Non-Applicability of IBC 2016 on DHFL Scam (with relevant documents for litigation)

Posted on 11/08/2021

Kirti Kumar Pal

The Author prepared this document for the benefit of the legal advisers in various litigation. The document is designed for the happiness and welfare of the many (बहुजनहिताय बहुजनसुखाय च॥).

A) Under Provision of Laws

(I).DHFL was solvent Company having sufficient asset Cover ,1.16 times of debt Liability as per affidavit submitted & accepted by BHC . Loan repayment to SBI Singapore was stopped due to Order of DRT & BHC. ( Please refer attachment 1&2)

RBI knew it very well But obtained Go- Ahead Consent from NCLT Mumbai through concealment of fact and suppression of information thus by fraudulent means.( Please attachment no.6)

(2) DRTand BHC through their Order on dated 8/11/2019 &14/ 11/ 2019 lifted ban on duepayment to Banks Secured and Un secured Creditors. But RBI appointed administrator concealed and suppressed this vital information to NCLT , Mumbai. DRT also ordered appointment of Commissioner to supervise and monitor the transaction.

(3).The main aim & intent of Hon’ble SC while upholding IBC201 was towards company revival/ reconstruction for benefit of all stake holders and Liquidation should be considered last resort.

Please refer the below mentioned judgement preamble :

The Hon’ble Supreme Court “Swiss Ribbons Pvt. Ltd. and vs. Union of India and Ors. – (2019) 4 SCC 17” for reference.

(4).There are four routes possibly available for resolution of DHFL:

4.1 Prudential Framework for Resolution of Stressed Assets by RBI (Via RBl Circular 7 June 2016)

4.2Resolution under RBI Act 45MBA &45QA

4.3 Resolution under The Companies Act ,2013

4.4 Resolution (Liquidation) Under amended IBC, 2016.

DHFL resolution Process 4.1 was aborted midway due to IBC 2016.RBI appointed administrator concealed and suppressed this information from NCLT too. Had any of routes from (4.2 to 4.3)aforementioned above been adopted, DHFL would have moved towards recovery process would have been favorable to public depositors ,NCD holders and benefitted all stakeholders.

DHFL management stated that Due to sector market conditions it have Liquidity problem, sodefaulted as delayed payment by one week for Dividend payment to Secured NCD

The sole aim and intent of impositionof IBC,2016 to DHFL was to liquidate it and sell it as Distress Sale as scrap value to their favorite, so within two week all formalities was completed ( from Notification to approval).

(5)For this, appointed Administrator/Receiver would have been asked for EOI (expression of interest) for revival/ reconstruction of company as have been followed in case of IL& FS, RCFL ,RHFL.

In IL& FS, NBFC, a company of same assets & debt obligations, IBC 2016 was not evoked but resolution through The Company Act 2013 adopted &results are spectacular.

Also in case of RHFL & RCFL despite forensic reports prepared by Grant Thornton prepared for Bank of Baroda for the same accounts, had classified the home finance company as a fraud account. Prudential Framework for resolution of Stressed Assets( RBI Circular of 7 June 2019)followed.

(6)On receipt of Complaint from SBI Singapore& others , RBI should have issued a Show Cause Notice to DHFL asking to file reply within stipulated time and only after unsatisfied with reply must go for extreme action, stating reason for not following Other course of resolution process( mentioned above )Thus RBI misused their power . This is against the principle of natural justice &fair play.

(7)The effect ofimposition of IBC 2016 Code to DHFLhad been like issuing death warrant to Small / retail public depositor of FD/ NCD. They became like orphan Because , Security Cover ,Guarantee ,Legal protection under law extinguished that too retrospectively.Secured Fixed Deposit & Secured NCD have lost meaning of Secured

A few are as:

