Kapil Wadhawan vs Mr.R.Subramaniakumar

[Arising out of Order dated 07 June 2021, in IA. No. 449 of 2021 in Company Petition (IB) No. 4258/MB/C-II/2019 passed by the Adjudicating Authority/National Company Law Tribunal, Mumbai Bench]

IN THE MATTER OF:

Kapil Wadhawan R/o 13th, 14th, 15th & 16th Floor D.B. Breeze, 16th Road, Khar (West) Mumbai - 400 052 Presently in judicial custody, Maharashtra Email: mail@aglaw.in Appellant

Versus

1. Mr R. Subramaniakumar Having a registered office at 6th Floor, HDIL Towers Anant Kanekar Marg Station Road, Bandra (East) Mumbai - 400051 Email: dhfladministrator@dhfl.com Lizmathew.law@gmail.com Respondent No.1

2. Committee of Creditors Union Bank of India on behalf of Committee of Creditors of Dewan Housing Finance Corporation Limited Having its office at: M-93, Connaught Place, New Delhi Email: raunak.dhillon@cyrilshroff.com Respondent No.2

3. Piramal Capital and Housing Finance Limited Having its registered office at: 4th Floor, Piramal Towers Peninsula Corporate Park Ganpatrao Kadam Marg, Lower Parel, Mumbai - 400013 Email: bipin.singh@piramal.com Respondent No.3

Company Appeal (AT) (Insolvency) No. 539 of 2021 1 of 12 4. The Reserve Bank of India Having its address at: New Central Office Building Shahid Bhagat Singh Road Fort, Mumbai - 400001 Through its Governor Email: ssangale@rbi.org.in Respondent No.4

Present:

For Appellant : None

For Respondent : Mr Ashish Bhan, Mr Ketan Gaur, Ms Chitra Rentala, Mr Aayush Mitruka, Mr Kaustub Narendran, Ms Samriddhi Shukla, Ms Lisa Mishra and Mr Vishal Hablani, Advocates for Intervenor (Piramal Capital & Housing Finance Ltd., SRA).

Mr Tushar Mehta, SGI with Mr Raunak Dhillon, Mr Animesh Bisht, Ms Saloni Kapadia, Ms Madhavi Khanna, Mr Shubhankar Jain, Ms Isha Malik and Ms Fatema Kachwalla Advocates for COC. Mr Ashish S. Kamat and Mr M.F. Philip, Advocates for R-3/RBI.

Glossary

DHFL Dewan Housing Finance Corporation Limited CoC Committee of Creditors NHB National Housing Bank NCLT/ National Company Law Tribunal Adjudicating Authority

NCLAT/ Appellate National Company Law Appellate Tribunal Authority

F.D. Holders Fixed Deposit Holders I&B Code Insolvency and Bankruptcy Code HFC Housing Finance Companies NHB Act National Housing Bank Act, 1987

Company Appeal (AT) (Insolvency) No. 539 of 2021 2 of 12 CIRP Corporate Insolvency Resolution Process SRA Successful Resolution Applicant FSP Financial Service Provider

CORAM: Hon'ble Mr Justice M. Venugopal, Member (J) Hon'ble Mr V. P. Singh, Member (T) Hon'ble Dr Ashok Kumar Mishra, Member (T)

(Virtual Mode)

[Per; V. P. Singh, Member (T)]

1. This Appeal emanates against the Order dated 07 June 2021 passed by

the National Company Law Tribunal, Mumbai, Bench II ("Adjudicating

Authority"), in Interlocutory Application No. 449 of 2021, in Company Petition

(IB) No. 4258/MB/C-11/2019 ("Impugned Order"), whereby the Adjudicating

Authority has approved the Resolution Plan submitted by Respondent No.3 for

Corporate Debtor DHFL, i.e. a Financial Service Provider.

