Piramal-DHFL: A Twist in the Sale
Just when it seemed that the Piramal group was home and dry after bagging Dewan Housing Finance Ltd (DHFL) and its vast realty assets for just Rs38,000 crore, there is now a twist in the sale of what was already considered a sweetheart deal for the acquirer. 
 
On 27th January, 63 moons technology (India) ltd (63 moons), which has a Rs200-crore investment in non-convertible debentures (NCDs) of DHFL, won a significant reprieve when the National Company Law Appellate Tribunal (NCLAT) asked the committee of creditors (CoC) to consider its demand that the Piramal group could not appropriate all recovery from the vast amount of DHFL loans listed in ‘avoidance applications’ under Section 66 of the Insolvency and Bankruptcy Code (IBC).
 
Section 66 of the IBC provides for fraudulent and wrongful trading and (https://ca2013.com/section-66-fraudulent-trading-wrongful-trading/) has rarely been used. 
 
The Piramal group has announced that it will take the fight to the Supreme Court (SC) and the final outcome is anybody’s guess. Did banks indeed ‘overlook’ provisions of Section 66, although they stand to benefit from recovery? Will Piramal’s aggressive fight and claim that recovery was ‘factored into’ the price paid force them to see value? More importantly, will it lead to a better deal for debenture-holders like 63 moons? Nothing is certain as yet. 
 
Let’s start with examining what is at stake here. DHFL, with outstanding debt of over Rs 90,000 crore, was acquired by the Piramal group for Rs37,250 crore. As part of the deal, it also got all the ‘bad loans’ listed under ‘avoidance applications’ under Section 66 of the IBC. These bad debts add up to a huge Rs38,100 crore (without interest) which is more than what the Piramals paid to acquire DHFL. If one includes interest, which is pointless now, the total value is Rs45,000 crore (see table).
 
In making their bid, the Piramal group insisted that most of these loans were not recoverable and got the CoC to ascribe a value of just one rupee to this lot. However, many in the realty business believe up to Rs10,000 crore may be recoverable if properly handled. Indeed, the whopping Rs14,000 crore under the ‘Bandra Books’ may be completely fake and irrecoverable but that is not necessarily true of the rest. A forensic audit by Grant Thornton had revealed how DHFL had created a completely fictitious branch and accounts, ostensibly in Bandra (Mumbai) which disbursed large sums of money and allowed it to show excellent growth. 
 
 
The final resolution plan effectively gave the Piramal group a possible bonanza on any recovery from these outstanding loans. This and other issues have raised serious questions about how the CoC, the debenture trustee (Catalyst Trusteeship) and the resolution professional (RP) have dealt with an important bankruptcy case that has inflicted massive losses on retail investors. 
 
Fighting for the Same Security
Consider this. Yes Bank, one of the lenders to DHFL, had extended a loan of Rs300 crore to Narayani Investment promoted by corporate lobbyist Niira Radia. This company is under investigation for financial fraud. Narayani Investment has recovery proceedings pending against it (IA 257/2021) before the Mumbai bench of the National Company Law Tribunal (NCLT). After Piramal acquired DHFL, it has started recovery proceedings against Nayati Healthcare NCR (which is a subsidiary of Narayani Investment). Why? Because Yes Bank had taken possession of assets of Nayati Healthcare pledged as security against its borrowings. DHFL under Piramal has now obtained a stay against Yes Bank and is demanding a share of this security. 
 
Remember that Yes Bank had several dubious dealings with DHFL under Rana Kapoor, who eventually ran the Bank to the ground. It was rescued through a public-private bailout led by State Bank of India (SBI) in March 2020. Senior SBI bankers were deputed to run Yes Bank independently. Bankers involved in the insolvency resolutions say that Yes Bank has complained about Piramal’s ‘unfair’ demand for a share of security to big-daddy SBI. They also say that this is not the only case where Yes Bank’s recovery effort will be in conflict with Piramal’s aggressive recovery push.
 
But Yes Bank and SBI were both part of the CoC for DHFL. In fact, SBI had an exposure of Rs10,000 crore to DHFL. Why did they fail to foresee a possible conflict while agreeing to gift Rs38,000 crore of loans at one rupee? My banker source insists that the CoC’s act of omission was deliberate and not a simple oversight. He points out that the many of the same banks were involved in the high-profile resolution of Essar Steel which the Ruia family litigated and lost at every step. In Essar Steel, the CoC had created a corpus of Rs10 crore to pay for litigation and follow-up of avoidance cases; why wasn’t it done for DHFL when the loans under avoidance applications were a massive Rs38,000 crore? Why was the CoC happy to gift these loans away?
 
