R Subramaniakumar, the Reserve Bank of India (RBI)-appointed administrator for Dewan Housing Finance Ltd (DHFL), late on Sunday night moved the National Company Law Appellate Tribunal (NCLAT) against last week’s National Company Law Tribunal (NCLT) order asking lenders to consider Kapil Wadhawan's settlement offer. In its appeal, the administrator has termed the NCLT order "illegal and in breach of settled provisions of law."
While reporting on the contents of the appeal, a CNBC report said that the appeal says, “The adjudicating authority (NCLT), in passing the impugned order, has overlooked relevant facts, and settled law, ignoring the submissions and contentions of not only the appellant (administrator) and the committee of creditors (CoC), but also the RBI.”
The CNBC report
also said that the appeal calls out the 19th May order for “incorrectly failing to recognise any legal basis, either under Section 29A or Section 12A, which underlay the second proposal (Kapil Wadhawan’s settlement offer dated 29 December 2020), instead choosing to simply accept Kapil Wadhawan’s baseless statement that this was a ‘precursor’ to a settlement proposal under Section 12A of the Code: a concept not recognised under any provision of law.”
While Section 29A of IBC prohibits wilful defaulters, undischarged insolvents and promoters of defaulting companies from participating in the resolution, Section 12A deals with withdrawing a company from bankruptcy proceedings, but on the condition that 90% of the creditors committee supports the resolution and the withdrawal application is filed by the applicant who initiated the insolvency proceedings in the first place.
“The RBI is recorded as having submitted that in these circumstances, permitting Kapil Wadhawan to even present a purported settlement could be equivalent to permitting Respondent 1 to benefit from its own wrongs. The adjudicating authority (NCLT) has declined to even deal with these submissions by the RBI,” the administrator of DHFL says in the filed appeal.
The CoC has also “categorically opposed the grant of any relief, making it clear that it had applied its mind to the Second Proposal (Wadhawan’s settlement offer), and taken a conscious decision that it did not want to accept the same.”
Separately on Monday morning, Union Bank of India also filed an appeal in NCLAT against the 19th May NCLT order on behalf of the CoC. Both the appeals seek to challenge the NCLT order, which directed DHFL’s CoC to consider the offer made by its former promoter Kapil Wadhawan within the next 10 days.
Both applications ask for the 19th May order of the NCLT to be set aside and that the NCLT should also clear the resolution plan for DHFL. NCLAT will take up CoC's appeal in DHFL matter against NCLT order tomorrow itself.
The move comes even as there have been major concerns in the past few days that following the 19th May NCLT order
will not only derail the resolution process of DHFL but could also set a bad precedent.
The RBI in its affidavit to the NCLT said that permitting Kapil Wadhawan to make an offer for DHFL could derail the company’s resolution process. The RBI noted that Mr Wadhawan is in judicial custody with proceedings against him on allegations of cheating, fraud, siphoning of funds and such other serious offences.
“...affording the applicant even an opportunity of presenting a purported settlement offer may amount to permitting the applicant to take benefit of its own wrong, which led to complete downfall of DHFL and resultantly, the various stakeholders,” RBI said in its affidavit to the NCLT.
The banking regulator further said that since the resolution process is at an advanced stage, any interim relief would derail the process and force DHFL into liquidation, adding that the application against it should be dismissed.
Last week, the Mumbai bench of the NCLT had said, “Creditors of DHFL did not consider the settlement proposal by its promoter Kapil Wadhawan on its merits or with commercial wisdom.”
NCLT had asked the CoC to put up the offer for its 'consideration, decision, voting' within the next 10 days, according to the order. It said the proposal has not been made available to the fixed-deposit and non-convertible debenture holders who constitute more than 65% of vote share.
Kapil Wadhawan’s proposal offers more than Rs91,000 crore to the creditors, which is higher than the Rs37,250 crore offered by the winning bidder, Piramal group and, hence, the CoC must consider it, NCLT said.
NCLT had noted that while promoters are barred from submitting a resolution plan under Section 29A of the Insolvency and Bankruptcy Code (IBC), Mr Wadhawan has submitted a one-time settlement offer and there is no express legal bar against such a submission. Mr Wadhawan had written to the NCLT in November 2020, offering to settle dues in full.
It is now known that Kapil Wadhawan’s offer letter was discussed in meetings but was not considered for voting since it was not even a formal proposal. Lenders too were not in favour of considering a proposal from a ‘tarnished’ promoter who is accused of fraud (and behind bars) and led the company to its current plight/ crisis. DHFL is being investigated by the ministry of corporate affairs (MCA) from December 2019 through the Serious Fraud Investigation Office (SFIO).
Piramal group won the bid in a bitterly fought bidding war and has since already received an approval from the RBI
(in February 2021) and the Competition Commission of India (CCI) (in May 2021) to take over DHFL. The group has raised money and is hopeful of a final approval on the DHFL resolution from the NCLT in the next two months.