The National Company Law Appellate Tribunal (NCLAT) has set aside an earlier order of the Mumbai bench of the NCLT, which had directed the administrator of the debt-ridden DHFL to put the second settlement proposal by erstwhile promoter Kapil Wadhwan before its lenders for consideration.
The appellate tribunal observed that NCLT has passed directions to consider the second proposal from Wadhwan, despite the fact that the Committee of Creditors (CoC) of DHFL had already by an overwhelming majority approved the Piramal Capital & Housing Finance's resolution plan and the administrator had applied before it for its approval.
Citing a recent judgement passed by the Supreme Court in the case of Ebix Singapore, the NCLAT said, "There was no scope for negotiations between the parties once the CoC has approved the resolution plan".
"The said exercise was beyond the jurisdiction of the adjudicating authority (NCLT), hence unsustainable and liable to be set aside," said a three-member NCLAT bench in its judgement passed on January 27, 2022.
The NCLAT direction came over a batch of petitions filed by Union Bank of India on behalf of the CoC, DHFL's Administrator and Piramal Capital & Housing Finance - successful resolution applicant challenging NCLT order.
Earlier on May 19, 2021, passing an order, the National Company Law Tribunal (NCLT) had directed the administrator of Dewan Housing Finance Corporation Ltd (DHFL) to place the second offer by Wadhwan before CoC for consideration, decision, voting and to inform it within ten days.
This said order was challenged by CoC, Administrator and Piramal before the appellate insolvency tribunal NCLAT.
During the pendency of this appeal before the appellate tribunal, NCLT had on June 7, 2021, passed an order approving the resolution plan of Piramal Capital & Housing Finance Ltd.
During the proceedings, Union Bank had contended that there is no provision in the Insolvency & Bankruptcy Code (IBC) by which NCLT is empowered to pass such an order. Moreover, the second offer was neither submitted in compliance with the RFRP (Request for Resolution Plan) nor compliance with Section 12A of the IBC Code.
Under Section 12A of the IBC, the tribunal can permit withdrawal of an ongoing insolvency process against a company subject to certain conditions. Such application is filed by the company with the approval of 90 per cent voting share of the committee of creditors.
According to the petitioners, throughout the Corporate Insolvency Resolution Process (CIRP) of DHFL, Wadhawan was sending various letters and proposals, including the first offer, all of which have been placed before the CoC. The CoC was of the view that such proposals cannot be considered.
The second offer was nothing but the first offer in a different form, it added.
The lenders had contended that such an order compelling the CoC to consider every offer by the promoter, who was once in control of DHFL, would gravely hamper the CIRP and cause inordinate delays, as well as adversely impact the sanctity of the process.
The order was passed by NCLT after Piramal's resolution plan was approved by CoC with an "overwhelming majority" and the administrator had filed the plan before the tribunal for approval.
However, Kapil Wadhawan had submitted that the second settlement proposal was different from the first settlement proposal. The only similarity is that it continues to be 150 per cent higher than Piramal's plan. According to him, the first settlement proposal was never considered on merits by CoC and was rejected on hyper technicalities.
Wadhawan had further argued that the objections by the CoC alleging were misconceived as, under IBC, NCLT has the inherent power to make such orders.
Rejecting it, the NCLAT observed that NCLT had directed the CoC to consider the second settlement offer by Wadhawan when Pirmal's resolution plan after Approval from the lenders was pending for adjudication before it.
"Such a direction of the Adjudicating Authority (NCLT) was passed despite that the CoC of the corporate debtor had by an overwhelming majority approved the resolution plan of DHFL. The administrator had already filed the plan approval application, and that application was heard and reserved for orders by the learned Adjudicating Authority," said the NCLAT.
The appellate tribunal said once a resolution plan is approved by a 100 per cent voting share of the CoC, the jurisdiction of the NCLT was confined to determining whether the requirements of Section 30(2) (requirements) have been fulfilled in the plan as approved by the CoC.
"Once the requirements of the IBC have been fulfilled, the adjudicating authority and the appellate authority are duty-bound to abide by the discipline of the statutory provisions. Neither the Adjudicating Authority nor the Appellate Authority has an unchartered jurisdiction in equity," said the NCLAT.
Insolvency proceedings were initiated against DHFL by NCLT on November 20, 2019, after admitting a plea by the Reserve Bank of India over governance concerns and defaults.
NCLT had superseded the Board of Directors of DHFL and appointed an administrator to manage its affairs.
Last week, NCLAT, while delivering a separate judgement on 63 Moons Technologies petition, had directed the lenders of DHFL to reconsider their decision regarding the valuation of the financial firm's avoidable transactions, while approving the insolvency resolution plan submitted by Piramal Capital & Housing Finance Ltd.