DHFL resolution: Lenders weigh options after NCLT's surprise call

Tribunal gave direction to have a look at offer by Kapil Wadhawan

After the bankruptcy tribunal’s surprise order on Dewan Housing Finance (DHFL), it is the Reserve Bank of India's (RBI) stance that will have a bearing on the future course.

Lenders are mulling over the National Company Law Tribunal’s (NCLT’s) direction to have a look at the offer by erstwhile promoter Kapil Wadhawan. Experts believe the ball is in the lenders’ court to decide whether or not they want to go ahead with the offer by Wadhawans. The lenders, however, do not seem very hopeful on the prospects of the offer that Wadhawan has made through his letter.

A senior public sector banker, whose bank has a sizable exposure to DHFL, said the matter will be decided in a joint meeting of the committee of creditors (CoC).

“He (Wadhawan) had given the letter earlier also and at that time it was not considered and set aside. Now, the NCLT wants us to again have a look at it. So, we will jointly discuss and take a view on the matter. There will be a discussion on his proposal and if the CoC decides to vote on it, chances of which are less, then a vote will be taken,” he said.

"From our banks’ side, there is no plan to move the National Company Law Appellate Tribunal (NCLAT)", he said. Since the RBI had referred the DHFL to insolvency under Section 227 of the Insolvency and Bankruptcy Code (IBC), a lot will also depend on the banking regulator's approach.

“We have to report the decision of the CoC in this matter to the RBI and take permission from it as well as NCLT," the banker, quoted above, said.  

Another senior public sector banker said, “Our view is banks should move the NCLAT against this order. NCLT should not pass this kind of order in the first place. It has been classified as a fraud account, so how can we do a settlement? Since there is an order, now, legal opinion will be taken from the legal advisor of the CoC. And, based on the advice, we will decide the future course.” 

A private bank executive, which has exposure to DHFL, said the case was referred by the RBI to the NCLT. So, one option could be that the RBI will take a call if it wants to file an application under Section 12A of IBC for exiting the corporate insolvency resolution process and then consider the case for a one-time settlement (OTS).” “Given a fraud angle in this case, this is the least likely route for considering Wadhawan’s plea”, he added. 

Experts have pointed out that the proposal made by Wadhawan is most likely an OTS, which is rather difficult to compare with a resolution plan that has already received approval from not only the CoC but also from the RBI and the Competition Commission of India (CCI). 

According to Nirav Shah, Partner at law firm DSK Legal, it is always difficult to make a true apples-to-apples comparison between a resolution plan approved by CoC with an OTS proposal submitted by the promoters. “But if the lenders were to consider the OTS proposal, they will have to evaluate it on various parameters such as how much amount is being brought upfront, which lender will get how much money and how much haircut the lenders will eventually have to take,” he said. 

In a letter to the administrator in December 2020, Wadhawan had reiterated his offer to pay the entire outstanding principal of Rs 91,158 crore to creditors — an upfront payment of Rs 9,000 crore and the remainder in the form of debt-to-equity conversion across 7-8 years. According to Piramal’s plan (which has been accepted), recovery for lenders would total Rs 35,250 crore, with upfront cash of Rs 12,700 crore.