Appellants Contention

2. The Appellant contends that the entire Corporate Insolvency Resolution

Process ("CIRP") of DHFL has been conducted in a wholly non-transparent and

opaque manner since its commencement. There have been material irregularities

in the exercise of his powers by Respondent No. 1 during the CIRP, which has

ultimately resulted in Respondent No.2 accepting a Resolution Plan providing

more than 60% haircut to various creditors, including a large body of unsecured

individual public depositors. Respondent No. 1 did not even place the 2nd

Settlement Proposal before Respondent No.2, which, if deliberated upon fairly

Company Appeal (AT) (Insolvency) No. 539 of 2021 3 of 12 and objectively without any prejudice, would have ensured 100% repayment to

all the creditors of Corporate Debtor. The entire CIRP process as conducted is

vitiated by material irregularities. Therefore, the Approved Resolution Plan

suffers from various illegalities. The Appellant is a promoter shareholder and

erstwhile Director of the Company DHFL. The Resolution Plan has been approved

in flagrant breach of even the most basic requirements of procedural justice and

the interests of the public members, including small depositors and debenture

holders. This would be evident from the following:

a) The Appellant, despite being a promoter shareholder, erstwhile

Director and guarantor, was not permitted to participate in the

deliberation of the CoC;

b) The Appellant was not even furnished with a copy of the Resolution

Plan despite seeking it;

c) The Respondent Nos. 1 and 2 refused to even table and consider a

Settlement Proposal forwarded by the Appellant, which would have offered

Rs. 53,000 crores more than the Resolution Plan sanctioned and would

have paid all creditors their principal in full instead of the haircut over

60% presently proposed;

d) The public depositors and the debenture holders have not even been

furnished with a copy of the Settlement Proposal;

Company Appeal (AT) (Insolvency) No. 539 of 2021 4 of 12

3. Non-consideration of the 2nd Settlement Proposal of the Appellant by

which, the Appellant has offered approx. Rs 91,158 crores, i.e. approximate

Rs.53,000 crores more than the offer of Respondent No.3, i.e. Rs. 37,250 Crores.

Since this settlement proposal is substantially higher (approx. 150%) than the

value offered by the highest bidder, the same ought to have been at least placed

before Respondent No.2 for its consideration.

4. Having not even considered the 2nd Settlement Proposal, Respondent Nos.

1 and 2 have acted contrary to the very object for which the Code was enacted,

i.e. maximisation of value of a Corporate Debtor. As well as delinquent to the

judgment of the Hon'ble Supreme Court in Swiss Ribbons (P) Ltd. v. Union of

India. The 2nd Settlement proposal ensures that thousands of small investors

and Fixed Deposit holders would be paid fully. Further, the settlement proposal

would have also significantly benefitted the Financial Creditors, i.e. Banks,

Financial Institutions, as no haircut is envisaged in the 2nd Settlement Proposal

to any creditors. The said proposal is based on the intrinsic value of DHFL, which

is verifiable from the following:

a. When DHFL was admitted into the CIRP, i.e. on 03 December 2019,

it had cash reserves of approximately Rs.2500-3000 crores. Over the one

year and six months that the CIRP has lasted and after payment of all

expenses, DHFL has almost Rs. Sixteen thousand crores, available as pure

cash that it has earned from its recoveries principally from the retail book.

Company Appeal (AT) (Insolvency) No. 539 of 2021 5 of 12 b. In addition to the amount above Rs. Sixteen thousand crores, in the

course of the next seven years, DHFL would realise a sum over Rs. Forty

thousand crores from its retail book (persons who have taken small home

loans), even while calculating a conservative rate of interest of 10% for

seven years on the retail assets of DHFL of about Rs.30,000 crores. The

realisation from these loans is almost 100%.

c. DHFL also has investments that can be recovered and valued at

about Rs.3000 crores.

d. The real estate assets in DHFL are worth almost 1000 crores.

