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citation codes
Case Number
Disposition

NA

Advocates
  • Mr. Tushar Mehta, Solicitor General of India, Mr. Shyam Divan, Sr. Adv. Mr. L. Viswanathan, Mr. Raunak Dhillon, Mr. Animesh Bisht, Mr. Abhijeet Das, Ms. Richa Ray, Ms. Saloni Kapadia, Mr. Aditya Marwah, Mr. Shubhankar Jain, Advocates, ;
  • Mr. Sudipto Sarkar, Mr. JJ Bhatt, Mr. JP Sen, Sr. Advocates with Mr. C Rashmikant, Mr. Rohan Dakshini, Mr. Vishesh Malviya, Ms. Shweta Jaydev, Mr. Prakhar Paresh, Mr. Bhavin Shah, Ms. Pooja Vasandani, Mr. Mahesh Agarwal, Mr. Divyand Gobind Chandiramani and Mr. Himanshu Satija, Advocates for R-1;
  • Mr. Ravi Kadam, Sr. Advocate with Mr. Liz Mathew, Mr. Rohan Rajadhyaksha, Mr. Navneet R. and Ms. Sonali Jain, Advocates for R-2;
  • Mr. Vivek Shetty, Advocate for R-3;
  • Mr. Ashish Virmani for FD Holders of DHFL Ms. Supragya;
  • Dr. Abhishek Manu Singhvi and Dr. Mustafa, Sr. Advocates with Mr. Avishkar Singhvi, Mr. Ashish Bhan, Mr. Ashwyn Mishra, Mr. Ankush Goyal, Ms. Chitra Rentala, Mr. Aayush Mitruka, Mr. Samriddhi Shukla and Mr. Anirudh Krishnaa, Advocates for SRA.
Judges
  • A.I.S. Cheema
  • Chairperson
  • V.P. Singh, Member (Technical)
Acts
  • provisions of section 60(5)(c) of I&B Code
  • rule 11 of NCLT Rules, 2016
  • Rule 5 of Insolvency
  • Rule 5 of F.S.P Rules
  • Section 30 read with Section 31
  • Rule 5 (d) (iii) of F.S.P. Rules
  • Section 29A of Insolvency and Bankruptcy Code, 2016 (I&B Code, 2016 in short)
  • Authority) Rules, 2019 (F.S.P.-Rules).
  • Section 45-1E (1) of Reserve Bank of India Act, 1934,
  • Rule 5(d)(iii)
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Disposition

NA

Advocates
  • Mr. Tushar Mehta, Solicitor General of India, Mr. Shyam Divan, Sr. Adv. Mr. L. Viswanathan, Mr. Raunak Dhillon, Mr. Animesh Bisht, Mr. Abhijeet Das, Ms. Richa Ray, Ms. Saloni Kapadia, Mr. Aditya Marwah, Mr. Shubhankar Jain, Advocates, ;
  • Mr. Sudipto Sarkar, Mr. JJ Bhatt, Mr. JP Sen, Sr. Advocates with Mr. C Rashmikant, Mr. Rohan Dakshini, Mr. Vishesh Malviya, Ms. Shweta Jaydev, Mr. Prakhar Paresh, Mr. Bhavin Shah, Ms. Pooja Vasandani, Mr. Mahesh Agarwal, Mr. Divyand Gobind Chandiramani and Mr. Himanshu Satija, Advocates for R-1;
  • Mr. Ravi Kadam, Sr. Advocate with Mr. Liz Mathew, Mr. Rohan Rajadhyaksha, Mr. Navneet R. and Ms. Sonali Jain, Advocates for R-2;
  • Mr. Vivek Shetty, Advocate for R-3;
  • Mr. Ashish Virmani for FD Holders of DHFL Ms. Supragya;
  • Dr. Abhishek Manu Singhvi and Dr. Mustafa, Sr. Advocates with Mr. Avishkar Singhvi, Mr. Ashish Bhan, Mr. Ashwyn Mishra, Mr. Ankush Goyal, Ms. Chitra Rentala, Mr. Aayush Mitruka, Mr. Samriddhi Shukla and Mr. Anirudh Krishnaa, Advocates for SRA.
Judges
  • A.I.S. Cheema
  • Chairperson
  • V.P. Singh, Member (Technical)
Acts
  • provisions of section 60(5)(c) of I&B Code
  • rule 11 of NCLT Rules, 2016
  • Rule 5 of Insolvency
  • Rule 5 of F.S.P Rules
  • Section 30 read with Section 31
  • Rule 5 (d) (iii) of F.S.P. Rules
  • Section 29A of Insolvency and Bankruptcy Code, 2016 (I&B Code, 2016 in short)
  • Authority) Rules, 2019 (F.S.P.-Rules).
  • Section 45-1E (1) of Reserve Bank of India Act, 1934,
  • Rule 5(d)(iii)
See more information ...
Smart Summary

