There is a sense of déjà vu as one reads about how the Mumbai NCLT has asked lenders to DHFL to consider the resolution plan of the original promoter after they have approved one by the Piramal group. One is reminded of how the Ruias announced at the eleventh hour that they would like to bid for their company when proposals from the likes of Arcelor Mittal were being considered. The two cases are, no doubt, different but what comes through in both is the tenacity of the promoters and their firm belief they are entitled to retain their businesses, no matter how good or bad their past behaviour. Indeed, one wonders whether there are shortcomings in the system that give errant promoters the confidence to fight back in this fashion. Kapil Wadhawan, as one knows, is in jail on charges of money laundering and diversion of bank funds; the hole in the DHFL balance was reckoned to be some `15,000 crore. But that doesn’t seem to deter him from staking a claim for his business; it would be unfortunate indeed if the legal system is so weak that the DHFL episode, which one thought had been put to bed, takes an altogether different turn.
Last week, the Mumbai NCLT directed the administrator and lenders to the company to consider the financial proposal made by Wadhawan. If that came as a rude shock, the subsequent stay order by the appellate tribunal and the directions to the NCLT that it could go ahead with the process to assess the resolution plan cleared by lenders months ago, without the hearing coming in the way, is reassuring.
As the NCLAT observed, Regulation 30A of the CIRP (corporate insolvency resolution process) regulations requires reasons to be provided for an application under Section 12A of IBC if this is filed after the EoI (expression of interest) has been issued. In this instance, however, the resolution plan had already been approved by the lenders and was being considered by the NCLT. The bench observed there would be no end if such reversals were permitted. The NCLAT also opined it was “unable to appreciate the hurry imposed” on the administrator and CoC (committee of creditors) to consider the second proposal. The NCLT’s order was surprising because, as argued, it disregards Section 29A of the IBC which would render the promoter ineligible to participate in the CIRP. In their appeal against the NCLT’s order, lenders have said the original promoter has found a route to participate in the process which is “not even in accordance with the provisions under Section 12A” so as to stall the CIRP. Under Section 12A the court or tribunal can allow the resolution application—admitted under sections 7, 9 or 10—to be withdrawn if 90% of the CoC votes for it.
In fact, the CoC believed that a proposal from the ex-CMD may not be legally tenable and RBI, before that, had initiated the insolvency proceedings given the governance concerns and defaults of DHFL and mismanagement by the promoters. Also, as has been observed, the second proposal of the promoters was not different from the first one, received on December 19, 2020. Even if Wadhawan’s proposal is better than the one accepted by the lenders, allowing him to regain control of the business would create a moral hazard. It would enable promoters, accused of financial impropriety, to get back their insolvent companies, destroying the ethos of the IBC and especially Section 29A. It would vitiate the repayment culture and make bankers more risk-averse than ever.
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