5. From the indisputable facts set out above, it is apparent that just the

existing cash available in DHFL and the recovery from the retail book and the

investments alone would ensure at least Rs.60,000 crores to the creditors

(without even taking into account the potential recoveries from the wholesale

book) in 7 years as compared to the Rs.37,000 crores that have been offered by

Respondent No.3 (which includes payments to be made over ten years). Thus,

even on the strength of present financial status, Corporate Debtor can yield a

minimum repayment of about Rs.60,000 Crores. As aforesaid, this is without

even considering the value of the wholesale book, i.e. the loans given to builders

for the development of project loans against property, etc. According to the last

financial results available, it is valued in excess of Rs.9,000 Crores. This is

without prejudice to the rights and contentions of the Appellant, and the same

Company Appeal (AT) (Insolvency) No. 539 of 2021 6 of 12 does not reflect the fair valuation of the wholesale book. However, Respondent

No.2 has completely ignored the facts above and proceeded to approve a

Resolution Plan providing more than 60% haircut to lenders. In fact, for some of

the projects forming part of the wholesale book, various developers such as Adani

and Respondent No.3 were willing to enter into Development Management

Agreements after carrying out their due diligence as to viability.

6. Respondent No. 1 has failed to appreciate that DHFL as a Financial Service

Provider has financial assets, unlike other limited companies. Such financial

assets do not depreciate and generate revenue with a due infusion of monies.

The value of the retail and wholesale books appears to have been seriously

understated in the present case. Based on the correct valuation of such financial

assets, SBI Capital Markets (a wholly-owned investment subsidiary of SBI, one

of the lead members of Respondent No.2) and Ernst & Young, who even today

continue to be the advisors to Respondent Nos. 1 and 2 had formulated a

financial package for revival in the year 2019. There is no explanation whatsoever

forthcoming as to how in less than a year, the valuation of DHFL has depleted

so drastically for Respondent Nos. 1 and 2 to proceed ahead with a Resolution

Plan, which is not even remotely close to the value of DHFL as determined in

2019.

7. It is further submitted that how the entire CIRP is conducted, apart from

being aimed at irretrievably prejudicing the Appellant, is also completely contrary

to the public interest and against the very purpose and object not only of the

Company Appeal (AT) (Insolvency) No. 539 of 2021 7 of 12 Code but also of the provisions of the National Housing Bank Act, 1987. The

facts and circumstances would only show a malafide conduct on the part of

public officers/institutions in bringing about a situation whereby valuable assets

and business of DHFL are disposed of at less than half of its value to benefit a

few illegally.

8. There are thousands of fixed depositors who are facing the brunt of such

cavalier, opaque and non-transparent approach of Respondent Nos. 1 and 2 in

conducting the Corporate Insolvency Resolution Process of DHFL, particularly

when the alternative offer for repayment of approx. 91,000 Crores are provided

to repay entire dues of lenders, including public depositors. The National

Housing Bank Act provisions provide the repayment of all deposits accepted by

a Housing Financing Institution, such as DHFL. Instead, the said public

depositors are receiving a meagre 23% of their total dues. Respondent Nos. 1 and

2 in the garb that their "commercial wisdom" are committing a fraud on the Code

in only ensuring losses of thousands of crores by approving a Resolution Plan

offering only Rs.37,250 Crores in contrast to the debts aggregating to approx.

91,000 Crores.

9. The entire CIRP process leading to approval of such an un-commercial

Resolution Plan is an abuse of the process of law. The Code is originally

inapplicable to a Financial Service Provider such as DHFL did not envisage

public officers/authorities (who are today involved in the CIRP of a financial

service provider) to act for a high person, who are aimed at ensuring profits

Company Appeal (AT) (Insolvency) No. 539 of 2021 8 of 12 rather than being genuinely interested in a Resolution of a company and/or its

stakeholders including thousands of public depositors.

10. The public depositors include persons who have deposited their life

savings and hard-earned monies with DHFL, which is a deposit accepting

Company under the purview of the National Housing Bank Act.

As such, Respondent Nos. 1 and 2 ought to have ensured that the assets

and business of DHFL are not frittered away in such a manner. Respondent No.

1 as a public officer and Respondent No.2 led by the public sector Banks have

abused their position and defeated the provisions of the Code by adopting a

subterfuge and denying even placing of a Settlement Proposal, which would have

benefited all the stakeholders. The said process is nothing but a fraud on the

Code, making the maximisation of value a paramount concern of a CIRP.