7.1 FD Prospectus mentioning safeguard &guarantees

7.2 Secured NCD Prospectus mentioning safeguard &guarantee

7.3 Protection underprovisionsNational Housing Bank Act

7.4 Protection under provisions of SEBI Act

7.5 Protection underProvisions of The Company Act ,2014.

(8) In principal IBC Act 2016 was initially tailored for the companies under MCA involved mostly in Manufacturing business having no or negligible amount of FD / NCD holdings.. No amendment made to any section/ class of act by inserting relevant provisionsfor Public Depositor( FD / NCD holder)as a separate Class of Creditor havingsafeguard , guarantee under provisions applicable at time of deposit

NBFC jobs resembles with financial institution i.e. Banks Corporation up to a large extent particularly Deposit accepting NBFC where a large stakeholder is as public depositor. Therefore, the resolution process for NBFC should be akin to Banks its resolution should be as per law similar to Banking Regulation Act.

it is wrong to assume public Depositors as just another Class of Creditor or Investors. In reality, it is just a small group of retail depositors who usually park their small savings or retirement fund amount to fulfil our usual day to day needs or unplanned expenses, such as (family marriage, higher education financing, medical exigencies etc.) for livelihood in age of senior citizenship., However some Trust of Provident Fund , Pension fund , Gratuity fund deposited the money as contribution of individual deposit as a custodian to group of people. that was not to run business for accruing profit for commercial activities. But for maximization of value of money for retired , Senior Citizens to sustain their livelihood after retirement’s.

(9)On 18th November ,2019 Ministry of Corporate affair , through Extraordinary Gazette notification S.O.4139(E) brought NBFC including HFC under purview of IBC ,2016 Code with asset Size of 500 crore or more in last audited Balance Sheet. Invoking this notification DHFL brought into CRIP under IBC 2016.This notification itself is arbitrary and selective.

(10)Notification came from MCA , Which is meant only for registration formalities But Bank ,NBFC,FI, Corporation comes under Finance ministry , NBFC (DHFL)safeguard Regulations was already under RBI ,NHB Which are regulated and under Finance ministry. So Notification from Finance ministry is Valid only and MCA is invalid.

(11)Exclusion from invoking personal guarantee by FD/ NCD holders

The debts advanced by the banks to the Corporate-Debtor were secured by the personal guarantees of the Promoters to the tune of Rs79,344. crore. Complete exclusion of the Promoters’ personal guarantees from the present resolution exercise is detrimental to the interests of the small FD/NCD holders.

(12)Violation of The Contract Act 1872

The agreement between DHFL and Fixed Deposit Holder / Secured NCD holder or both as per terms and conditions of prospectus & regulator’s applicable law at a time of execution is valid Contract since it’s inception under section 2(h) of The Indian Contract Act 1872 and also legally binding , enforceable by Law of land under Section 10 and also make liable to pay for damages/ compensation / penalties under Section 73 &74.

(13)Contractual Obligation under Article 300A of Constitution& Human Right Declaration Law

FD ,NCD depositor holder had virtually a Contract at time deposit for repayment of Principal plus interest for fixed rate and duration under terms & condition mentioned in prospectus and guarantee provided by Regulatory Authority.Any New rule can’t deprive from their inherent right or lessen their entitlement but can enhance. Any rule contrary to their entitlement are abuse or misuse of rule.

In India, prior to the enactment of the Constitution (Forty-fourth Amendment) Act, 1978, Article 31 guaranteed to the people of India the fundamental right to property. Article 31, as originally enacted, provided that: no person shall be deprived of his property saved by authority of law.The Constitution (Forty-fourth Amendment) Act, 1978, ultimately, took away the right to property from the Chapter on Fundamental Rights. The Amendment omitted Article 31 and Article 19 (1) (f) and inserted in their place Article 300-A, providing: No person shall be deprived of his property saved by authority of law.

Article 17 of the Universal Declaration of Human Rights (UDHR) enshrines the right to property as follows:

Everyone has the right to own property alone as well as in association with others. No one shall be arbitrarily deprived of his property.

B) Deficiencies in IBC 2016 Code to applicability for DHFL ( NBFC)

(1).Small & retail depositor ( FD/NCD holders)

1.1Representation

FD holder was represented by Madam Charu Desai ,who through SMS and Email informed well in advance about COC meeting with details also held webinar for apprising status and clarification.

