DHFL Insolvency: NCLT Reserves Order On Former Director’s Plea To Attend Committee Of Creditors Meetings

The National Company Law Tribunal reserved its order on a plea by a former director of Dewan Housing Finance Corporation Ltd. seeking to allow him to be a part of the committee of creditors’ meetings.

A two-member bench comprising judicial member Rajasekhar VK and technical member Ravikumar Duraisamy declined to pass any interim direction or provide any immediate relief to Dheeraj Wadhawan but reserved the matter for orders.

Wadhawan had moved the tribunal after the Reserve Bank of India-appointed administrator rejected his plea to attend the CoC meetings.

The central bank superseded the home financier’s board in November under the Reserve Bank of India Act, 1934. The Section 45-IE of the act grants power to the RBI to supersede the board of any non-banking financial company if its affairs are conducted in a manner detrimental to the interest of its depositors or creditors. This supersession can last for a maximum period of five years.

The RBI also moved an application for initiation of insolvency proceedings against DHFL. The NCLT admitted the bankruptcy application and imposed a moratorium last year. DHFL’s creditors then moved the Bombay High Court to recover their dues.

According to the Section 17 of the Insolvency and Bankruptcy Code, the powers of a company’s board are suspended after admission of an insolvency petition by the tribunal and appointment of an interim resolution professional. The Insolvency code, however, doesn’t restrict suspended directors from attending the creditors’ committee meetings.

While DHFL’s board was superseded under the RBI Act, its administrator was appointed under the insolvency code. Wadhawan’s counsel argued that he was a “suspended director” and entitled to attend the CoC meetings by virtue of law.

Here’s what the administrator and Wadhawan’s counsel argued…

What Wadhawan’s Counsel Said

JJ Bhatt, senior counsel representing Dheeraj Wadhawan, told the tribunal that the RBI-appointed administrator and the CoC for DHFL rejected the former director’s plea, citing that a member of a superseded board wasn’t entitled to attend the CoC meetings.

• The Supreme Court interchangeably used the words “supersede” and “suspend” while dealing with the question of suspended director’s participation in the CoC meetings. The apex court, in the Vijay Kumar Jain case, said suspended directors had a right to participate in every meeting of CoC. That was reiterated in the ArcelorMittal case.
• The background facts that led to the apex court’s decision in the Vijay Kumar Jain case are identical with Wadhawan’s and hence, his participation in CoC meetings was permissible.
• The law doesn’t bar superseded board of directors from returning. Hence, the supersession had an effect of suspension and not permanent removal.

What The Administrator Said

Ravi Kadam, senior counsel for DHFL’s administrator, opposed Wadhawan’s plea on the following grounds:

• The RBI superseded DHFL’s board on Nov. 20 and moved the NCLT on Nov. 29 under the newly issued norms for insolvency of financial service providers. The petition against DHFL was admitted on Dec. 3 after which the RBI-appointed administrator took control. There, however, was no subsisting board on Dec. 3 due to which the question of suspension doesn’t arise.
• The Section 45-IE of the RBI Act said a person won’t be entitled to claim any compensation for the loss or termination of his office pursuant to his supersession. The words “loss or termination” in the section indicate that supersession results in permanent loss of office and not a mere suspension.
• Supersession under the RBI Act cannot be equated with suspension under IBC.
• Cases cited by Wadhawan’s counsel dealt with provision of CoC meetings’ documents to suspended directors. They don’t deal with participation of superseded directors.

The tribunal said it would pass an order in the matter shortly but didn’t cite any date.