The National Company Law Tribunal (NCLT) has named a seven-member monitoring committee for management and control of Dewan Housing Finance Limited (DHFL) until Piramal Group’s resolution plan is implemented. The court has also asked the creditors committee to reconsider the inter se distribution of resolution funds within two weeks’ time, according to the order copy made public over the weekend.
“Reverse merger of the Successful Resolution Applicant Piramal Capital & Housing Finance Limited into and with DHFL, the Corporate Debtor is prima facie approved by this Adjudicating Authority,” the NCLT said in its order. However, the 89-page order came with a few surprises.
Monitoring Committee Appointment
First, the NCLT said that during the period between the court’s approval date (June 6, 2021) and the implementation date, the management and control of the corporate debtor would vest with the “Monitoring Committee.” Typically, it is the committee of creditors or insolvency resolution professionals that oversee the implementation of resolution plans, and courts don’t necessarily name or appoint members of such a committee.
The NCLT said that the Monitoring Committee would comprise of three representatives nominated by the CoC, two representatives nominated by the Successful Resolution Applicant, the RBI-appointed Administrator, and an “Observer Cum Permanent Invitee” who the court has appointed.
It named Ashok Kacker, retired Chief Commissioner of Income Tax and Former Executive Director of SEBI, as the observer and permanent invitee of the committee “to ensure smooth functioning and change over to the Successful Resolution Applicant.” The court did not specify any reason for naming Kacker, which two people directly involved with the case have questioned. These two persons did not wish to be quoted.
Ashok Kacker is the Founder and Managing Partner of A.K. Advisors and Consultants, an Advisory Company in the area of financial services and has held directorships with the Indiabulls Group of Companies, Max India, etc.
Redistribution of Resolution Money
Secondly, the court “suggested” that the creditors' committee reconsider the distribution of resolution money among various creditors, and allot more money to the small investors. It asked the CoC to report its decision on the same to NCLT within two weeks time from the date of the order.
The court observed that Fixed Deposit Holders of DHFL have requested lenders “enhance the percentage of payment made in the plan and the same should be increased to the level of Secured Financial Creditors i.e. approximately 40 percent the Financial Creditors would be getting in this plan.”
Making it clear that there is no additional monetary obligation for Piramal Group, NCLT said the CoC could consider the inter se distribution between various creditors viz Public Depositors, Fixed Deposit Holders, NCD Holders, Small Investors, Employees Provident Fund Trust, Army Group Insurance Fund etc, “so that lakhs of small investors would be benefited.”
“Its generally considered that 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 and accordingly for this limited purpose we direct the COC to reconsider their distribution method, distribution amongst various members of CoC within two weeks from today and report the same to this Adjudicating Authority.”It also suggested that the “ARMY Group” be treated as a separate class, subclass of creditors and be repaid Rs 39 crores of their claims in full, “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.”
While it has not remanded the resolution plan back to the CoC, it has suggested the lenders consider the proposal and get back to it within two weeks.
Dissenting Financial Creditors
Thirdly, NCLT said that dissenting financial creditors – including ICICI Bank which abstained, and FD Holders, debenture holders etc- should be paid upfront cash and not debt securities. “Dissenting Financial Creditors should be paid upfront cash and not debt securities prior to making any payment to other Financial Creditors as per the judgment of Hon’ble Supreme Court in Jaypee Kensington Boulevard Apartments Welfare Association & Ors. Vs. NBCC (India) Ltd. Ors,” the order read.
Piramal Group’s resolution plan
Piramal Group’s total offer of Rs 37,250 crore includes an upfront cash payment of Rs 12,700 crore to the creditors, CNBC-TV18 reported earlier. Piramal Group has also offered Rs 3,000 crore of cash to lenders from the interest earned on the existing cash on DHFL’s books, another Rs 1,000 crore for the insurance stake, and Rs 1,000 additional cash for interest income after NCLT approval. This takes the total cash for the creditors at Rs 17,700 crore. The remaining Rs 19,550 crore is in the form of instruments payable over 10 years.
As per the distribution plan approved by the CoC, the secured financial creditors would recover Rs 34,546.31 crores against admitted claims of Rs 83,304.69 crores, translating into a recovery of 39.06 percent. This does not factor in another Rs 3,000 crores additionally entitled to financial creditors from interest earned on cash on DHFL’s books, which would further increase their recovery. The unsecured financial creditors would recover Rs 177.99 crores against their admitted claims of Rs 3,778.30 crores, translating to a 2.83 percent recovery. Operational creditors would recover Rs 6.03 crores or 2.63 percent of their Rs 164.70 crores of admitted claims.
As part of the plan, Piramal Group would infuse Rs 1 crore of equity in DHFL to subscribe to 100 percent of their shares. It would subsequently delist DHFL from both exchanges, extinguish the equity shares held by DHFL shareholders, and then reverse merge Piramal Capital and Housing Finance into DHFL. However, post-merger, PCHFL will not get the deposit-taking licence of DHFL. “While granting NoC by RBI, the status of the Corporate Debtor (DHFL) is changed from Deposit-taking Housing Finance Company to Non-Deposit taking Housing Finance Company” NCLT noted.
(Edited by : PRADEEP SURESH V)
First Published: IST