NCLT, Mumbai gives approval to Piramal’s Resolution Plan for DHFL

The National Company Law Tribunal (NCLT), Mumbai vide its order dated 7 June 2021 in the matter of DHFL, approved the Resolution Plan submitted by Piramal Capital and Housing Finance Ltd. (Piramal) for Dewan Housing Finance Corporation Ltd (DHFL/Corporate Debtor). [REED 2021 NCLT Mum 06523]

The present Interlocutory Application before NCLT was filed by Mr. R. Subramaniakumar, Administrator of DHFL, for the Corporate Debtor in order to approve the Resolution Plan submitted by Piramal under section 30(6) and Section 31 of the Insolvency and Bankruptcy Code, 2016 (IBC) read with Regulation 39(4) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, read with rule 11 of the National Company Law Tribunal Rules, 2016. The said Resolution Plan for DHFL, prepared by Piramal, had been duly approved by 94.5% votes of the Committee of Creditors (CoC) at the eighteenth CoC meeting held on 24 December 2020.

According to the Resolution Plan, out of total consideration of Rs. 37,250 Crores, an amount of Rs 14,700 Crores is an upfront payment, cash recovery out of which Rs 4002 Crores is brought in by the Piramal and balance Rs. 10,968 Crores is the cash balance available with the Corporate Debtor. Further, Rs 19,550 Crores is debt securities (NCD) issued to CoC members with a coupon rate of 6.75% P.A payable half-yearly.

The NCLT, while pronouncing the verdict, noted that a Financial Service Provider like DHFL is a different nature of company than a normal Corporate Debtor, wherein thousands, lakhs of Small Investors invest their funds for a reasonable interest income. Further, it is generally considered that investment in Fixed Deposit, NCDs are a low-risk investment than investing in Equity Shares and therefore, NCLT opined that such small investors should not be put to more risk, take more hair cut than the stronger financial institutions viz. Banks, Financial Institutions. Accordingly, for this limited purpose, NCLT directed the CoC to reconsider their distribution method, distribution amongst various members of CoC within two weeks and report the same to it.

With regard to the decision on distribution to the public depositors, Fixed Deposit holders, subscribers to NCDs, NCLT also suggested the CoC reconsider their request of enhancing the percentage of the payment made in the plan to the level of Secured Financial Creditors i.e. approximately 40% the Financial Creditors would be getting in the plan. However, NCLT clarified that while considering the above suggestions, Piramal is not obligated to increase the amount committed in the Resolution Plan i.e, Rs 37,250 crore, and it will only an inter se distribution of resolution money amongst various creditors.

Finally, placing reliance on a catena of rulings, including Swiss Ribbon Pvt. Ltd. v Union of India,  REED 2019 SC 01504 and CoC of Essar Steel India Ltd. v Satish Kumar Gupta and Ors., REED 2019 SC 11505 the NCLT observed that it has supervisory jurisdiction over the CoC and it cannot sit in appeal over the Commercial Wisdom exercised by the CoC while approving the Resolution Plan with 94.5% voting. Therefore, the NCLT concluded that it was duty-bound and legally expected to approve the Resolution Plan unless it is not Law compliant or did not meet the requirement of the IBC specifically sections 30 & 31 of the IBC read with Rules and relevant IBBI Regulation made thereunder. Since the Resolution Plan for DHFL by Piramal satisfied all the above conditions, it was approved by NCLT.