DHFL resolution: Supreme Court stays NCLAT January order, to hear appeal on May 5

The Supreme Court on April 11 stayed an order passed by the National Company Law Appellate Tribunal (NCLAT) in the DHFL insolvency case, asking the insolvency court to reconsider the right given to Piramal Capital and Housing Finance to appropriate proceeds from DHFL’s avoidance transactions.

A Supreme Court bench headed by Chief Justice of India NV Ramana issued a notice on appeals filed by the Piramal group firm as well as some banks that formed part of the lenders' panel. The appeals will be heard by the court on May 5, the bench said.

In the meantime, the order passed in January will be stayed, the court added.

The approved resolution plan for DHFL stipulated that the proceeds from all avoidance transactions would go towards the successful resolution applicant – Piramal Capital and Housing Finance. This aspect was termed as “illegal” by the NCLAT in an order passed in January. The appellate forum set aside the National Company Law Tribunal’s (NCLT) approval for the plan to the extent of question on avoidance transactions and directed the Committee of Creditors (CoC) of DHFL to reconsider the question.

NCLAT’s order was passed after one of DHFL’s creditors – 63 Moons Technologies Ltd – challenged the successful resolution plan. As a a holder of non-convertible debentures to the tune of Rs 200 crore in now bankrupt DHFL, 63 Moons, had claimed that the recoveries from avoidance transactions ought to go towards repaying the creditors rather than enriching the successful resolution applicant.

NCLAT, agreeing with the position of 63 Moons and ruled in favour of the company.

The Piramal group firm had approached the Supreme Court in appeal against the NCLAT order shortly thereafter.

A large number of loans of DHFL were listed under avoidance application as per the provisions of the Insolvency and Bankruptcy Code (IBC). The code provides for transactions that may be fraudulent at the behest of promoters as avoidance transactions.

In its resolution plan for DHFL, Piramal group ascribed a value of Re 1 to the bulk of avoidance applications that range between the value of Rs 30,000 and Rs 40,000. This was so done because Piramal group did not anticipate any recoveries from these transactions.

The value of Re 1 against avoidance transactions was accepted by the CoC and the plan not only got an approval from NCLT but also successfully executed the takeover in September 2021.

DHFL is the first financial institution to have gone through the insolvency proceedings for a successful resolution under the IBC.