Supreme Court stays NCLAT order on DHFL case

The Supreme Court on Monday stayed the National Company Law Appellate Tribunal’s order that asked the lenders of erstwhile Dewan Housing Finance (DHFL) to relook into certain parts of the resolution plan (RP) of Piramal Capital and Housing Finance which ascribed a value of only Rs 1 to Rs 45,000 crore worth of bad loans (avoidance transactions) of DHFL.

Piramal Capital and the DHFL’s committee of creditors led by Union Bank of India had challenged the NCLAT January 22 decision because it misinterpreted Insolvency and Bankruptcy Code (IBC). Former promoter Kapil Wadhawan and others had also challenged the resolution plan, saying Piramal acquired the Rs 90,000-crore company for just Rs 37,000 crore.

A bench headed by Chief Justice NV Ramana admitted the three appeals and stayed the NCLAT order. It posted the matter for a final hearing on May 5.

DHFL had collapsed after it failed to repay its debt worth Rs 90,000 crore to the lenders and was sent for debt resolution under the IBC in November 2019. The total value of future recoveries from such avoidance applications allegedly stands at around Rs 45,000 crore.

Lenders in their appeal told the apex court that the NCLAT had incorrectly held that it is not within the commercial wisdom of the CoC to decide the treatment of recoveries from avoidance applications. The CoC said that the January order that set aside a part of the RP in respect of recoveries from avoidance applications filed under Sections 43-51 and 66 was “bad in law, unimplementable and unsustainable” as it was premised on “incorrect findings in law and failed to interpret judicial precedents in the correct form.”

The recoveries under Section 66 of the IBC are to be returned to the corporate debtor as its asset, Solicitor General Tushar Mehta, appearing for CoC, said, adding that most of these transactions by the former management were irregular or fraudulent, and the banks did not expect to get any money out of it.

Stating that the proceeds from avoidance applications will be shared between the CoC and it, Piramal told the SC that such tinkering, alteration, modification of its approved RP at the appellate stage was “illegal, and contrary to the statute and established law” and “the commercial wisdom of the CoC should not be second-guessed except in case of the rarest of the rare perversity…”

The CoC had approved its RP with a 93.65% majority vote with the affirmative vote of 63 Moons Technologies, senior counsel AM Singhvi, appearing for Piramal, said, adding that the concept of ascribing a notional value of Rs 1 to uncertain recoveries and/ or where it is difficult to assess the actual value is not only within the commercial wisdom of the CoC but is also upheld by the SC in the case of CoC of Essar Steel India vs Satish Kumar Gupta.

“The notional value of Rs 1 cannot be seen in isolation and must be looked at with the other parts of the RP, which provides for an aggregate value of Rs 37,250 crore including cash and non-cash consideration which factors in the possible recoveries that may arise out of the Section 66 recoveries,” the appeal stated.

63 Moons Technologies, which had Rs 200 crore of debt exposure in DHFL, opposed the appeals, arguing that the CoC’s decision to grant the recovery rights to Piramal at `1 notional value was wrong. “If banks did not expect a single penny out of the avoidance transactions, why are they standing between the recovery and 63 Moons… Piramal is trying to appropriate massive recoveries of Rs 45,000 crore at Rs 1 notional value. We are 50,000 individual creditors and are getting just 23 paise per rupee,” senior counsel Mukul Rohtagi, on behalf of 63 Moons Technologies, argued.

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