SEBI Disposes Adjudication Proceedings against DHFL in DHFL Pramerica Life Insurance Share Transfer Case
Moneylife Digital Team 30 July 2021
Market regulator Securities and Exchange Board of India (SEBI) has disposed the adjudication proceedings initiated against Dewan Housing Finance Corporation Ltd (DHFL) in the matter of certain transaction of shares by the company.
 
"The present proceedings cannot be continued against the noticee, since the resolution plan in respect of the noticee (DHFL) has already been approved by the National Company Law Tribunal (NCLT), vide order dated 7 June 2021, under ... Insolvency and Bankruptcy Code (IBC)," the SEBI order said.
 
“.….I am of the view that once a resolution plan has been approved, it becomes obligatory on all creditors including the central government, state government and local authorities under section 31 of the IBC and no proceedings can be initiated or proceeded against the corporate debtor. Therefore, the present proceedings cannot be continued against the noticee…,” SEBI’s adjudicating officer Prasanta Mahapatra said.
 
SEBI had investigated the issue of share transaction by DHFL in DHFL Pramerica Life Insurance (erstwhile DLF Pramerica Life Insurance Co or DPLI) with its wholly-owned subsidiary DHFL Investments Ltd (DIL) and other related transactions to ascertain the violation of Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) rules 2003.
 
The investigation period was taken as 1 February 2017 (incorporation date of DIL) to 31 March 2017 (completion date of the transaction or the sale of stake in DPLI by DHFL to DIL). 
 
During examination, SEBI observed that the noticee did not comply with the provisions of regulation 4(1)(e) of SEBI (Listing Obligations and Disclosure Requirements) LODR Regulations, 2015.
 
In December 2013, DHFL acquired 50% of the equity share capital of DHFL Pramerica Life Insurance from DLF Ltd for about Rs31.07 crore.
 
On 31 March 2017, DHFL sold its entire 50% stake) in DPLI to DHFL Investments Ltd, its subsidiary at a value of Rs2,000.50 crore. To fund this acquisition in DPLI, DIL issued and allotted 190.10 crore compulsorily convertible debentures (CCDs) of face value of Rs10 each to Wadhawan Global Capital Ltd (WGC), a promoter of DHFL. Further, WGC also invested in optionally convertible debentures (OCDs) of DHFL Advisory & Investments Pvt Ltd (DAIPL), a subsidiary of DHFL
 
The above OCDs of DAIPL were backed by a debt service reserve account (DSRA) guarantee issued by DHFL to OCD-holders and CCDs of a subsidiary of DHFL. These OCDs and CCDs were further pledged by WGC to mutual funds for the purpose of raising funds. 
 
Examination was undertaken by SEBI for the issues such as whether all relevant details of the transactions were made available by DHFL to its shareholders to enable them to make an informed decision and whether the transactions were profitable and in favour of promoters of DHFL as against the interests of the public shareholders. 
 
The examination revealed that the shareholders were aware about the DHFL’s investment in DPLI, reason for the proposed transfer, and funding for the transaction. However, no concrete details or information regarding the put options were available to the shareholders of DHFL while taking the decision for related-party transactions. This can be seen from the content of the postal ballot, only the term used for options were 'certain options or such options'.
 
The estimated size and amount of the CCDs issued by DIL was not disclosed by the company.
 
The conversion ratio of CCD to equity shares, shareholding pattern of DIL post conversion of CCD and the rate of interest on the CCDs were also not disclosed by the company. 
 
Information about the options like terms of option agreement, cost or fee charged for the options, how CCDs would be transferred to DHFL and impact on the shareholders of DHFL, if options exercised by WGC were not disclosed by the company.
 
Accordingly, SEBI initiated adjudication proceedings against the DHFL for the aforesaid violation of the provisions of LODR Regulations, 2015.
 
A show-cause notice was issued on 7 May 2021 to DHFL under rule 4 of the adjudication rules, to show cause as to why an inquiry should not be initiated against DHFL and why penalty, if any, should not be imposed on the company. 
 
NCLAT, vide its order dated 12 July 2021, held that “All the dues including the statutory dues owed to the central government, any state government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date the adjudicating authority was granting its approval under Section 31 could be continued.” 
 
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