Page 52 - Banking Finance April 2022

FEATURE

BANKERS IN A BIND

AFTER NCLAT RULING

ON DHFL RESOLUTION

B ankers are now in a quandary after the NCLAT (one of the creditors with Rs. 200 crore invested in DHFL

recently ruled that the Committee of Creditors’
NCDs) had challenged this CoC decision.
(CoC) decision to approve the resolution plan of
In its appeal, 63 moons asked whether the Piramal group
DHFL was “illegal”; the plan containing an
“illegal” stipulation on recovery of avoidance transactions could appropriate all recoveries from avoidance applications
filed under Section 66 of the IBC just because the CoC had
was not sustainable. agreed to assign a completely arbitrary and unrealistic
CoC’s core committee, which looked into the recent NCLAT value of Rs. 1.
directive, is now caught in a dilemma as its legal advisors It cited a Delhi High Court judgment in Venus Recruiters
are urging it to appeal to the Supreme Court. At the same Private Ltd to back its claims, saying the bankruptcy laws of
time, the debenture trustee (representing NCD holders and countries like the US also advocate creditors benefit, directly
part of CoC) is opposed to any such move, sources privy to or indirectly; 63 moons had argued before the adjudicating
the developments said. The ball is now in CoC’s court as it authorities that the Piramal Group could not appropriate
has to take the difficult decision of either adhering to all recovery from the vast amount of DHFL loans listed in
NCLAT’s directive or filing an appeal before Supreme Court, ‘avoidance applications’ under Section 66 of the IBC.
they added.
It was submitted that IBC provisions on avoidance transactions
‘Avoidance transactions’ provided that recoveries on this count should benefit creditors
Under the Insolvency and Bankruptcy Code (IBC), “avoidance alone and, that too, in the order of priority coming under the
transactions” are recognised as undervalued, fraudulent or “waterfall mechanism” stipulated in the IBC.
extortionate by the previous promoters. The resolution plan
It may be recalled that CoC had, as part of the resolution Last month, the NCLAT had — in the matter of the 63 moons
plan, agreed to Piramal Group (winning resolution challenge — set aside the term in the resolution plan that
applicant) getting all future recoveries of bad loans permitted Piramal Group (successful resolution applicant) to
(amounting to about Rs. 38,000 crore) falling under appropriate recoveries from avoidance transactions.
avoidance transactions and accepted Rs. 1 from Piramals
The Appellate Tribunal had sent the authorised resolution
as the value assigned for such a benefit. plan back to the CoC to reconsider this aspect of the
Several critics had frowned at the CoC move to accept valuation of avoidable transactions that pertain to the
Piramal Group’s Rs. 1 as the value assigned for avoidance recoverable belongings.
transactions and even alleged it was a “sweetheart deal” The NCLAT has described this term in the resolution plan
between the bankers and Piramal Group.
(accepting Rs. 1) as “illegal” as it has ruled that all recoveries
They contended that the banks should have been careful on avoidance transactions should benefit only the creditors
before accepting Piramal Group’s Rs. 1 as the value assigned and not the successful resolution applicant.
for avoidance transactions amounting to Rs. 38,000 crore
While some still point out that the Indian bankruptcy law does
(without interest component). Some critics even alleged that not allow the commercial wisdom of banks to be questioned,
the bankers’ act of omission is deliberate and not an oversight.
the real issue in the 63 moons appeal is not about commercial
CoC’s move to accept and assign a value of Rs. 1 on wisdom but about overlooking the rights that creditors have
avoidance transactions had raised eyebrows, and 63 moons under Section 66, company law experts said. (Source: BL)

52 | 2022 | APRIL | BANKING FINANCE