NCD holder by statue had their representative Catalyst Trusteeship Ltd not made single SMS, very sparingly informed aboutCOC meetings ,had dubious role, managed Voting pattern with few favorite . Some people lodged protest letter on this issue.

1.2 Classification

As per prospectus issued by DHFL small/ retail investor are considered as investment/ deposit on or below 10 lakhs Where as above 10 lakh are considered HNI ( High Network Investor). But COC on their whim considered 2 lakhs as limit.

(2).Composition ofCOC

Composition of COC is most strange & undemocratic. Whereas Lakhs of Public depositor are represented by one or two fellow. More than dozen Banks are being represented by each. Voting power is proportional to financial power. So COC bulldozed the plea of minority (financial)stake holder ,(of course ,they in number constitute majority) .by brute majority by forming coterie. In fact it behaved like Committee of Cartel If this practice have followed by our constitution we would have been rule by Super rich since independence not by glorious entities.

(3)Discrepancy in selection of successful bidder

Adani Properties Private Limited submitted Plan only for option llB&IlC . But he expressed his interest with certain conditions to participate in Plan l through email also on dated 12/9/ 2020. This was bone of contention, difference and controversy among member of COC on practices ,rule under IBC 2016 and legal standpoint.Ultimately COC decided to invite fresh Second bid amongst participant.

Oktree was Biggest bidder in first bidding.As per Oaktree, There have been significant concerns that pre-determinations have been made in relation to the bids being presented by different bidders. The bids are being misrepresented and undue preference is being given to discredit Oaktree’s bid and select the second highest bid,”Oaktree even stated about approaching to Court .

(4)COC erroneous wisdom on SLR , DRR & Distribution mechanism

SLR & DRR are safety net provided to Company as well as investors to protect from any financial windfall .But COC misconstrued it as retail investor/small depositor entitlement and is restricted only to SLR amount in case of FD and DRR amount in case of NCD, even if more funds are available. In fact, as per terms and conditions of Deposit, Holding repayment ,it is to be replenished by other funds/ assets available to make full repayment of principal plus interest.

(5)Distribution MechanismThe methodology adopted by COC is arbitrary and discriminatorycreated many class within class, Commercial whimdom is used instead of wisdom. COC constituted Four number of Slab for FD/ NCD repayment.

0 – 2 Lakh. c. 5-10 Lakh
2- 5 Lakh. d.Above 10 Lakh

The discrepancy is of such magnitude 1 rupees make difference of 233%.COC made a huge difference on payment to assenting Vs dissenting creditors which not only discriminatory but undemocratic ,thus against principle of natural justice and Fair play.

(6) National Housing Bank preferential claim

National Housing Bank (NHB), a regulator, which abjectly failed to exercise adequate oversight over DHFL, has filed a preferential claim over other financial creditors to get Rs. 2,436.67 crore. Why should NHB, a subsidiary of the Reserve Bank of India (RBI), get this benefit? In response to an investor’s objection to this preferential treatment, the administrator has said that ‘the legalities of NHB’s claim’ will be decided by NCLTand COC too not decided it by Voting It is clear case of cartelization of COC members

(7) Misappropriation of DRR

Debenture Distribution Ratio(DDR) As per 2019-20 Balance Sheet Amount of Rs1170 crore is with DHFL as DDR. This amount is solely of and for debenture holder likely to be paid in case of default , bankruptcy or liquidation.apart from other asset taken for valuation.Besides NCD was secured ,Any Short fall should be relised from other assets liquidation. So Secured NCD have entitled for 100 amount with interest till date of payment.In addition Company should have 25% of the value of outstanding debenture from their profit.It came to my knowledge that this amount too is being misappropriated by the administrator by misusing provisions of Bankruptcy law

