Giving relief to lenders, the Piramal group and the administrator, the National Company Law Appeals Tribunal (NCLAT) on Tuesday suspended the Mumbai bench order of the National Company Law Tribunal (NCLT), which had ordered the DHFL administrator to place the settlement offer of the former promoter, Kapil Wadhawan, before the creditors committee (CoC) while the latter (NCLT) was ruling on the appeal.
NCLAT asked the respondents – in this case Kapil Wadhawan – to file their response within two weeks. The case will be heard again on June 25.
DHFL became the first financial services company to be referred to NCLT by the RBI in November 2019 after it defaulted on its payments and lenders failed to find a resolution under the RBI’s June 7 circular.
The creditors have demanded dues of Rs 87,000 crore. The liquidity crisis after the collapse of IL & FS in 2018 resulted in the collapse of the DHFL. Before that, it was one of the largest mortgage lenders in the country.
The court said the pending appeal should not prevent the NCLT from making orders by approving the resolution plan, on which the hearing has ended and the order is reserved.
Piramal Group’s resolution plan has been approved by lenders, the Reserve Bank of India (RBI) and the Competition Commission of India (CCI).
The bench, chaired by Judge AIS Cheema and Vice President of Justice Singh, said in its written order: “… here the case had passed to the stage where even (the) resolution plan had been approved. and was before (the) competent authority. . There would be no end if such cancellations were allowed. There is no dispute that the resolution plan has already been approved and is before the contracting authority. Without deciding the same, the current order was adopted. “
Leading attorneys representing the lenders have argued that the fabric of the IBC would be destroyed if such an order passed by the NCLT becomes a precedent.
Solicitor General Tushar Mehta and Senior Counsel Shyam Divan appearing on behalf of Union Bank and CoC argued that the impugned order was unique in which the original promoter who was not eligible under the Article 29A of the IBC had sent out settlement proposals that did not even comply with the provisions of Article 12A of the IBC, to block the Corporate Insolvency Settlement Process (CIRP).
The lenders and the administrator appointed by the RBI had proposed the NCLAT on Monday, challenging the order passed by the court, saying there was no legal basis for such an order or that the NCLT could not order the CdC to consider a plan.
Piramal Group, whose resolution plan for DHFL was approved by all stakeholders and was only waiting for the court’s sign for the process to close, moved the appeals court on Tuesday, challenging the NCLT order.
In its petition, Piramal Group declared that “the contested order opens the floodgates of any dispute… the adjudicatory authority did not have jurisdiction to hear any petition while ignoring the statutory deadlines under article 12A of the CIB ”.
According to reports, the lenders in their appeal said that if the ordinance was allowed to work, it would create a process contrary to the express provisions of the IBC.
“NCLAT should declare the NCLT order illegal, given that Wadhawan’s proposal has the potential to sidestep the processes and deadlines set under the IBC, as well as create doubts about the concept of CoC autonomy.” said Jay Parikh, partner, L&L Partners.
Ashish Pyasi, Associate Partner, Dhir and Dhir Associates, said: “Given the suspension granted, lenders will not be required to consider the proposal at least until the appeal is decided. And, as it was made clear by the appeals tribunal that the appeal will not stand in the way of approval of the resolution plan, it will give lenders and resolution applicant Piramal a bit of breathing space, as the plan can be approved by the authority. The option open to Wadhawan is that he can go to the Supreme Court. “
On May 19, the NCLT passed an ordinance in which it declared that Wadhawan’s second proposal deserved to be considered on the merits and voted on by the CoC. The order asked the DHFL administrator to present the former promoter’s offer to the CdC in 10 days and had scheduled the next hearing for May 31.
Lenders have been mulling over their options since the order came in last week. The appeal of the order to the appeal tribunal was one of them. Indeed, the CdC had voted in favor of a resolution plan. Bankers were concerned that they might consider the promoter’s settlement offer as the account had been declared “fraudulent” by them.
Wadhawan is in prison for money laundering.