DHFL Insolvency: Creditors' Committee Given Two Weeks To Reconsider Allocation To Public Depositors
DHFL logo seen through a tyre. (Source: BloombergQuint) 

DHFL Insolvency: Creditors' Committee Given Two Weeks To Reconsider Allocation To Public Depositors

In approving Piramal Group’s plan for Dewan Housing Finance Corp., the Mumbai bench of the NCLT has asked the creditors’ committee to allocate higher amounts to fixed deposit holders, debenture holders, employee groups and the Army Group Insurance Fund.

In its order, published late on Saturday night, the National Company Law Tribunal has gone a step further. In perhaps a first, it has appointed an observer to the monitoring committee to ensure smooth functioning and change over to Piramal Capital & Housing Finance Ltd.

Typically, the monitoring committee is in charge of supervising the implementation of the approved resolution plan. In DHFL’s case, three members nominated by the CoC, two by the Piramal Group and the administrator are part of it.

The NCLT has appointed Ashok Kakkar, a former tax department and SEBI official, as ‘observer cum permanent invitee’ to the monitoring committee.

‘…he shall be suitably paid fee for his professional services and other fringe benefits be extended to him’ - NCLT

A lawyer, closely involved in DHFL’s insolvency process and on the condition of anonymity, exclaimed ‘who asked for this?’ when requested for a comment on this direction by the NCLT. The tribunal has no power to direct such an appointment. Piramal Group, DHFL’s administrator, CoC, Reserve Bank of India- nobody asked for it, this lawyer said.

Besides giving directions that deviate from the norm, NCLT Mumbai’s decisions in DHFL’s insolvency have led to an incongruous situation.

On May 21, the bench had directed the committee of creditors to consider and vote on DHFL promoter Kapil Wadhawan’s settlement proposal within 10 days. But now, it has approved Piramal Group’s resolution plan. At the end of the litigation process though, only one of the options can survive- Wadhawan’s settlement proposal or Piramal Group’s resolution plan.

To be clear, the May 21 order was stayed by the appellate tribunal against which Wadhawan has appealed in the Supreme Court.

CoC Asked To Reconsider Allocation

The total resolution amount for DHFL stands at Rs 37,250 crores. This includes cash and non-cash consideration:

  • Upfront cash recovery of Rs 14,700 crores. This includes repayment of the principal amount of DHFL’s retail loan book and cash on the company’s books, which combined comes to roughly Rs 10,000 crore + Rs 4,000 crore infusion by Piramal Group.
  • Rs 3000 crores to financial creditors. This is the interest repayment component from DHFL’s retail loans.
  • Debt securities of Rs 19,550 crores to financial creditors. These non-convertible debentures will carry an interest of 6.75% per annum with a tenor of 10 years.

Creditors who’ve voted for Piramal Group’s plan have been allocated a mix of cash and debt securities against their claims. Dissenting creditors, which includes fixed depositors, will receive upfront cash based on liquidation value.

The tribunal has asked the CoC to consider allocating a higher amount to public depositors, fixed deposit investors, and NCD subscribers, who have asked for similar recovery as secured financial creditors.

We also suggest, request the CoC to reconsider their grievances, plights….their request is only to enhance the percentage of payment made in the plan and the same should be increased to the level of secured financial creditors i.e. approximately 40% the financial creditors would be getting in this plan. 
NCLT Order

The tribunal has pointed out that investment in FDs, NCDs are considered as a low-risk investment compared to equity. And so, small investors should not be put to more risk, take more hair cut than the stronger financial institutions.

Further, the tribunal has also asked the CoC to consider paying the claim of the Army Group Insurance Fund in full. Their claim is only Rs 39 crore, which is 0.0001% of the total plan amount, the tribunal pointed out in its order.

‘We suggest the CoC reconsider and pay the full admitted claim considering the nature of duties performed by them who are protecting the nation, sacrificing their lives, difficult working conditions and human service to keep peace of the country,’ the order stated.

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