-By Research Team of IBC Law Reporter
INTRODUCTION & BACKGROUND OF CIRP
From one of the largest deposits taking Housing Finance Company to first Financial Service Provider that went through Corporate Insolvency Resolution Process under IBC, 2016, Dewan Housing Finance Corporation Limited (DHFL or Corporate Debtor) went through a lot in the past 4 years. Before we proceed with the Summary of Resolution plan approved by the Hon’ble NCLT (Mumbai Bench) let’s have a brief look how the DHFL downfall started and brief of the CIRP against DHFL:
1. On 29.01.2019 Cobrapost an independent news website published an article titling “ANATOMY OF INDIA’S BIGGEST FINANCIAL SCAM PULLED OFF BY DEWAN HOUSING FINANCE CORPORATION” terming is as the biggest scam in the Indian history amounting to Rs. 31000 Crores of public money though which the primary promoters of Dewan Housing Finance Corporation Limited (DHFL) and their associate companies have committed a systemic fraud in broad daylight to siphon off public money.
2. Despite the above allegations, credit rating agencies continued to issue high safety rating for DHFL financial products but on June 6, 2019 it defaulted in repayment of around 900 Crores which leads to a massive crash in the share price and downgrade in the rating of its products.
3. On 20.11.2019, the Reserve Bank of India (RBI) issued a press release superseding the Board of DHFL citing corporate governance concerns and the company’s defaulted payment obligations.
4. On 22.11.2019, RBI constituted a 3 Members Committee to advise the administrator during the CIRP process.
5. On 29.11.2019, RBI formally filed a company petition with the Mumbai Bench of NCLT under Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 making DHFL the first Housing Company Financial Service Provider to face CIRP under IBC.
6. The petition got admitted by the Hon’ble NCLT (Mumbai Bench) vide its order dated 03.12.2019 confirmed appointment of the Mr. R. Subramaniakumar as the Administrator in accordance with Rule 5(a)(iii) of the FSP Rules under the Code, to perform all the functions of the Resolution Professional and complete the CIRP of the Corporate Debtor.
7. Further, the RBI vide its press release dated 04.12.2019, advised that the three (3) member Advisory Committee shall continue as the Advisory Committee constituted under Rule 5(c) of FSP Rules and that the Advisory Committee shall advise the Administrator in the operations of the Corporate Debtor during the CIRP.
8. The Public Announcement invited creditors and public depositors of DHFL to submit their claims on or before 17.12.2019.
9. The CoC was constituted on 24.12.2019.
10. The first meeting of the CoC was called on 30.12.2019, where various matters were discussed including appointment of Ernst & Young (“EY” or “Process Advisors”) as process advisors and AZB & Partners as legal advisors to assist the Applicant in carrying out functions during the CIRP.
11. On 16.01.2020, the Administrator informed the CoC about the appointment of RBSA Valuation Advisors LLP(“RBSA”) and Kapil Maheshwari as Registered Valuers for the purpose of determining the fair value and the liquidation value of the Corporate Debtor.
12. Published Form G on 28.01.2020 for invitation of EOIs.
13. Pursuant to the invitation for EOI, the Administrator received 24 EOIs from PRAs by 17.02.2020 who were identified as the provisional PRAs.
14. A request for resolution plans dated 02.03.2020 was issued, which invited resolutions plans for the Corporate Debtor by 16.04.2020 which was extended from time to time and lastly by 22.12.2020.
15. The following resolution plans were received within the final deadline:
(i) Resolution plan submitted by India Opportunities Investments Singapore Pte. Ltd. in respect of Option I (as defined under the RFRP);
(ii) Resolution plan submitted by Piramal Capital & Housing Finance Limited in respect of Option I (as defined under the RFRP);
(iii) Resolution plan submitted by Adani Properties Private Limited along with its wholly owned subsidiary Nirjara Pedestal Private Limited in respect of Option I (as defined under the RFRP);
(iv) Resolution plan submitted by Piramal Capital & Housing Finance Limited in respect of Option IIA (as defined under the RFRP);
(v) Resolution plan submitted by Adani Properties Private Limited along with its wholly owned subsidiary Nirjara Pedestal Private Limited in respect of Option IIB (as defined under the RFRP);
(vi) Resolution plan submitted by Adani Properties Private Limited along with its wholly owned subsidiary Nirjara Pedestal Private Limited in respect of Option IIC (as defined under the RFRP);
(vii) Resolution plan submitted by SC Lowy Primary Investments in respect of Option IIB (as defined under the RFRP).
16. The CoC and their advisors discussed and deliberated the aforesaid deviations in the eighteenth meeting of the CoC held on 24.12.2020 (and continued after recess on 25.12.2020).
17. The Submitted Resolution Plans were voted upon by the CoC during the ensuing voting window which remained open from 30.12.2020 to 15.01.2021.
