Supreme Court Reverses NCLAT Order; Upholds Piramal's DHFL Resolution Plan
The bench dismissed various appeals, including that of former promoter Kapil Wadhawan;
Supreme Court Reverses NCLAT Order; Upholds Piramal's DHFL Resolution Plan
The bench dismissed various appeals, including that of former promoter Kapil Wadhawan
The Supreme Court has upheld Piramal Capital & Housing Finance's resolution plan (RP) for the erstwhile Dewan Housing Finance Corporation Ltd (DHFL).
The bench comprising Justice Bela Trivedi and Justice Satish Chandra Sharma overturned the order of the National Company Law Appellate Tribunal (NCLAT) directing the lenders of the debt-laden firm, DHFL, to relook certain parts of the RP that ascribed a value of only Rs.1 to Rs.45,000 crore of avoidance and fraudulent transactions.
The top court dismissed various appeals, including former promoter Kapil Wadhawan’s, challenging the RP based on Piramal acquiring the Rs.90,000-crore company for merely Rs.37,000 crores.
The judges also rejected the appeals of fixed deposit holders and non-convertible debenture holders, including 63 Moons Technologies. They were against distributing the recoveries, claiming that it violated their rights to receive full payment of their deposits.
The bench directed the appellate tribunal to take a fresh call on the provisions of the Insolvency and Bankruptcy Code, 2016, under which applications for avoidance transactions were to be considered.
The benefits would be appropriated in favor of the Committee of Creditors (CoC) on avoidance applications under Sections 43, 45 and 50, and in favor of Piramal on applications under Section 66.
While Sections 43, 45 and 50 refer to ‘avoidable transactions’, specifically preferential, undervalued, and extortionate credit, Section 66 refers to fraudulent or wrongful trading.
DHFL collapsed after failing to repay its Rs.90,000 crore debt to the lenders. It was sent for debt resolution under the IBC in November 2019. The total value of future recoveries from avoidance applications is Rs.45,000 crore.
Piramal and the DHFL's CoC, led by the Union Bank of India, had challenged the 22 January 2022 decision of the NCLAT, stating it misinterpreted Section 66 of the IBC. They stated that recoveries under Section 66 must be returned to the corporate debtor as its asset. Most transactions by the former management were irregular or fraudulent and the banks did not expect any money out of it.
The lenders said that the NCLAT wrongly held that it was not within the commercial wisdom of the CoC to decide the treatment of recoveries from avoidance applications.
Piramal stated that the proceeds from avoidance applications would be shared between the CoC. It added, “The modification of its approved plan at the appellate stage was illegal. The commercial wisdom of the CoC should not be second-guessed except in case of the rarest of the rare perversity.”
The company said that the CoC approved its RP with a 93.65 percent majority with the affirmative vote of 63 Moons Technologies. It added that ascribing a notional value of Rs.1 to uncertain recoveries and/or where it was difficult to assess the actual value was within the commercial wisdom of the CoC.
It cited the decision of the apex court on the CoC in the Essar Steel India vs Satish Kumar Gupta case.