Legal hurdles await DHFL resolution process; lenders meeting today

Lenders meeting today to press for better share in recoveries from frauds

Piramal group emerged the preferred bidder for resolution of the troubled Dewan Housing Finance Corporation (DHFL). However, its intent to have DHFL under its wing may take time as the process is likely to meet a legal challenge from competing bidder Oaktree.

Also, depositors of DHFL will have to tap legal forums to ensure protection of their interest. This is because lenders would insist on better share in recoveries from alleged frauds at the housing finance company.

DHFL, in filing with the exchange on Sunday, said the committee of creditors (CoC) of the company concluded its meeting on January 15, 2021. The resolution plan submitted by Piramal Capital and Housing Finance was duly approved by the CoC as the successful resolution plan. While Piramal’s offer received 94 per cent votes, US-based Oaktree Capital’s plan got just 45 per cent votes from the CoC.

Two senior bankers said the CoC is likely to hold another meeting on Monday to discuss on who gets the money recovered from frauds that happened at DHFL. “Lenders will look for more share in money recovered from frauds as funds were lent to DHFL for business operations,” bankers said.

The administrator of DHFL will submit the resolution plan to the Reserve Bank of India (RBI). The plan should be acceptable to the regulator and meet the “fit and proper” criterion.

DHFL is undergoing the corporate insolvency resolution process (CIRP), and is currently being managed by an administrator, who is being assisted by an advisory committee in discharging duties. Both the advisor and the committee were appointed by the RBI.

All the lenders have made substantial provisions for their exposure to DHFL. This is the first case of a finance company being taken under the Insolvency and Bankruptcy Code (IBC) to bankruptcy court National Company Law Tribunal (NCLT). The RBI is keen to see an effective resolution in this case.

Bankers said lenders are unlikely to get money in the fourth quarter of the current financial year. The prospects of resolution are much higher in the next financial year. Early resolution with better recoveries for lenders and protection to depositors is important to enhance confidence in the system.

Oaktree Capital, which could not make it, did not respond to queries on the legal course ahead. But, in the run-up to voting, it had kept doors open for legal action, saying, “our rights and remedies under applicable law are expressly reserved.”

A private sector banker said DHFL, being a deposit taking company, has obligations to fixed depositors as well. They may approach the legal forum to ensure protection of their interest. The fixed deposit holders have an exposure of Rs 15,000 crore and will see a massive erosion in their investments.