The Supreme Court (SC) on Monday stayed the National Company Law Appellate Tribunal's (NCLAT) order which ruled a stipulation in the DHFL (Dewan Housing Finance Corporation Ltd) resolution plan as 'illegal' on recovery of avoidance transactions.
Issuing a notice on appeals filed by Piramal Capital and Housing Finance Ltd (PCHFL) and some banks that formed part of the committee of creditors (CoC), an apex court bench, headed by chief justice of India (CJI) NV Ramana, said the appeals will be heard on 5th May.
Meanwhile, the order passed by the NCLAT in January will be stayed.
On 27th January this year, while delivering a verdict on 63 moons technologies' petition, NCLAT had directed the lenders of DHFL to reconsider their decision regarding the valuation of the financial firm's avoidable transactions, while approving the insolvency resolution plan submitted by PCHFL.
The approved resolution plan for DHFL stipulated that the proceeds from all avoidance transactions would go towards the successful resolution applicant PCHFL. NCLAT ruled as illegal—the stipulation in the DHFL resolution plan as regards to recovery of avoidance transactions going to the winning resolution applicant.
Later, the Piramal group approached the apex court in an appeal against NCLAT's direction. Surprisingly, several top banks of the CoC also approached the SC against the NCLAT order that had given the entire set of financial creditors a seemingly better deal than what the CoC had agreed to in the resolution plan.
Expressing their surprise about why banks challenged the NCLAT order when they stood to gain an enormous sum as a result of this order, several industry experts observed why Indian banks are content with Re1 when they could potentially recover for themselves thousands of crore in the years ahead on account of avoidable transactions.
The company, 63 moons technologies, which holds non-convertible debentures (NCDs) worth over Rs200 crore issued by DHFL, had challenged NCLAT's judgement on the grounds that the current resolution plan was 'disappointing' for NCD-holders. It had filed a petition in the NCLAT against Piramal ascribing Re1 value to Rs40,000 crore worth of recoverable assets in the DHFL case.
After NCLAT passed the January order, 63 moons technologies stated that the CoC has to reconsider the provision of Section 66 of IBC (Insolvency and Bankruptcy Code), which mandates that the benefit should go to all the creditors of DHFL. However, in its resolution plan, the CoC had overlooked this provision to the benefit of the Piramal group.
63 moons technologies, the only company that challenged the decision of the CoC in NCLAT, pointed out that if the CoC considers this without alteration of provision of Section 66 of IBC, all creditors of DHFL will be benefited.
It may be pointed out that in its resolution plan, PCHFL had ascribed Re1 value against Rs40,000 crore assets that have been fraudulently diverted by erstwhile promoters of DHFL.
Under IBC, avoidance transactions are those which are identified as undervalued, fraudulent, or extortionate by the former promoters.
The resolution plan, which was voted in favour by the CoC, was approved by the Mumbai bench of the National Company Law Tribunal (NCLT) on 7 June 2021. As per the plan, a notional value of Re1 was given for all recoveries under Section 66 of the IBC whereby applications for recovery of assets worth over Rs45,000 crore.
In September last year, PCHFL acquired DHFL for a total consideration of Rs34,250 crore.
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