11. The Appellant challenges the impugned Order dated 7 June 2021 passed

by the Adjudicating Authority in Interlocutory Application No. 449 of 2021 filed

under Section 31 of the Insolvency and Bankruptcy Code, 2016 in Company

Petition No. 4258/MB/2019. The Appellant has also sought relief of interim stay

against the implementation of the approved Resolution Plan.

12. It is important to mention that the Resolution Plan was also challenged in

other Company Appeals (AT) (Insolvency) No. 454, 455 and 750 of 2021. The said

Company Appeals have been allowed, and the term in the Resolution Plan that

permits the Successful Resolution Applicant to appropriate recoveries of

Company Appeal (AT) (Insolvency) No. 539 of 2021 9 of 12 avoidance applications was set aside. Accordingly, the Resolution Plan has been

sent back to the COC for reconsideration on this aspect.

13. Since the Resolution Plan, which is under challenge in the present Appeal,

is still under consideration before the COC, this Appeal has become infructuous

in the circumstances.

14. In the present Appeal, the Appellant had challenged the approved

Resolution Plan on the ground that COC ought to have considered the 2nd

settlement proposal of the Appellant during the pendency of IA No. 449 of 2021.

Based on the application of the promoter, the Adjudicating Authority had

directed the COC to consider the 2nd settlement plan. The said Order was

challenged in Company Appeal (AT) (insolvency) No. 370, 376-377 and 393 of

2021. These Appeal has been allowed by this Appellate Tribunal and impugned

Order dated 19 May 2021 directing the Administrator of the DHFL to place the

2nd settlement proposal of Kapil Wadhawan before the COC for consideration

decision, and voting has been set aside. This judgement is also reported in 2022

SCC online NCLAT 40. Therefore, this issue does not remain pending for our

consideration in the present Appeal.

15. The Appellant has also raised the issue that he was kept indoor

throughout the CIRP and never provided a copy of the Resolution Plan of

Respondent No. 3 and was neither even allowed to raise his objections or heard,

which is a contravention of underlying principles of the Code.

Company Appeal (AT) (Insolvency) No. 539 of 2021 10 of 12

16. The Appellant further raises the issue that the Administrator denied the

erstwhile Director an opportunity to participate in the COC meetings because

superseded directors have no right to participate in the COC meetings. The said

actions of the Administrator was challenged in the Appeal filed by Ex-

promoter/Director Mr Dheeraj Wadhawan in Company Appeal No. 785 of 2020,

wherein it is decided that superseded directors, who have been removed or

deemed to have vacated office and who have not held the position of Director on

the CIRP commencement date, cannot be considered a Director to benefit from

participating in the meetings of COC. Therefore, after vacation or removal from

the office of the Director, the said person cannot claim their entitlement to

participate in the COC of the Corporate Debtor.

17. Further, it is also decided that erstwhile Directors who have vacated the

offices are not entitled to share any document. However, the copy of the

Resolution Plan after approval from the Adjudicating Authority cannot be treated

as confidential. Therefore, after final approval of the Resolution Plan, a certified

copy may be issued as per rules.

18. Thus, it is clear that the above issues raised in this Appeal are already

decided in company appeal CA (AT) (Ins) No. 785 of 2020 & 647 of 2021.

Therefore, the issue raised above has already been decided in the other Appeals,

so there is no need to enter into the same question.

Company Appeal (AT) (Insolvency) No. 539 of 2021 11 of 12

19. In the circumstances, it is clear that the issues raised in this Appeal have

already been decided in the connected appeals. Therefore the decision in the

connected appeals against the same Resolution Plan about the issues raised

herein shall be treated as part of the decision of this Appeal.

20. The Appeal is decided accordingly-no Order as to costs.

[Justice M. Venugopal] Member (Judicial)

[Mr. V. P. Singh] Member (Technical)

[Dr. Ashok Kumar Mishra] Member (Technical) NEW DELHI 14 February 2022

pks

Company Appeal (AT) (Insolvency) No. 539 of 2021 12 of 12