RBI Files For Insolvency Proceedings Against DHFL
The Reserve Bank of India said today it has filed for insolvency proceedings to be initiated against Dewan Housing Finance Corporation Ltd. The action, it said, was initiated under powers vested with it through a recent amendment to the Insolvency and Bankruptcy Code.
Under the new norms, an interim moratorium will apply on the housing financier until the case is either admitted or rejected by the National Company Law Tribunal, the central bank said in a notification.
Under the moratorium, no other legal proceedings can be initiated or continued against DHFL. Similarly, transferring, encumbering, alienating or disposing of assets or legal rights will not be allowed to the company.
Any action to foreclose, recover or enforce any security interest created by corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act will also not be allowed.
The RBI had first announced on Nov. 20 that it has superseded DHFL’s board and has appointed an administrator to run the company. At the time, the regulator had said that it will be filing for insolvency proceedings against the company soon. RBI has also appointed a three-member advisory committee to help the administrator it appointed to manage the company.
The Ministry of Corporate Affairs had amended the Insolvency and Bankruptcy Code earlier this month to allow insolvency proceedings against a financial services company. The application, though, would have to be made by the respective regulator.
DHFL has been facing considerable financial stress since a year ago, when the IL&FS Group started to default on its financial liabilities. That led to a liquidity squeeze in the credit market, drying up funds for non-banking lenders and housing financiers.
In June, the lenders to DHFL signed an inter-creditor agreement to resolve the stress in the company. After months of trying to find buyers, the restructuring plan proposed by the lenders didn’t receive RBI's approval. Moreover, other types of financial creditors such as mutual funds didn’t participate in the inter-creditor agreement citing limitations imposed by the Securities and Exchange Board of India.