Dewan Housing
Dewan Housing
Litigation News

Supreme Court directs DHFL fixed depositors to approach CoC, Administrator for release of deposits

The Order was passed by a Division Bench of Justices L Nageswara Rao and Deepak Gupta.

Aditi Singh

The Supreme Court has directed Dewan Housing Finance Limited (DHFL) fixed depositors to approach the troubled financial service porvider's Committee of Creditors and its Administrator appointed under the Insolvency & Bankruptcy Code, 2016 for release of deposits.

The Court has stated,

“We are informed that there are nearly one lakh depositors who have invested their life time earnings with Respondent No.1 (DHFL). Some of the deposits have matured and some of the depositors are critically ill. We have no doubt that the concerns of the depositors and their rights shall be considered in accordance with law.”
Supreme Court

The Order was passed by a Division Bench of Justices L Nageswara Rao and Deepak Gupta.

Reliance Nippon Life Asset Management Ltd had filed a Commercial Suit against DHFL for recovery of a sum of Rs.479,31,29,113.

Reliance Nippon had also subscribed to Non-Convertible Debentures (NCDs) of DHFL to the tune of Rs.63,41,72,000.

In 2017-2018, Reliance Nippon subscribed to more NCDs, aggregating to Rs 365 crores, issued on a private placement basis.

Subsequently, Reliance Nippon became entitled to early redemption of private placement NCDs in March, 2019 but DHFL failed to pay the entire amount towards the early redemption.

In September 2019, the Bombay High Court restrained DHFL from making further payments, disbursements to any unsecured creditors and secured creditors except in cases where payments are to be made on a pro-rata basis to all secured creditors out of its current and future receivables in preference to the payments owed to Reliance Nippon.

By an order passed in October, 2019 the High Court further directed the continuance of the order till the disposal of the motion and similar orders were passed in the interim applications filed in the other commercial suits.

In November 2019, the High Court clarified that DHFL shall not be prevented from making any payments overdue or payable under the assignment agreements in favour of any or all such banks or assignees of loans.

Aggrieved by these orders restraining DHFL from making any payments towards the fixed deposits, the fixed depositors moved the Supreme Court.

The Appellants placed reliance on Sections 36 and 36 (A) of the National Housing Bank Act, 1987 and Section 45 (q)(a) of the Reserve Bank of India Act, 1934 to argue that for the Appellants should be given preference over the contractual claims of the debenture holders.

The Reserve Bank of India, however, informed the Court that it had filed an application under Sections 227 and 239 (2)(zk) of the Insolvency and Bankruptcy Code, 2016 read with Rule 5 and 6 of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicatory Authority), Rules, 2019 before the National Company Law Tribunal, Mumbai against DHFL.

It was added that on December 3, 2019, the insolvency plea was admitted and moratorium under Section 14 IBC had come into effect.

The Court further recorded that after the initiation of the corporate insolvency resolution process, the High Court had noted that the moratorium had come into operation from the date of the filing of the application i.e. November 29, 2019 and parties before it were granted liberty to approach the NCLT for redressal of their grievances.

The Court also recorded that the NCLT had referred to the Appellants in its order passed on December 3, 2019 and directed the Administrator to update the list of depositors along with the outstanding amounts payable to each one to take care of their interest in future.

Subsequently, the Administrator had made a public announcement under Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 to state that public depositors were included as a class of creditors under Section 21(6A)(b) IBC.

Even during the first meeting of the Committee of Creditors, it was decided that the interests of the depositors shall be taken into account, in accordance with the provisions of the IBC, the Court observed.

The Appellants, however, expressed his apprehension that the Bombay High Court orders would come in the way of consideration of the claims made by the depositors before the Committee of Creditors and the Administrator.

The Court thus ordered that the depositors’ claims should be considered by the Committee of Creditors and the Administrator without being influenced by the High Court orders.

It said,

“..we are of the opinion that the claims that are made by the depositors shall be considered by the Committee of Creditors and the Administrator without being influenced by the orders passed by the High Court on 10.10.2019 as modified by order dated 13.11.2019, as well as the order passed by the Debts Recovery Tribunal-I, Mumbai on 08.11.2019, passed by the High Court on 10.10.2019 as modified by order dated 13.11.2019, as well as the order passed by the Debts Recovery Tribunal-I, Mumbai on 08.11.2019.”
Supreme Court

The Court, however, refused to examine the merit of the Appellants' contentions that the CoC decision permitting the Administrator to carry on the lending operations of DHFL, without paying the Depositors, was arbitrary and illegal.

Noting that the depositors were being represented by their Authorized Representative before the Committee of Creditors, the Court said,

“We leave it open to the Appellants to raise all points and contentions before the Committee of Creditors, the Administrator and if necessary, the NCLT.”
Supreme Court

In view of the above, the appeal was disposed of.

The Appellants were represented Senior Advocate Jayant Bhushan along with AOR Ashish Virmani, Advocates Gollamuni Sri Harsha Datta, Akshay Abrol, Saksham Grover and Himanshu Dhuper.

RBI has represented by Senior Advocate KV Vishwanathan along with AZB & Partners team Paresh Lal, Vivek Shetty Sayobani Basu, Simran Bhatt, Anshula Bhakru and Durga Manda

The DHFL Administrator was represented by Senior Advocate Ramji Srinivasan along with AZB & Partners team Anindita Roy Chowdhary, Nilang Desai, Suharsh Sinha, Vatsala Rai, and Raghav Chadha

Read the Order:

Vinay Kumar vs DHFL_watermark.pdf
Preview
Bar and Bench - Indian Legal news
www.barandbench.com