The bankruptcy law does not allow NCLT to question the ‘commercial wisdom’ of banks; but would this allow creditors to go unquestioned? In its appeal, 63 moons asked whether the Piramal group could appropriate all recoveries from avoidance applications filed under Section 66 of the IBC just because the CoC has agreed to assign a completely arbitrary and unrealistic value of one rupee. It cited a Delhi High Court judgement in Venus Recruiters Private Limited to back its interpretation. The NCLAT order has noted that in bidding for DHFL, the Piramal group had not factored in any recoveries from avoidance transactions. In fact, it was argued that there would be very little recovery and, hence, a value of one rupee was ascribed to this large outstanding. The Piramal’s, who have a significant realty business, surely knew that the loans were worth a lot more. 
 
We must also remember that this was just one aspect of the very favourable deal negotiated by the Piramals. In addition to recoveries under Section 66 mentioned above, Moneylife columnist and tax expert V Ranganathan, in a detailed article , had shown how the funding of the acquisition was structured in a manner that it gave the Piramal group an effective ‘bounty’ of Rs16,000 crore. This was through tax benefits, lower interest on Rs19,550 crore raised through new financial paper to pay for the acquisition and utilisation of cash accrued in the beleaguered company. (Read: DHFL Resolution: Piramals Profit Plentifully, Pittance for the Rest!)
 
It will be interesting to see what direction the 63 moons case takes in the Supreme Court. If it prevails again, can banks be depended on to work seriously at recovery, especially when there is no financial provision for the litigation involved?
 
Since the Piramals are taking the battle to the Supreme Court, does it establish that banks failed to protect their own interest and that of other creditors? If so, will anybody be held accountable? 
 
You may want to listen to the audio of this article...
 
 
Comments
palmahajan3
2 years ago
The whole resolution process smelt from the beginning. The FD holders, almost all senior citizens, have lost their life savings. Why could not the IL & FS model be followed?
krishan2k5
Replied to palmahajan3 comment 2 years ago
What is IL&FS Model? Has IL&FS issue been resolved? I have not received any compensation or payment. Please throw some light on this point.
b.murlidhar
2 years ago
Piramal? Isn't he samdhi of Mukesh Ambani.
yinsanelyyours
2 years ago
Dear Sucheta, this article and 63 moons' efforts kind of exposes the dark underbelly of the investment platforms that we have in our country. How everyone can get together for the greater 'bad' .

While you have thrown light on the debts and how the retail investors Lost out...there was also a huge con that was inflicted on the share holders of this company.

As you may be aware, the entire resolution process was done behind dark curtains and only the select few and a few of their associates 'controlling' the markets knew exactly how things were panning out. The massive spikes and drops of the stock prices reflected that towards the end game.

What was a bummer was how towards the fag end DHFL started registering operational profits, clearly thus showing signs of being a going concern. (And this was before the take over of it by Piramal). And yet still the shares held by shareholders were delisted and extinguished and a few weeks later we get a mail from the depository CDSL saying that all the shares held by us have been debited with absolutely no information provided as to why. Just a matter of debit letter like as though we just sold all our shares for zero rupees!

No mails from DHFL on the resolution process and what it entailed, none from the exchanges, none from the CoCs, we were left to the mercy of news flow online and decipher our state!

But interestingly (and lending credibility to the theory that the markets and it's controllers/ administrators may have joined hands with resolution experts), we had SEBI suddenly increase the upper band filters from what was 5% to 10% just a few days before the eventual delisting and release of the news of the final resolution. The big question..why this sudden need to increase the band, especially just a few days before the delisting?...was it to let the people that matter escape through the back door before they lost their investments like the rest of us ordinary people?

And escape they did, didn't they? The huge almost never before witnessed volumes on the 2 days should clearly point to it, didn't it?

What was making it scam like, was nobody came to the rescue of shareholders. Nobody wanted to smell the dead rat that this deal was beginning to become. Remember the pledged shares that SBI and the rest of the 'saint' like CoC's had of the promoters..what happened to those? Do people really believe that the CoC's were ok with that also going away without a fight just like how they let the 45k crores worth of debts go for a rupee?

There is just so much to unearth in this mess of a resolution..just being related to the powerful business houses or being favoured by some bureaucrats and politicians should not mean a no holds barred plunder that the stock markets and resolutions and IBCs And Bankruptcies have started to become currently...

there is a new Reliance takeover of Sintex that's flashing on the news..wonder what will come of that now? But before that.. will some good Samaritan come through to help the share holders of DHFL or are they well and truly gutted? :-(
anurag.khurana7
2 years ago
It is simply known to even kindergarten kids now as to what is happening and why ! National Assets & Resources being gobbled up with both hands by the favored few at unmatched speed of Corruption & intensity of greed ! And we thought the Nation won't forgive Congress or Indira Gnadhi ! Now they look like saints simply because of the Scale of Corruption having gone up 100 or more times !! What used to be Crores is now Billions of dollars !!

But i am also very convinced it is about time for the stomachs to blow up as so much money has been gobbled up in the past few years ! " Ghara bhar gaya hai almost" !

God bless India and save her from these evil spirits !
Kamal Garg
Replied to anurag.khurana7 comment 2 years ago
Yes, the scale of corruption, through such legal wrangles/twists & turns and legalized means through NCLT, etc , has gone up even more than 100 times.
elogic77
2 years ago
1)The failure of DHFL is because of failure of regulatory authorities like RBI,NHB Banks etc .When so much taxpayers money is spent in financing regulatory authority shouldn't it be accountable and be penalised for its failure ?

