HDFC Bank, others take over 96% haircut in Adani Goodhomes-Radius Estates deal

HDFC Bank is one of the lead creditors to Radius Estates.

A clutch of creditors led by HDFC Bank are set to take a 96 percent haircut on their Rs 1,700-crore loan to Mumbai-based Radius Estates. The National Company Law Appellate Tribunal (NCLAT) on May 27 upheld an NCLT order that approved Adani Goodhomes Pvt Ltd’s Rs 76-crore resolution plan for the debt-ridden realtor.

Adani Goodhomes is a subsidiary of Adani Infrastructure and Developers Pvt Ltd. After Radius Estates defaulted, creditors, which included bondholders, took the company to bankruptcy court.

In December 2022, the National Company Law Tribunal (NCLT) approved a resolution plan from the Adani group company, with over two-thirds of the creditors voting in its favour.

But soon a legal battle unfolded.

Debenture holders, including ICICI Prudential Venture Capital Fund and Beacon Trusteeship, challenged the plan, alleging that the resolution professional, Jayesh Sanghrajka, colluded with some creditors to receive only one bid. 

On May 27, the NCLAT, however, upheld the NCLT order.

HDFC Bank, the lead creditor, was not a party to the case, as it did not challenge the resolution plan. The loan was originally given by HDFC Ltd, which merged with the bank in 2023.

Typically, lenders take a corporate defaulter to the bankruptcy court for faster resolution. Once at least two-thirds of the committee of creditors (CoC) agree to the proposal, lenders can take a defaulter to NCLT to initiate bankruptcy proceedings. 

NCLT then calls for bids from interested parties. After the COC agrees on the winning bidder, NCLT passes the order of resolution.

What was the NCLT order?

NCLT said both dissenting creditors were objecting to Adani Goodhomes’s resolution plan largely because it was expressively conditional and hastened to accommodate the bid.

Rejecting the objections, NCLT said it is time authorities prescribed a code of conduct among creditors seeking to challenge a plan duly approved by more than 75 percent of them, specifying that such dissenters must hold a minimum voting percentage as decided by the committee of creditors.

Unless such a code is in place, filing of applications of this nature, contrary to the commercial wisdom, cannot be averted, NCLT said. 

In the committee of creditors, Beacon had a voting percentage of 7.44 percent and ICICI Prudential Venture Capital Fund 5.71 percent. HDFC, the lead creditor, had a voting percentage of 33.25 percent.

NCLT dismissed the applications, saying there was no merit in them. “… In fact, this is a fit case to impose heavy costs. However, this bench is refraining from imposing costs, keeping in mind the financial burden which the petitioners are already incurring by way of haircut,” it said.

In its May 27 order, NCLAT, which is the appellate tribunal, upheld the NCLT decision.  “…we do not find any substance in any of the submissions of the appellant warranting an interference…,” it said, dismissing the appeals.

Radius’ downfall

Sanjay Chhabria-owned Radius Estates and Developers Pvt Ltd had partnered with MIG (Bandra) Realtors and Builders Pvt Ltd, which is a part of DB Realty Group of Companies, to redevelop land in Mumbai’s Bandra (East) to build apartments under the Ten BKC project. The project was put on hold later.

In a May 27 report, Mint said the construction came to a halt in January 2020, leading Beacon Trusteeship Ltd to file a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, initiating the Corporate Insolvency Resolution Process (CIRP) against Radius Estates. Homeowners had collectively advanced Rs 800 crore to book their homes, the report said.

Detailed emails sent to HDFC Bank and Adani group seeking comments for the story remained unanswered till the time of filing this copy.

Mega haircuts the new normal in the IBC process?

This case puts the spotlight back on the effectiveness of the IBC process for Indian lenders. 

With the NCLAT order, Radius Estates’ case has become the latest instance of creditors forced to take major haircuts in an IBC resolution, raising questions about the effectiveness of the platform for banks. 

IBC was formed in 2016 to address insolvency resolution, which used to take a long time.

Analysts have been pointing to the lack of efficacy of the IBC platform for an effective resolution. 

In September 2023, a report from rating agency CARE said the recovery of loans resolved through the insolvency courts remained low even as the number of cases being admitted was rising.

The report implied that the IBC largely remained ineffective in the recovery of funds.

What do the numbers say? 

In a report in September, ratings and research agency CareEdge said the number of cases jumped in April-June FY24. Recovery, however, saw a downtrend during the period from the year-ago quarter. 

Under IBC, recovery happens largely under two routes: liquidation or resolution. 

Liquidation means closing the business and distributing the proceeds among the creditors or interested parties. 

Resolution consists of a detailed plan or a proposal that primarily aims to provide a resolution to debtors.

RBI calls for course correction

In January, Reserve Bank of India (RBI) governor Shaktikanta Das said that while the lenders had recovered 32 percent of their claims under the IBC, the learnings suggested the need for "some course correction". 

The time taken for resolution and the extent of haircuts against the admitted claims were the two major criticisms of the IBC, Das said. 

In terms of realisation of value, creditors realised Rs 3.16 lakh crore out of the admitted claims of Rs 9.92 lakh crore as of September 2023, a recovery rate of 32 percent, Das said.

(SN Thyagarajan contributed to this story)