DHFL Case: Appellate Tribunal stays NCLT order directing lenders to consider Kapil Wadhawan's proposal

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An appellate tribunal in Mumbai on 25 May stayed an order of the National Company Law Tribunal, NCLT that earlier directed the lenders of troubled mortgage lender, Dewan Housing Finance (DHFL) to consider former promoter Kapil Wadhawan's settlement offer.

The National Company Law Appellate Tribunal (NCLAT)  also agreed to hear pleas by the so called committee of creditors (CoC), DHFL's RBI-appointed administrator and the Piramal Group challenging the Mumbai NCLT order.

On Monday, DHFL’s RBI-appointed administrator R Subramaniakumar had moved NCLAT challenging the NCLT order  directing lenders to consider Kapil Wadhawan’s settlement offer within a period of ten days. Piramal too moved the NCLAT challenging the NCLT order.

In its appeal to the NCLAT, Piramal, the winning bidder, observed that NCLT had reserved judgment in granting nod to Piramal Resolution Plan in January 2021. The NCLT order will cause havoc with the Insolvency and Bankruptcy Code (IBC) process and, hence, must be stayed, Piramal said. Also, Wadhawan's proposal is neither a settlement offer, nor a resolution plan, Piramal contested in its appeal.  Lenders too moved an appeal on the similar lines.

Last Wednesday, in a major twist in the DHFL case, the NCLT in Mumbai asked the COC to meet within ten 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 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.

Wadhawan had proposed a 100 percent payment to DHFL’s creditors, including the holders of non-convertible debentures and fixed deposits. The resolution plan by Wadhawan contained no haircut. Wadhawan, who is an accused in the Yes Bank loan bribery case, had repeated his offer to lenders in the past.

Read details of the Wadhwan offer here.

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

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

After an aggressive bidding war, the Piramal group emerged as the winner for DHFL. On January 15, the creditors to the DHFL voted in favour of Piramal as the winning bidder. Piramal got 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.

In his appeal to NCLAT, the DHFL administrator had questioned the timing of the NCLT order.  “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.

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.

The matter will be heard next on June 25, 2021.