(8)Avoidance of Section under 66 of IBC

current resolution plan is contrary to law and against the interest of all DHFL creditors /depositor including non-convertible debenture (NCD) holders. The administrator of DHFL has filed applications for recovery of almost ₹45,000 crore under Section 66 of the IBC against DHFL’s promoters and other persons on account of their fraud against the creditors. Our Contention is that this amount of ₹45,000 crore must come to the defrauded parties, which are of the creditors/ depositor. The resolution plan, 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. Hence, the recoveries must come to the creditors only the fraudulent transaction recovery benefit of around ₹45,000 crore should come to the creditors, including NCD holders. Strangely, the current resolution plan allows Piramal Group to buy DHFL by paying mere ₹37,500 crore as against the outstanding debt of ₹85,000 crore. Also, the benefits of claims of over ₹45,000 crore are to be appropriated by Piramal fully by ascribing the entire recoverable amount a value of ₹1,”

In distribution mechanism on one handFD holder / SNCD holder in range of 2- 10 lakhs are beingdenied their right ful entitlement on other hand deprived from future recovery that will entitled to above 10 lakhs.

( 9) Cartelization of COC

Due to power provide by statue and SC to its commercial wisdom ,CoC cartel comprising Banks , Mutual funds , institutional became arrogant and high-handed. Even Humane appeal by Authorized Representative, RBI administrator, NCLT was gone beyond head. COC cartel unmoved and steam rolled every proposal with their brute majority ( Please refer 18 ,20 & 21 COC minutes of meeting& voting ).

REFERENCES

(1) Company

DHFL ,A NBFC, registered, Licensed, regulated , safeguard and having Surveillance by MCA,RBI, NHB ,SEBl legal provisions and statutory audited by approved Firms of repute I.e. Chaturvedi& Shah, Jigneshmehta, Deloitte Haskin&Shell.

As per SEBI Rules Catalyst Trusteeship Ltd is Custodian of NCD to protect retail Public depositor / retail investors interests , Similarly NHB is responsible for Fixed depositor called Public deposited interest.

DHFL mandated by SEBI only one credit rating agency valuation for credit rating but multiple like CARE, Brickwork rated it AAA also CRISIL & ICRA rated it commercial paper issues agar A1 +.

(2) Litigants

I, Kirti Kumar Pal invested in FD/ Secured NCD in name of self and family members in Dewan Housing Finance Ltd( DHFL ) on assessment of Credit worthiness by rating agent as AAA & Various regulator like RBI ,NHB ,SEBI and debenture trustee etc with Lakhs of investors ( Litigants is listed below)

(3)Cobra post revelation

According to Cobra post revelation on 29/1/2019.DHFL, which has a net worth of Rs 8,700 crore, raised Rs 96,000 crore through loans and public deposits. DHFL has siphoned off Rs 31,000 crore into promoter companies to create private wealth through a network of shell companies,”

“The money has been used to buy shares/equity and other private assets in India and abroad, including in countries like the UK, Dubai, Sri Lanka and Mauritius,” Wadhawans also bought a Sri Lankan Premier League cricket team by using loan money dubiously advanced by DHFL.

Cobrapost said, “By lending to shell or pass-through companies without due diligence, DHFL has ensured that the recovery of such dubious loans is impossible since the companies or their directors themselves do not own any assets. This way the properties or private wealth acquired by the promoters and their associates by using the funds from these dubious loans are completely ring-fenced from any recovery process that may be initiated by authorities under the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest) Act or Insolvency and Bankruptcy code of india”

(4) Audit evaluation

independent audit firm TP Ostwal& Associates has highlighted issues such as ‘significantly inadequate’ monitoring of 15 large accounts, and certain instances of deviations and non-adherence to the terms of sanction of loans, gave a clean chit to DHFL and its promoters on newsportalCobraPost’s allegations, independent.

But later on these revelation proved right.

