![Bombay HC allows DHFL to pay Banks and NBFCs with securitization agreements [Read Order]](https://gumlet.assettype.com/barandbench%2Fimport%2F2017%2F11%2FBombay-High-Court-e1514361018223.jpg?auto=format%2Ccompress&fit=max)
Granting relief to the Banks, Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs), the Bombay High Court allowed Dewan Housing Finance Corporation Limited (DHFL) to make payments with respect to securitization agreements.
The Banks including State Bank of India, Indian Overseas Bank, Union Bank, Bank of India, IDFC First Bank, Bank of Baroda, DCB Bank, HDFC Bank, Standard Chartered Bank, and Financial institutions such as Aditya Birla Finance had moved the Court seeking to vacate order restraining payments by DHFL to them.
A Single Bench of Justice AK Menon passed an order on Wednesday. The Court allowed the pleas and modified its earlier order.
In light of this, the Court held that the DHFL should make payments in accordance with securitization and amounts pending from October 10. Justice Menon further said that the modified order should operate for benefit of other banks as well.
Justice Menon ruled,
“...the ad-interim order dated 10th October 2019 is modified to the extent that DHFL shall make payments in accordance with the various Assignment Agreements entered into between DHFL and the Applicants and the other assignees of such loans in cases where such assignees have executed similar Assignment Agreements.”
The Court went on to note,
“Needless to mention this order shall be without prejudice to any other rights each of the beneficiaries under the Assignment Agreements may have.”
The interim applications were filed by Banks and NBFCs after a Single Bench of Justice A K Menon on October 10 had directed disclosure of all assets and liabilities by DHFL, in suits filed by Reliance Nippon and Edelweiss. The Court had also ordered temporary restraint on DHFL from making further payments to secured and unsecured creditors, except certain payments made on a pro-rata basis to all the secured creditors.
On October 17, the Court passed identical orders against DHFL, in suits filed by Kotak Mahindra Asset Management and Axis Asset Management.
In light of this, the applicant banks and NBFCs sought vacation or modification of previous orders.
On Wednesday, the Banks claimed that they do not fall within the category of creditors being the owner of assets securitized to DHFL. It’s claimed that DHFL was making regular payments before October 10 and 17 orders. If orders are not modified, assets may become Non-Performing Assets, counsels for applicant banks argued.
“We are not creditors but assignees. There cannot be any pro-rata arrangement. We are asking for our own money,” said counsel for Banks.
In earlier order of October 10, the Court had observed that the same security used as a cover for non-convertible debentures appeared to have been utilized for securitization. In this regard, the counsel for banks assured the Court that the asset hypothecated under the debenture trustee deed were separate from those securitized to them.
In view of interim applications filed by Banks, Edelweiss informed the Court that their client would not object to payments by DHFL to banks and NBFCs. Whereas, Reliance Nippon counsel informed said that his client would not object to the payments on a condition that the asset coverage ratio by DHFL is maintained at 1:1 or beyond.
Moreover, Airforce Group Insurance Society, representing Air Force Personnel, moved the High Court on Wednesday seeking recovery of Rs. 84 Crore, including interest, placed as fixed deposit with DHFL.
Counsel for the Society argued that its claims had the highest priority compared to that of banks and NBFCs, as per provisions of the National Housing Bank Act, 1987. The Court will hear the plea next week.
In another development, the Bombay High Court on November 7 had directed Kapil and Dheeraj Wadhawan, promoters of Dewan Housing Finance Corporation Limited (DHFL) not to leave India until further orders.
A Single Bench of Justice S J Kathawalla had passed this order while hearing a plea by 63 Moons Technologies Limited for non-payment of dues by DHFL of around Rs. 200 Crores.
Senior Counsel Virag Tulzapurkar and Janak Dwarkadas along with advocate Birendra Saraf appeared for applicant banks. Senior Advocates Darius Khambata and Mustafa Doctor appeared for Aditya Birla Housing Finance Limited.
Moreover, Aditya Birla Finance Limited was represented by Senior Advocate Fredun DeVitre instructed by advocate Ryan Dsouza of DSK Legal. Senior Advocate Iqbal Chagla appeared for Reliance Nippon.
Senior Advocate Prasad Dhakephalkar, along with advocates Cyrus Ardeshir, Munaf Virjee and Rushabh Parekh, instructed by ABH Law LLP appeared for DHFL.
[Read Order dated November 13, 2019]
