Piramal Group, which had acquired DHFL last September, has moved the Supreme Court in appeal against a recent NCLAT order that ruled as “illegal” a stipulation in the DHFL resolution plan as regards recovery of avoidance transactions. The apex court will hear the matter on Wednesday, sources said.
The RBI appointed administrator for DHFL, committee of creditors and 63 moons have been listed as respondents to this appeal, they added.
It may be recalled that NCLAT had —in the matter of the 63 moons challenge —in January 2022 set aside the term in the resolution plan that permitted Piramal Group (successful resolution applicant) to appropriate recoveries from avoidance transactions.
The Appellate Tribunal had sent the authorised resolution plan back to the Committee of Creditors (CoC) to reconsider this aspect of the valuation of avoidable transactions that pertain to the recoverable belongings.
The CoC had as part of the resolution plan agreed to Piramal Group getting all future recoveries of bad loans (amounting to about ₹38,000 crore) falling under avoidance transactions and accepted ₹1 from Piramals as the value assigned for such a benefit.
63 moons (one of the creditors with ₹200 crore invested in DHFL NCD’s) had challenged this CoC decision.
Unrealistic value of ₹1
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 claims, saying the bankruptcy laws of the countries like the US also advocate creditors benefit, directly or indirectly.
63 moons had argued before the adjudicating authorities 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).
NCLAT ruled this stipulation as “illegal” and noted that all recoveries on avoidance transactions should go for the benefit of only the creditors and not the successful resolution applicant.
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 minimal recovery and, hence, a value of one rupee was ascribed to this large outstanding.
CoC committee in dilemma
The core committee of the CoC, which looked into the recent NCLAT directive, was caught in a dilemma as their legal advisors were urging the CoC to appeal to the Supreme Court. At the same time, the debenture trustee (representing NCD holders and part of CoC) was opposed to any such move. With Piramal Group itself preferring an appeal, the tricky issue that bankers were faced with is now sorted, sources said, adding that it is now for the Supreme Court to opine on the legality of the stipulation in the resolution plan.
Under the Insolvency and Bankruptcy Code (IBC), “avoidance transactions” are recognised as undervalued, fraudulent or extortionate by the previous promoters.
‘Sweetheart deal’ raises eyebrows
Several critics had frowned at the CoC move to accept Piramal Group’s ₹1 as the value assigned for avoidance transactions and even alleged it as a “sweetheart deal” between the bankers and Piramal Group. They contended that the banks should have been careful before accepting Piramal Group’s ₹1 as the value assigned for avoidance transactions amounting to ₹38,000 crore (without interest component). Some critics even alleged that these Bankers’ act of omission are deliberate and not an oversight.
This move of CoC to accept and assign a value of ₹1 on avoidance transactions had raised several eyebrows.