Only after actual default of payment DHFL specially to debenture Holder( However DHFL paid after one week due on 4/6/2019 paid on 11/62019) , Rating & Auditing agency suddenly woke up. Credit agencies downgraded DHFL to category ‘D’

Auditors of Dewan Housing and Finance Corp. Ltd filed a fraud complaint with the corporate affairs ministry as early as August2019, . The reference by statutory auditors Deloitte Haskins and Sells and Chaturvedi and Shah was made under Section 143(12) of the Companies Act, 2013 that mandates them to inform the ministry if they suspect fraud, During the course of the audit, the auditors had also raised concerns on certain repayments,” the first person said. “Repayments by some entities could not be traced in the financial statements of DHFL.”

A special audit by accounting firm KPMG also made similar observations in a report, portions of which have been The KPMG report cites alleged fraudulent transactions worth ₹31,000 crore. The KPMG report cited repayments by 28 entities amounting to ₹1,941 crore, which could not be traced in DHFL’s bank statements.

In fact, the statutory auditors in their report had pointed to transactions of over ₹40,000 crore that were problematic and for which the management failed to provide satisfactory responses.

These transactions included intercorporate deposits of ₹5,652 crore, certain loans and pass-through certificates amounting to ₹32,425 crore and ₹257 crore, respectively. These were due to deficiency of documents and accounting entries without depositing of cheques.

“Multiple accounting entries were initially recorded in certain customer accounts for receipts despite the cheques or negotiable instrument not been deposited in the bank(s) and these have been subsequently reversed,” said the auditors in their report on 22 July.

In fact, the auditors also issued a “disclaimer of opinion”, which in audit parlance means no opinion is being given regarding the financial statements of a client, whether the accounts are fair or true. Soon after that, on 4 August, Deloitte quit as auditor for DHFL on the basis of the disclaimer.

The ministry of corporate affair has ordered the Serious Fraud Investigation Office (SFIO) to probe the case after receiving Auditor’s complain.`

Grant Thornton’s Report

Grant Thornton’s Report Submitted to the RBI-appointed administrator on August 27, 2020

According to report Fake accounts, fraud borrowers used to divert funds in DHFL, finds forensic audit Many borrowers used common addresses and a lower rate of interest was charged from the Bandra Books entities, all of which contributed to the insolvency crisis in DHFL.

Hundreds of fictitious loan accounts, deposits routed through an imaginary entity in Bandra and a demand for recoveries totaling Rs 14, 046 crore – these are among the key findings in the final forensic report submitted by auditor Grant Thornton in the Dewan Housing Finance Corporation Limited (DHFL) scam.

The 98-page report follows the preliminary report submitted by Grant Thornton to RBI-appointed administrator R SubramanianKumar in February and takes forward the modus operandi of “round-tripping” of funds via fake loans.

Referring to the case as Bandra Books, the report highlights how names of fake housing loan “borrowers” were collected — details were “randomly picked from a database that appears to be created from the details pertaining to the closed loan accounts”.

In all, 2,60,315 “fake and fictitious” home loan accounts were created in the non-existent Bandra Branch between 2007-2019 and Rs 11,755.79 crore was deposited to Bandra Book entities.

As many as 91 entities are the focus of the auditor’s final forensic report, wherein it was found that no security or collateral was obtained before grant of these loans.

The financials of 50 of them — which received 70% of the total Bandra Book disbursements — have been examined to expose the nexus between the promoters of DHFL and these borrowers.

The conclusion: “It was observed that 34 entities have invested a portion of the amount received from the Corporate Debtor (the Wadhawans) in companies, which are related parties or directly or indirectly linked to the promoters…”

The amount of fake loans disbursed to what the auditor has described as “potentially directly/indirectly” linked to the promoters is Rs 1,554.51 crore.

In several cases, the report said, funds disbursed were diverted to entities having links with the promoters.

Many borrowers used common addresses and a lower rate of interest was charged from the Bandra Books entities, all of which contributed to the insolvency crisis in DHFL.

The linkages with the Bandra Book entities are clear in several cases. For instance, the Wadhawan brothers or their relatives were found to be Directors or promoters of several of these companies.

