to ensure that DHFL resolution is not delayed any further.

Last Wednesday, the NCLT in Mumbai asked the so-called committee of creditors (COC) to meet within 10 days and discuss Wadhawan’s proposal. The NCLT action came after DHFL’s lenders launched a takeover bid and voted in favour of conglomerate Piramal Group. That decision secured a stamp of approval from the Reserve Bank of India (RBI) on February 18. Lenders thereafter took the proposal to the NCLT, which was to due to give a final go-ahead.

The DHFL resolution has been underway since November, 2019 when DHFL became the first financial services company to be taken by the lenders to NCLT.

DHFL, a shadow lender, or non-banking financial company, that used to disburse home loans before its collapse was the first financial institution in India to be dragged to the NCLT. DHFL owes its lenders around Rs 91,000 crore.

Wadhawan’s offer

Wadhawan had proposed a 100 percent payment to DHFL’s creditors, including the holders of non-convertible debentures and fixed deposits. Rohan Dakshini of Rashmikant & partners, who represents Wadhawan said Mumbai NCLT has asked lenders to consider Wadhawan's offer as it is Rs 50,000 crore higher than what the Piramals offered. “The court said it will not question the commercial wisdom of the lenders but said CoC can at least consider the offer," he said.

Wadhawan has been strongly pitching to the CoC all along to accept his resolution plan arguing that his proposal is better than other bidders. Now that the NCLT has asked lenders to consider his proposal, the decision of lenders will be crucial in the case.

The resolution plan by Wadhawan contained no haircut. "Kapil Wadhawan’s offer was to repay the NCD and the FD holder completely, but it was not put forward by the COC to the NCD and FD holders," said one of the persons cited above. He didn’t want to be named.

The next hearing is scheduled on May 31.

Wadhawan offered to repay 100 percent principal amount to all the creditors. In a revised proposal of Rs 91,158 crore for the creditors, he promised to make an upfront payment of Rs 9,000 crore.

DHFL’s lenders were not keen on Wadhwan’s offer, basing their decision on the legal advice from their counsel. Refusing to consider Wadhwan’s offer, the lenders’ legal counsel had responded to Wadhwan’s letter, saying its eligibility under Section 29A of IBC was doubtful, CNBC-TV18 reported.

Aggressive bidding

On January 15, the creditors to the DHFL voted in favour of Piramal as the winning bidder. Piramal Enterprises, a diversified Indian conglomerate, got more than 94 percent votes. A resolution plan needs a minimum of 66 percent votes to be passed by lenders, who can vote a preference for more than one bidder.

Oaktree, an American asset management company, secured around 45 percent votes, while another bidder, Adani Capital, is believed to have got 18 percent votes. Oaktree's bid for DHFL was at Rs 38,400 crore against Piramal's Rs 37, 250 crore. Piramal's offer, however, had a higher upfront cash payment and that swung support in its favour.

DHFL collapsed under the weight of a severe liquidity crunch after Infrastructure Leasing & Financial Services (IL&FS) went bust in late 2018. It was pushed to NCLT in December 2019. Since then, the creditors have been attempting for a resolution. State Bank of India is its biggest creditor, with an exposure of around Rs 10,000 crore. Other lenders include Bank of India, Canara Bank, NHB, Union Bank of India, Syndicate Bank, and Bank of Baroda.

Timing of the NCLT order

The administrator’s appeal describes the timing of the NCLT order as “surprising”.

“The Impugned Order has the effect of creating a disruption from the strict discipline of the timelines set out under the
CIRP and has the effect of compelling the CoC to vote on a settlement proposal offered by Respondent 1 (Kapil Wadhawan,) which the CoC in its commercial wisdom had chosen not to,” said the appeal.

“In this context, it is surprising and in conscious disregard of judicial economy that the impugned order was passed after the Adjudicating Authority (NCLT) heard and reserved orders on the administrator’s application  seeking approval of the successful resolution plan duly approved by 93.65 per cent of the CoC, and several other applications in connection therewith,” the appeal said.