2)How can the resolution happen when huge percentage of loans are under moratorium because of instruction from RBI/SC will it ever lead to discovery of fair value of business.As per last audited accounts of Sept 2020 as signed by administrator shows fair value of loans(only Loans) as 60000 Crs how can the business be sold at half of its value?It is significant to note that the business itself contains Rs 12000 Crs of cash in its books.for which the new investor is paying 35000-38000 Crs most of it at later date

3)When the Banks are holding personal guarantees of promoters and when the promoters also specify that they hold assets of Rs 40000 Crs or more then why banks are not excluded from this recovery .Is it that the banks will recover double amount through IBC and through personal guarantee at cost of small investors

4)How can the recovery of fraudulent/Avoidance transactions go to the new buyer when the haircut is borne by COC.

5)What action has been taken by administrator and its team to recover the non performing assets .Have the projects of willful defaulters being taken up or is the administrator operating just like a POSTMAN Why details of monthly collections and other financial parameters are not declared to COC transparently .

There are several other ways in which resolution could happen which will help COC recover their investments with fair value but it seems that regulatory authorities and banks seems to be least interested for best reasons and ultimately at costs of public funds.
Kamal Garg
Replied to elogic77 comment 2 years ago
It is strongly felt that Sucheta Dalal should be a crusader and take up this case to its hilt so as to get transparent, right and fair valuation of the entire deal. All regulators cannot be simply postmen just shifting mails from one to another.
saharaaj
2 years ago
It looks big crooks are really fighting fiercely hope interesting skelton will tumble out
Kamal Garg
Replied to saharaaj comment 2 years ago
Even Sucheta Dalal should probe the handling and resolution of Laxmi Vilas Bank by RBI leading to complete extinguishment of entire share capital and handing over the Bank to DBS through a structured scheme by RBI.
smadhu864
2 years ago
madam..Suchetaji..Your masterly contribution to the business world and investors at large in alerting, awakening them against scams in the financial world is undeniable and your investigative jounalism is unparalleled..!!! there is one common feature in all the scams till now..., but for the lacunae in our banking system and the miserable failure of all the "watch dogs" , be it the internal audit departments of financial institutions, statutory auditors or the CAG, Vigilance departments, CVC, all these scams would not have occurred. But, ultimately the poor retail investors are left high and dry without a penny out of so called resolutions...Madam, it is high time that , journalists like you should help in highlighting the failures of all the "watchdogs" and ICAI's shrill response does not help at all .. when will they bark...????..
rbadvani54
2 years ago
What about FD holders who got a raw deal. Retired senior citizens who had invested their hard earned money for the extra 1 to 2 percent , were left high and dry?
rbadvani54
2 years ago
What about FD holders who got a raw deal. Retired senior citizens who had invested their hard earned money for the extra 1 to 2 percent , were left high and dry?
Kamal Garg
2 years ago
How can you assign a value of Re. 1 to the total debt of more than Rs. 38,000 crores - this is cruel and criminal.
And if this is the case, then, the recovery to be made by Piramals on these debts of more than Rs. 38,000 should belong to the original NCD/FD holders and definitely not to Piramals. How can you "have your cake and eat it too".
This was a biggest fraud happened with the active connivance of RP/CoC/resolution applicant, i.e. Piramals.
Rbala99
2 years ago
In case the Supreme Court upholds this judgment, it probably gives enough room for Piramal to back out. And till then, will they manage the company. By continuing to run the co they probably indicate that they are willing to accept. If they stop doing anything now, will the administrator be back? So many questions
sanjaymittal3
2 years ago
JPA is next, where CoC and FI/Banks trying to give company at a throughway price, it's land/asset value is more than it's debt.

appreciate if detailed analysis can be done and present to authorities those are concerned.
vishwas.n.kadam
2 years ago
After reading the article a layman can understand how the gullible small depositors were looted right under the law by crooked CoC ..in the name of 'commercial wisdome ' - a clever use of words in the provision created by looter law makers in Act in connivance with business houses to loot the common man.

Now the question is...Will supreme court perform its role of Supreme Hope of people of India OR it will prove itself to be just a placards in hands of lawmakers ?
r_ashok41
2 years ago
Both the acquirer and wadhawan group and also coc are all knee deep in corrupt practices together with the credit rating agencies and since we do not have a law in place to punish these hence they resort to these tactics and we gullible investor fall for it.
abanikumar.mohanty
2 years ago
Wadhwan have own assets of more than Rs 45 thousands crore please sale his assets or settle the all amount of FIXED DEPOSITOR. Please remind government and RBI and NCLT and COC of DHFL. All innocent citizens have deposited their life time savings in DHFL as it was a AAA company now they havev lost every thing. Government should intervene for refunding their atleast principle and interest money.
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