18. The voting result as regards the Submitted Resolution Plans was as follows:
a) Resolution plan submitted by India Opportunities Investments Singapore Pte. Ltd. in respect of Option I (as defined under the RFRP) received 45.62 % votes;
b) Resolution plan submitted by Piramal Capital & Housing Finance Limited in respect of Option I (as defined under the RFRP) received 93.65 % votes;
c) Resolution plan submitted by Adani Properties Private Limited along with its wholly owned subsidiary Nirjara Pedestal Private Limited in respect of Option I (as defined under the RFRP) received 18.65 % votes;
d) Combination of resolution plan submitted by Piramal Capital & Housing Finance Limited in respect of Option IIA (as defined under the RFRP), resolution plan submitted by Adani Properties Private Limited along with its wholly owned subsidiary Nirjara Pedestal Private Limited in respect of Option IIB (as defined under the RFRP), and resolution plan submitted by Adani Properties Private Limited along with its wholly owned subsidiary Nirjara Pedestal Private Limited in respect of Option IIC (as defined under the RFRP) received 15.12 % votes;
e) Combination of resolution plan submitted by Piramal Capital & Housing Finance Limited in respect of Option IIA (as defined under the RFRP), resolution plan submitted by SC Lowy Primary Investments in respect of Option IIB (as defined under the RFRP), and resolution plan submitted by Adani Properties Private Limited along with its wholly owned subsidiary Nirjara Pedestal Private Limited in respect of Option IIC (as defined under the RFRP) received 15.12 % votes;
19. Thereafter, on 22.01.2021, the Successful Resolution Applicant submitted a Performance Bank Guarantee (“PBG”).
20. The Administrator issued the Letter of Intent to the Successful Resolution Applicant on 22.01.2021.
21. On 25.01.2021, the Administrator, in accordance with Rule 5 of the FSP Rules, submitted an application to the RBI seeking its ‘no objection’ to the Resolution Plan submitted by the Successful Resolution Applicant.
22. On 27.01.2021, the Administrator sent a letter of intimation to the Insurance Regulatory and Development Authority of India (“IRDAI”) in relation to the CIRP of the Corporate Debtor, updating the IRDAI for its information and records about the proposed transactions under the Resolution Plan.
23. Pursuant to the FSP Rules, the RBI communicated its ‘no objection’ on 16.02.2021 subject to (inter alia) the condition that the deposit taking status of the Corporate Debtor will be revoked and the Corporate Debtor and/ or merged entity of the Corporate Debtor and Respondent No. 2 shall function as a non-deposit taking housing finance company.
24. The Resolution Plan filed with the Hon’ble NCLT (Mumbai Bench) under section 30(6) of the Code on 24.02.2021.
SALIENT FEATURES OF RESOLUTION PLAN
Now let’s move to the salient features of Resolution Plan submitted by Piramal Capital & Housing Finance Limited (Resolution Applicant) which was approved by the Committee of Creditors (CoC) and then confirmed by the Hon’ble NCLT (Mumbai Bench) vide its order dated 07.06.2021:
A) DHFL will be acquired by the Piramal Capital & Housing Finance Limited for Rs. 37,250 Crore (combining both cash and Non-cash consideration) as against the admitted claim of around 87,247 Crore. It is pertinent to mention that average of the Fair Value is Rs 42,492.32 Crore and average of the Liquidation Value is 26,850.03 Crores.
(Page 39 of the NCLT Order)
B) The plan involves:
i) upfront cash payment of Rs. 14,700 Crore;
ii) Entitlement as per clause 3.13.3(d) of the RFRP amounting to approximately Rs. 3,000 Crore (Three Thousand Crores Only) (this amount is an estimate and may vary as on the date of distribution);and
iii) issue of debt securities to the Financial Creditors amounting Rs. 19,550 Crore.
(Page 25 of the NCLT Order)
C) Dissenting Financial Creditor will be paid from the balance upfront cash and/or by issue of debt securities in such manner as maybe prescribed within 90 days from the date of NCLT approval.
(Page 44 of the NCLT Order)
D) After the Payment, Piramal Group will infuse an amount of INR 1,00,00,000 in DHFL by way of subscription to the Equity shares. Further it proposes to DELIST AND EXTINGUISH ALL THE EQUITY SHARES HELD BY THE CURRENT SHAREHOLDERS WITHOUT ANY PAYMENT for the shares held by them by way of capital reduction other than Piramal making Piramal the 100% holding of DHFL.
(Page 48 of the NCLT Order)
E) Amount of Rs.3800 Crore to be infused within 12 months from the date of the approval in the retail business of corporate debtor i.e.(DHFL) and Piramal Enterprises Ltd. (Holding Co) of Piramal Housing and Finance Limited is committed to the infuse Rs.1500 crore for the retail business as a subordinated debt .
(Page 49 of the NCLT Order)
F) Upon Completion of the above step, Piramal shall be merged (Reverse Merger) into DHFL by way of scheme of arrangement under the Companies act, 2013 subject to regulatory approvals.