In his own report, the RBI-appointed Administrator has noted that funds disbursed by the Corporate Debtor (Wadhawans) to Bandra Book Entities were “diverted to entities having connection with Promoters/Directors.” And that Bandra Book entities were used as a “conduit for carrying out these fraudulent activities…these individuals are henchmen of the promoters/Directors and have acted as accessory for commission of fraud in relation to Bandra Book disbursements….’’

Along with the Wadhawan brothers, the owners of the Bandra Book entities have also been made respondents in ongoing proceedings in the National Company Law Tribunal with recoveries totaling Rs 14,046 crores to be initiated against them all.

(5)DHFL Resolution Plan2019

Under the circular dated 7 June 2019 issued by the Reserve Bank of India on the Prudential Framework for the Resolution of the Stressed Assets ( 7th June Circular) as modified by SC order,DHFL initiated and formulated Draft resolution Plan for the Revival/ Reconstruction of company. Several Banks and Financial Institutions have interest into inter credit arrangement (ICA).

SEBI was too intimated along with BSE/ NSE through letter Ref no.DHFL/CSD/2019-20/1678 dated 27/9/2019. ( Draft resolution plan)

The salient features of DHFL resolution 2019 Plan are under.

The Resolution Plan DHFL’s over Rs 85,000 crore liabilities are to be split into three portions, with each receiving different treatment and repayment schedule.

1. Loans To SRAs & Large Projects

For loans to slum rehabilitation projects, large project loans, inter-corporate deposits and some pass through certificates, where total liabilities are over Rs 36,000 crore, the housing financier has proposed that the repayment period be extended.

Among these liabilities, bank debt worth Rs 16,175 crore and public deposits worth Rs 4,162 crore will be repaid over 16 years, at 0 percent interest rate, the company has proposed. The repayments would also carry an eight-year moratorium on repayment of principal amount. A portion of these liabilities would be converted into long-term instruments like redeemable preference shares or unsecured debentures, the company said.

NCDs worth Rs 14,121 crore would be repaid over nine years with no interest payments either. In this case, the proposed moratorium is two years.

The company has also proposed conversion of Rs 1,764 crore worth debt to equity, which would ensure the lenders control 51 percent equity in the company. The conversion will be at a price of Rs 54 per share.

2. Loans To Other Projects

For projects and mortgages worth up to Rs 14,700 crore, the company has proposed an extended repayment period of eight years at 8.5 percent annual interest. This includes term loans worth Rs 570 crore received from banks and Rs 14,129 crore worth NCDs.Here too, the company has sought a two-year moratorium on repayment of the principal, which means repayments would only start after the moratorium.

3. Retail Loans & Related PassThrough Certificates

As per the proposed resolution plan, this portion of the liabilities includes public deposits and public NCDs up to Rs 10 lakh, non-retail NCDs and term loans from banks. These funds were used to generate retail loans and pass through certificates worth over Rs 34,000 crore.

The non-retail NCDs have been split into two, where NCDs worth Rs 2,599 crore would be repaid over 10 years at 0 percent interest, while NCDs worth 12,198 crore would be repaid over the same time horizon at an interest rate of 8.5 percent. Term loans worth Rs 14,726 crore would be repaid over 10 years at 10 percent interest per anum, while loans worth Rs 1,190 crore would carry a lower rate of 8.5, as per the plan.

DHFL has been under financial stress since September 2018, after the debt market turned cautious towards housing and non-banking financiers, following the crash of Infrastructure Leasing & Financial Services. It has now completely stopped lending and has sought funding worth Rs 1,200-1,500 crore a month from its lenders to restart its operations.

In the past, DHFL has claimed it has repaid Rs 41,000 crore worth dues, which it achieved by selling its loan portfolio to other lenders. The stress in the company is currently being resolved under the Reserve Bank of India’s June 7 circular, which deals with restructuring debt. The lenders had signed the inter-creditor agreement in the first week of July, following which, they have 180 days to implement a resolution plan.

If they are unable to implement the plan within the timeline prescribed by the RBI, the banks would have to set aside higher penal provisions. DHFL cannot be resolved under the insolvency and bankruptcy code, since the code doesn’t cover financial companies.

