Kapil Wadhawan, former promoter of the beleaguered Dewan Housing Finance Ltd (DHFL), has filed a plea in the Supreme Court (SC) challenging the stay granted by the National Company Law Appellate Tribunal (NCLAT). On 25th May, the NCLAT had stayed the
National Company Law Tribunal (NCLT) Mumbai bench's 19th May order which directed DHFL's lenders consider Mr Wadhawan's settlement offer.
Kapil Wadhawan is said to have filed the appeal petition in SC on Monday evening. He is currently in judicial custody for his alleged misdeeds.
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 committee of creditors (CoC) must consider it, the NCLT had said in its order.
There were major concerns that following the 19th May NCLT order
will not only derail the resolution process of DHFL but could also set a bad precedent.
The NCLAT stay order came after the CoC led by Union Bank of India, R Subramaniakumar, the Reserve Bank of India (RBI)-appointed administrator and Piramal group (the winning bidder) filed separate applications challenging the NCLT's order which asked them to evaluate the offer by Mr Wadhawan within 10 days.
The NCLT had directed DHFL lenders to consider the offer to fully settle the mortgage lender’s Rs91,000 crore dues, including Rs43,000 crore in the initial few years, for its consideration, decision, and voting.
Financial creditors had opposed the NCLT order as they had chosen Piramal group as the winning bidder for DHFL. The order from NCLT came as a surprise for lenders as they had already approved a bid of Rs34,250 crore from Piramal group.
In its appeal at NCLAT, the administrator had termed the NCLT order as “illegal and in breach of settled provision of law".
In January this year, the CoC had voted in favour of selling DHFL to the Piramal group under the bankruptcy process.
Kapil Wadhawan, who is facing charges of money laundering and diversion of bank funds, has repeatedly accused DHFL’s lenders of selling the company much below its fair value. Earlier, he had proposed a settlement plan of Rs91,158 crore, claiming he would repay 100% of the principal to all the creditors. However, the settlement offer, in which he had proposed to repay lenders by selling his assets, was rejected by the lenders.
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 or crisis.
DHFL is being investigated by the ministry of corporate affairs (MCA) from December 2019 through the Serious Fraud Investigation Office (SFIO).
The RBI was never in favour of considering Kapil Wadhawan’s settlement offer for DHFL. The banking regulator’s stance is important as it was the regulator which had referred DHFL for insolvency proceedings. Unlike insolvency proceedings for companies from other sectors, a financial services provider (FSP) creditor or debtor cannot approach the tribunal without being referred by a regulator. DHFL is the first FSP to be sent to the bankruptcy tribunal after the government notified the rules for referring FSPs on 15 November 2019.
In its submission at NCLT Mumbai on 15 January 2021, the RBI had said, “Affording the applicant (Kapil Wadhawan) even an opportunity of presenting a settlement offer may amount to permitting the applicant to take benefit of its own wrong, which lead to the complete downfall of DHFL and resultantly, the various stakeholders.”
RBI has also raised concern on the alleged serious offences by Wadhawans and said, “It is pertinent to mention herein that the applicant is the ex-promoter of DHFL against whom various proceedings, civil and / or criminal, have been filed, alleging cheating, fraud, siphoning of funds and such other serious offences. The applicant is presently in judicial custody and most regulatory agencies like central bureau of investigation (CBI), economic offences wing (EOW) and enforcement directorate (ED) are at present investigating against the applicant. This being so, 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, various stakeholders.”
DHFL had gone bankrupt in 2019 with more than Rs90,000 crore in debt to various lenders, including banks, mutual funds and retail investors who invested in the company’s fixed deposits (FDs) and non-convertible debentures (NCDs).
DHFL’s lenders have been reluctant to consider Wadhawan’s offer after careful consideration of the legal advice from their counsel. Lenders have also cited lack of credibility. Wadhawan too has not sent any formal proposal with valuations attached to proposed asset sales.