NCLAT stays NCLT order asking CoC to consider Kapil Wadhawan's offer

In a big relief to lenders, Piramal Group, and the administrator, the appellate tribunal has stayed the order of the Mumbai bench of the National Company Law Tribunal (NCLT), wherein it had directed the administrator to place the settlement offer of the erstwhile promoter, Kapil Wadhawan, before the committee of creditors (CoC).

The appellate tribunal -- National Company Law Appellate Tribunal (NCLAT) -- has also clarified that such appeals should not come in the way of the NCLT deciding on the approval of the resolution plan given by the Piramal Group, which has already been approved by the lenders, the Reserve Bank of India (RBI), and the Competition Commission of India (CCI). The NCLT has already finished hearing the matter, but had reserved its order.

The NCLAT will hear further appeals and arguments in the matter on June 25.

Lenders and the RBI-appointed administrator had moved the NCLAT yesterday challenging the order passed by the tribunal saying there is no basis in law for such an order and the NCLT cannot direct the CoC to consider an offer. Also, there are strict provisions under the Insolvency and Bankruptcy Code within which settlement offers can be considered and the erstwhile promoter, in this case, is hit by Section 29A of IBC.

The lenders’ side argued in the court that allowing Wadhawan’s proposal will wreak havoc and destroy IBC's fabric.

Lenders were not happy with the NCLT order and never anticipated that such an order could be passed. In their opinion, such an order will open a Pandora’s Box because they fear other promoters will start quoting this case and derail the resolution process.

Ashish Pyasi, Associate Partner Dhir and Dhir Associates, said: “In view of the stay granted, now the lenders will not be required to consider the proposal at least till the time the appeal is decided. And, as it has been clarified by the appellate tribunal that the appeal will not be an impediment to approving the resolution plan, it will give some respite to the lenders and the resolution applicant, Piramal, as the plan can be approved by the authority. The option available to Wadhawan is that they can approach the Supreme Court by preferring an appeal against the order of the appellate tribunal”.

The NCLT on May 19 had passed an order, wherein it said the second proposal of erstwhile promoter Kapil Wadhawan deserves to be examined on merits and put to vote by the CoC. The order asked the administrator of DHFL to present the offer of the erstwhile promoter before the CoC within days and had scheduled the next hearing for May 31.

In its written order, the tribunal said, “...the adjudicating authority is of the considered view that the second proposal deserves to be examined on merits and put for deciding, voting of the members of CoC. If the same is commercially found not favourable with the CoC members, then the proposal can be rejected.”

The lenders were mulling their options ever since the order came in last week. Appealing against the order in the appellate tribunal was one of the options they were exploring. This is because the CoC had already voted in favour of a resolution plan. Bankers were apprehensive of considering the settlement offer of the promoter because the account was already declared as “fraud” by them.

Wadhawan is still languishing in jail on money laundering charges.

DHFL became the first financial services company to be referred to the NCLT by the RBI in November 2019 after it defaulted on its payments and lenders failed to find a resolution under the June 7 circular of the RBI. Creditors of DHFL have claimed dues to the tune of Rs 87,000 crore. The liquidity crisis, after the collapse of IL&FS in 2018, led to DHFL’s downfall. Prior to that, it was one of the largest mortgage lenders in the country.