Lenders have mulled an option to take over the company and run its lending business as a unit of the consortium. However, this option will be exercised only if all other avenues of turning around DHFL fail.

Since then, an active skirmish has broken out between DHFL’s big lenders on this plan. While the banks seemed keen to push ahead with it, institutional bondholders such as mutual funds appear to be resisting it on the grounds that the haircut is too steep.

(6)Pilferage of Fund

. In June2019, the Catalyst Trusteeship had advised DHFL to stop accepting fresh deposits as per the NHB norms.

In October this year , the DHFL was restricted from making payments to unsecured creditors by the High Court in response to a civil suit. A month later , the Debt Recovery Tribunal (DRT) also issued a similar order restraining the NBFC from making any payments to unsecured creditors. As Claimed these deals were preferential in nature to siphon off common assets to a few preferred creditors.

(Reliance) Nippon MF and Edelweiss had filed cases against the company at the Bombay High Court, raising objection on any discretionary repayments. Later, Axis and Kotak mutual funds too filed separate cases.

But it found that, while repeatedly defaulting on its dues to secured NCD holders between May and October 2019, DHFL had continued to make selective payments to unsecured creditors.

to worth of 44000 crorethru asset sales and securitization transactions of its top quality assets which were under first charge for debt holders and banks.

Cyril AmarchandMangaldas filed an appeal of those who had benefitted from these ??preferentiial?? transactions to restart payments against these – BHC allowed the same on the condition that DHFL maintains an asset cover of at least 1 before making any payouts on these ??preferential?? transactions

(7) DHFL Resolution under IBC,2016

On 18th November ,2019 Ministry of Corporate affair , through Extraordinary Gazette notification S.O.4139(E) bright NBFC including HFC under purview of IBC ,2016 Code with asset Size of 500 crore or more in last audited Balance Sheet. ( See Annexure 2)

Summary of DHFL’S (CRIP) under IBC, 2016, approved by the Hon’ble NCLT (Mumbai Bench)

Dewan Housing Finance Corporation Limited (DHFL or Corporate Debtor) ,largest deposits taking Housing Finance Company, first Financial Service Provider that went through Corporate Insolvency Resolution Process under IBC, 2016, Dewan Housing Finance Corporation Limited (DHFL or Corporate Debtor)

1. 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.

2. On 22.11.2019, RBI constituted a 3 Members Committee to advise the administrator during the CIRP process.

3. 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.

4. 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.

5. 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.

6. The Public Announcement invited creditors and public depositors of DHFL to submit their claims on or before 17.12.2019.

7. The COC was constituted on 24.12.2019.

8. 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.

9. On 16.01.2020, the Administrator informed the COC about the appointment of RBSA Valuation Advisors LLP(“RBSA”) and KapilMaheshwari as Registered Valuers for the purpose of determining the fair value and the liquidation value of the Corporate Debtor.

10. Published Form G on 28.01.2020 for invitation of EOIs.

11. Pursuant to the invitation for EOI, the Administrator received 24 EOIs from PRAs by 17.02.2020 who were identified as the provisional PRAs.

12. 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.

13. 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).

14. 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).

15. 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.

16.Adani Properties Private Limited submitted Plan only for option llB&IlC . But he expressed his interest with certain conditions to participate in Plan l through email also on dated 12/9/ 2020. This was bone of contention, difference and controversy among member of COC on practices ,rule under IBC 2016 and legal standpoint.

Ultimately COC decided to invite fresh Second bid amongst participant.

Oktree was Biggest bidder in first bidding.As per Oktree, There have been significant concerns that pre-determinations have been made in relation to the bids being presented by different bidders. The bids are being misrepresented and undue preference is being given to discredit Oaktree’s bid and select the second highest bid,”

OKtree even stated about approaching to Court .

SC Lowy Private Investment in protest boycotted the Presentation of Adani Properties Private Limited.

17. Competition Commission of India issued Order under section 31 (1 ) of the competition act 2002 on dated 20/1/2021 i.e.N.O.C to acquisition by OKtree

Group on application.

