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Promoters should not be allowed to delay insolvency resolution

The drama over Dewan Housing Finance Corp Ltd (DHFL) is another example of how company promoters put in last-minute roadblocks to delay the resolution process. The Mumbai Bench of the National Company Law Tribunal (NCLT) did well to approve the resolution plan submitted by Piramal Group. But the process will take some more time, as Kapil Wadhawan has approached the Supreme Court, which is yet to take a view on the matter.

Mr Wadhawan, who is in prison on charges of diverting funds and money laundering, had offered to pay the total outstanding principal of about Rs 91,000 crore. In a surprising move, the NCLT had earlier directed the Committee of Creditors (CoC) to consider the offer made by Mr Wadhawan even though lenders had approved Piramal Group’s offer. This was also ratified by the Reserve Bank of India (RBI).

Expectedly, the lenders had moved the National Company Law Appellate Tribunal (NCLAT), which stayed the NCLT order. The appellate tribunal rightly pointed out that the resolution plan was almost finalised and was before the adjudicating authority. It further added that there would be no end to the process if such reversals were allowed. But that did not deter Mr Wadhawan from moving the apex court against the NCLAT order on the grounds that his offer was better than that approved by the CoC. On the face of it, Mr Wadhawan is right as his offer is Rs 50,000 crore more than Piramal Group’s Rs 37,250 crore.

But it has several problems. First, if the promoter had the resources to fund the firm, why was it allowed to reach a position where the regulator had to initiate the resolution process? Second, the promoter is facing charges of diverting funds and other financial misconduct. Also, several of the properties Mr Wadhawan has listed for monetisation are already under the process of seizure/attachment by the Enforcement Directorate, raising serious doubts about the feasibility of the offer. Third, in this case, the resolution process was started by the regulator.

There is no reason why the RBI should accept Mr Wadhawan’s offer. Such a step would seriously damage the credibility of both the regulator and the Insolvency and Bankruptcy Code (IBC). Giving DHFL back to the erstwhile promoter would demonstrate that it is possible for promoters to do whatever they like and still regain control of the firm. This is not the first time when a promoter is trying to regain control. Similar attempts were made in the case of Bhushan Steel and Essar Steel, for example. All such attempts were blocked.

The idea simply is to delay the process and regain control at a lower price in the future. This should not be allowed. The Supreme Court had itself observed in the past that the CoC’s commercial decisions should not be interfered with. Thus, it is perhaps also time to further strengthen the IBC process and incorporate principles that would allow an early resolution of stressed assets and minimise incentives for former promoters to approach higher courts. It is extremely important that stressed assets are resolved in time and put to productive use. Unnecessary delays can defeat the very purpose of the IBC.

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