The National Company Law Tribunal (NCLT) on Monday initiated insolvency proceedings against Dewan Housing Finance (DHFL) under the new norms for resolution of financial services providers (FSPs).
The Reserve Bank of India (RBI) had last week moved the insolvency court against the stressed home financier.
DHFL is the first case to be admitted for the corporate insolvency resolution process (CIRP) under the new norms.
On Monday, senior counsel Ravi Kadam appearing on behalf of the central bank, told the court that DHFL had a total outstanding of Rs 92,715.45 crore, of which outstanding to secured creditors amounted to Rs 73,833.46 crore. He also said the Singapore branch of SBI has an exposure of $240 million to DHFL. DHFL has defaulted on interest payment of $2.16 million on external commercial borrowings taken from the State Bank of India, Kadam said.
Under the new norms notified by RBI on November 15, financial services providers with assets of above Rs 500 crore would also be eligible for resolution through the NCLT mechanism under the Insolvency and Bankruptcy Code. Following the notification, the central bank appointed R Subramaniakumar, former MD and CEO of Indian Overseas Bank, as the administrator for DHFL and appointed a three-member committee to assist him.
DHFL, being the test case for insolvency of NBFCs under the new norms, the two-member bench of the Mumbai NCLT held lengthy discussions with the legal representatives of RBI and DHFL’s newly-appointed administrator. The bench questioned the significance of NCLT proceedings in the context of RBI having set things in motion by replacing DHFL’s board with an appointed administrator.
The bench also raised queries regarding the credentials of the RBI-appointed three-member panel and how the insolvency proceedings for FSPs will differ from those of other corporate debtors. One of the presiding judges, Justice Chandra Bhan Singh said: “Insolvency of a financial entity is a huge, huge thing. It has a cascading effect on the rest of the sector… ideally we would like to have some more clarity of the matter.” He added that the NCLT is concerned about the depositors.
Kadam said as per the RBI norms, “the insolvency application for DHFL shall be dealt with in the same manner as under Section 7 of the IBC.” Section 7 of the IBC provides the ability of a financial creditor to initiate insolvency proceedings against an entity which defaults on payment obligations.
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Source: Financial Express