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 % vote

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/ ormerged 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.

25.Plan submitted by Piramal Capital & Housing Finance Limited( PCHFL ),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

26.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.

Beside 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.

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.

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.

Therefore, we are of the considered view that they should get fair, increased share money out of the Resolution Plan.

accordingly asked the COC to reconsider the Distribution method within 2 weeks.

27. 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 3 (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.

28.Pursuant to NCLT recommendation, COC meeting(20th) called on 17.6.2021, Financial Creditors largely Banks vehemently opposed enhancement move and voted out the New distribution mechanism.

In a meeting a few remarked CRIP chapter is Closed after NCLT approval ,But to honor Adjudicating Authority meeting as mere formality had to be called upon and NCLT had not ordered but gave some suggestions Which are not binding on us.

SALIENT FEATURES OF RESOLUTION PLAN&Bone of Contention

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.

B) The plan involves:

i) upfront cash payment of Rs. 14,700 Crore; in 10,000 will comes from insolvent bankrupt DHFL.

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

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.

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.

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 .

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.

G)National Housing Bank (NHB), a regulator, which abjectly failed to exercise adequate oversight over DHFL, has filed a preferential claim over other financial creditors to get Rs2,436.67 crore. Why should NHB, a subsidiary of the Reserve Bank of India (RBI), get this benefit? In response to an investor’s objection to this preferential treatment, the administrator has said that ‘the legalities of NHB’s claim’ will be decided by NCLT. National Housing Bank (NHB), a regulator, which abjectly failed to exercise adequate oversight over DHFL, has filed a preferential claim over other financial creditors to get Rs2,436.67 crore. Why should NHB, a subsidiary of the Reserve Bank of India (RBI), get this benefit? In response to an investor’s objection to this preferential treatment, the administrator has said that ‘the legalities of NHB’s claim’ will be decided by NCLT.

H) Debenture Distribution Ratio(DDR) As per 2019-20 Balance Sheet Amount of Rs1170 crore is with DHFL as DDR. This amount is solely of and for debenture holder likely to be paid in case of default , bankruptcy or liquidation. Apart from other asset taken for valuation. Besides NCD was secured ,Any Short fall should be relised from other assets liquidation. So Secured NCD have entitled for 100 amount with interest till date of payment. In addition Company should have 25% of the value of outstanding debenture from their profit. It came to my knowledge that this amount too is being misappropriated by the administrator by misusing provisions of Bankruptcy law.

I)current resolution plan is contrary to law and against the interest of all DHFL creditors /depositor including non-convertible debenture (NCD) holders. “The administrator of DHFL has filed applications for recovery of almost ₹45,000 crore under Section 66 of the IBC against DHFL’s promoters and other persons on account of their fraud against the creditors. Our Contention is that this amount of ₹45,000 crore must come to the defrauded parties, which are the creditors/ depositor.

The resolution plan, 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. Hence, the recoveries must come to the creditors only the fraudulent transaction recovery benefit of around ₹45,000 crore should come to the creditors, including NCD holders.

“Strangely, the current resolution plan allows Piramal Group to buy DHFL by paying mere ₹37,500 crore as against the outstanding debt of ₹85,000 crore. Also, the benefits of claims of over ₹45,000 crore are to be appropriated by Piramal fully by ascribing the entire recoverable amount a value of ₹1,”

J) Distribution Mechanism, All Public depositor, NCD holder are dismayed / chest fallen due meager amount of repayment of their claim amount.

Basically all FD holders get 23.08% of claim amount in upfront cash.

NCD holders in Category 1(principle below 2lakh) get 100% principle, no interest; in upfront cash.

NCD holders in Category 2&3 (principle between 2 lakh and 10 lakh) get 44.33% of claim amount in upfront cash.

NCD holders in Category 4 (above 10 lakh principle) get 44.33% of claim amount incase NHB case result is in favor of NHB. Will get 46.1% in case NHB case result is in favor of COC. Distribution for Category 4 will be a combination of cash and bonds issued by Piramal.