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The Mumbai Bench of the National Company Law Tribunal (NCLT) on Tuesday admitted the Dewan Housing Finance Corporation Limited (DHFL) insolvency case brought by Reserve Bank of India (RBI) under the Insolvency and Bankruptcy Code (IBC), 2016.
A Division Bench of Judicial Member M K Shrawat and Technical Member Chandra Bhan Singh heard a plea filed by RBI under Rule 5 (a)(i) and Section 227 of IBC and passed the order on Tuesday.
Rule 5 (a)(i) of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 prescribes Corporate Insolvency Resolution Process (CIRP) of Financial Service Providers (FSP) and says that it can be initiated against FSP committing default upon an application made by the Appropriate Regulator.
Whereas, Section 227 deals with the power of the Central Government to notify Financial Service Providers.
The Tribunal noted that Section 227 prescribes that the Central Government in consultation with the ‘Financial Sector Regulator’ can notify ‘Financial Service Provider’ (FSP) or ‘Categories of Financial Service Providers” for the purpose of their Insolvency proceedings to be conducted under Insolvency Code.
The Ministry of Corporate Affairs (MCA) on November 18, this year had issued a notification in that regard.
In light of this, the Tribunal noted that applicant RBI submitted an application in the capacity of ‘Appropriate Regulator’ against Financial Service Provider DHFL and claimed default in repayment of the External Commercial Borrowing (ECB) Loan to State Bank of India (SBI).
The Bench went on to note that applicant RBI had enclosed evidence to establish the loans were granted time to time such as ECB in two tranches aggregating USD 240 Million.
In this regard, Senior Counsel Ravi Kadam submitted a trail of emails as evidence to demonstrate the ‘default’ by DHFL. Therefore, he prayed for admission of the plea under section 7 (initiation of CIRP) read with section 227 of IBC.
On the other hand, it was noted that since the Board of Directors of DHFL was superseded by RBI after the appointment of an Administrator on November 20, this year, there was no representation on behalf of the corporate debtor DHFL.
After perusing material and submissions on record, the Bench observed,
“On due examination of the evidences annexed with this Application, we hereby hold that the Debt in question is to be qualified as “Financial Debt” as defined u/s. 5(8) to be read with Section 3(11) of the Code. Further, on the basis of the correspondence and the letters issued it has also been established that the Financial Service Provider (FSP) has committed Default of repayment as defined u/s. 3(12) of the Code.”
Moreover, the Tribunal accepted the appointment of R Subramaniakumar, former Managing Director and Chief Executive Officer of Indian Overseas Bank as DHFL Administrator and directed him to make a public announcement imitating the initiation of CIRP and call for claims under IBC.
The Bench also noted that ‘moratorium’ shall commence from November 29, 2019, and shall have effect until the completion of the Insolvency Process.
In light of this, it was directed that on commencement of moratorium, the institution of any Suit or continuation of proceedings or execution of any decree against the Financial Service Provider (DHFL) shall be prohibited.
The Bench went on to hold,
“Likewise, transferring, alienating or disposing of any asset of the FSP is hereby forbidden. Further, any action to foreclose, recover or enforce any security interest created by FSP in respect of its property is also debarred. However, supply of essential goods or services to FSP shall continue uninterrupted and not to be terminated or suspended during moratorium by the supplier.”
Concluding the proceedings, Judicial Member MK Shrawat, who authored the order for the Bench noted,
“At this juncture, it is worth to mention that in the foregoing paragraphs reproduced a statement of “Unsecured Loans” which contained a figure of Rs.1,024,311.00 (in lacs) amount of public deposit. The Administrator shall update the list of Depositors along with the outstanding amount payable to each one with their address and communication information so that in future their interest can be watched along with all other stakeholders. To conclude, this application stood admitted.”
Along with Senior Counsel Ravi Kadam, advocates Ashish Kamat, Suharsh Sinha, Vivek Shetty, Anapazhakan instructed by AZB & Partners appeared for applicant RBI. DHFL Administrator was represented by advocates Rohan Rajadhyaksha and Sonu Tandon.
[Read Order dated December 3, 2019]