(Page 46 of the NCLT Order)
G) Further, it intends to pursue the applications filled in respect of avoidance of transactions under sec 66 of the Code and ascribes the value of INR 1 in respect of any transactions that may be avoided/set aside by the NCLT. ACCORDINGLY, ANY POSITIVE RECOVERY/BENEFIT WOULD ACCRUE TO RESOLUTION APPLICANT ONLY AND NOT TO THE FINANCIAL CREDITORS.
(Page 50 of the NCLT Order)
OBSERVATIONS AND THE ORDER OF NCLT
A) Dissenting Financial creditors should be paid upfront cash and not debt securities prior to making any payment to other Financial Creditors as per order of Hon’ble Supreme Court in Jaypee Kensington Boulevard Apartments Welfare Association & Ors. Vs. NBCC (India) Ltd. Ors.
(Page 62 of the NCLT Order)
B) With regard to the claims of more than 70,000 Fixed Deposit Holders, Lakhs of Employees of UP State Power Sector Employees Trust, Board of Trustees of UP Power Corporation Contributory Provident Fund Trust, investment by Capgemini Business Services India Ltd, Employees Provident Fund Trust, other claimants falling in the similar category, considering the number of small investors running into lakhs, senior citizens, who had deposited their hard earned savings, have to meet various expenses especially in this Covid 19 Pandemic situation, loss of jobs to number of depositors, to meet other essential needs the employees of the PF Trust which is the money they would get at the time of , after superannuation. Therefore, we are of the considered view that they should get fair, increased share money out of the Resolution Plan.
(Page 75 of the NCLT Order)
C) Investment in Fixed Deposit, NCDs are low risk investment than investing in Equity Shares therefore these small investors should not be put to more risk, take more hair cut than the stronger financial institutions viz Banks, Financial Institutions and accordingly asked the COC to reconsider the Distribution method within 2 weeks.
(Page 76 of the NCLT Order)
D) Decision on distribution to these public depositors, Fixed Deposit holders, subscribers to NCDs we also suggest, request the COC to reconsider their grievances, plights and enhance the amount/percentage to be paid to them. (No additional Monetary obligation than Rs. 37,250 Cr) only the distribution to be reconsider by the COC.
(Page 76 of the NCLT Order)
E) Further for the Army Group, 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 it would be appropriate for the members of the CoC to reconsider and to repay their entire admitted claim without any hair cut thereby expressing our deep concern, gratitude and respect to the Army Personnel.
(Page 77 of the NCLT Order)
F) During the period between, the NCLT approval date and Implementation date, the management and control of the corporate debtor shall vest with the monitoring committee comprising of:
- (Three) representatives nominated by the CoC,
- 2 (Two) representatives nominated by the Successful Resolution Applicant; and
- The Administrator, provided that if the Administrator has not provided his consent in this regard, then an insolvency professional or an industry expert as nominated by the Successful Resolution Applicant in consultation with the CoC and EY (“Expert Member”).
- An observer cum permanent Invitee in the Committee to ensure smooth functioning of the corporate debtor.
COMMENTS BY US
A) While Piramal may have won the Bid for acquiring DHFL but the battle is not over yet as 63 Moon Technologies Limited which holds over Rs. 200 Crore NCD (Non-Convertible debentures) is set to move Hon’ble NCLAT against the approved resolution plan . Primary contention of 63 Moons is that [lan, has been made in such a way that it favours resolution applicant Piramal Group, allowing it to reap the benefits of recoveries from the promoters. “Ascribing a value of ₹1 to the recoveries of fraud where claims are in excess of ₹45,000 crore creates unjust enrichment of the buyer (Piramal) at the cost of creditors. Piramal has bid only for the current value of DHFL which does not include these amounts that were taken away fraudulently.
B) Resolution Plan is also subject to the Hon’ble Supreme Court decision in the appeal filled by Kapil Wadhwan (Promoter) of the DHFL which is yet to be listed. Wadhwan appeal is against the Hon’ble NCLAT order which stayed the Hon’ble NCLT order in which NCLT asked the COC to consider the offer made by Wadhwan for full settlement of its obligations without any haircut as against the Piramal Offer which is offering only 37% of total dues.
C) Wadhwan appeal is based on 3 Premise i.e. Public Interest, Value Maximization, No conclusion of Criminal Proceedings. While the matter is sub-judice one can say that the appeal is just to delay the implementation of resolution plan keeping in mind the intent of Sec 29A of the code.
D) Small depositors are set to lose the money as against the admitted claim of Rs. 5375 Crores, they will receive only Rs. 1243 Crore i.e. only 23.21 %. Depositors may also move NCLAT against the plan.
CONCLUSION
To Piramal group, we must say “ STAND UP, THE BATTLE IS NOT OVER YET”.
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About the Author: The summary of this Order has been composed by Mr. Shikhar Pandey (Research Associate-IBC Law Reporter).
Disclaimer: The entire contents of this document have been prepared on the basis of the information existing at the time of the preparation. The author and IBC Law Reporter do not take responsibility for the same and this document cannot used to be quoted before any authority under any law.
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