Structured Summary of the Provided Opinion

Factual and Procedural Background

This appeal arises from an order (the "Impugned Order" dated 19 May 2021) of the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Court-II) directing the Administrator to place a "Second Settlement Proposal" submitted by Mr. Kapil Wadhawan (applicant / Respondent No.1) before the Committee of Creditors (CoC) for consideration, decision, voting and to inform the outcome within 10 days. The underlying Corporate Insolvency Resolution Process (CIRP) was initiated against Respondent No.1, Dewan Housing Finance Corporation Ltd. (DHFL), by the Reserve Bank of India (RBI) under Rule 5 of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 (F.S.P. Rules). The Adjudicating Authority had earlier confirmed the Administrator to perform the functions of the Resolution Professional upon admission on 03.12.2019.

The Appellant (represented by the Solicitor General and senior counsel) and others challenged the Impugned Order on the basis that the Second Settlement Proposal was improper, and they sought a stay. The appellate court heard counsel for multiple parties, considered prima facie issues, and, pending the appeal, stayed the Impugned Orders. The court also disposed of a Caveat Petition, directed parties to file pleadings on a timetable, and listed the appeal for admission hearing.

Legal Issues Presented

  1. Whether the Adjudicating Authority erred in directing the Administrator to place the Second Settlement Proposal before the CoC, despite the proposal not being in conformity with Section 12A of the Insolvency and Bankruptcy Code, 2016 (IBC) and despite the original promoter being ineligible under Section 29A of the IBC.
  2. Whether settlement proposals styled or functioning as a precursor to an application under Section 12A can be entertained at a stage when a Resolution Plan has already been approved and is before the Adjudicating Authority.
  3. Whether Section 12A or any similar route can be used to bypass the requirement for the regulator's "No Objection" as mandated by Rule 5(d)(iii) of the F.S.P. Rules for change of control / ownership where the regulator's consent is required for an approved Resolution Plan.
  4. Whether the Adjudicating Authority, having been aware of Regulation 30A and Section 12A, failed to appreciate and properly consider objections (including those of the Reserve Bank of India) before passing the Impugned Order.

Arguments of the Parties

Appellant and Administrator (represented by the Solicitor General and senior counsel)

  • Contended that the Impugned Order is unique and improper because it allows the original promoter—who was ineligible under Section 29A of the IBC—to find a route back into the process by sending settlement proposals that do not comply with Section 12A of the IBC.
  • Argued that the settlement proposals were being used to stall the CIRP initiated by the RBI under Rule 5 of the F.S.P. Rules and that the RBI had initiated the CIRP due to governance concerns, defaults and mismanagement by the promoters of DHFL.
  • Pointed out that the First Settlement Proposal (received 19 December 2020) was rejected by the CoC (minutes of 18th CoC meeting, Annexure A15) partly because the proposal of the Ex-CMD may not be legally tenable.
  • Asserted that the Adjudicating Authority reproduced the RBI's stand in paragraphs 70 to 80 of the Impugned Order but nevertheless directed the Administrator to place the Second Settlement Proposal before the CoC, even though it was substantively similar to the first proposal.
  • Emphasized that, under the IBC, once the resolution process is initiated there are three contingencies (approval of a resolution plan, orders of liquidation, or disposal under Section 12A), and that the settlement proposals did not fit into any of those categories yet were treated as if they might.
  • Sought a stay of the Impugned Orders pending consideration of the appeal.

Resolution Applicant (Piramal Capital and Housing Finance Ltd., represented by Dr. Abhishek Manu Singhvi, Sr. Advocate)

  • Noted that the Resolution Plan of Piramal was approved by the CoC with 93.65% voting in its favor and that RBI issued a No Objection under Rule 5(d)(iii) of the F.S.P. Rules on 16.02.2021 for change of control and ownership in favor of Piramal.
  • Pointed out that the approved Resolution Plan had been placed before the Adjudicating Authority under Section 31 of the IBC and arguments had been heard months earlier, and that the subsequent taking up of Respondent No.1's application and passing of orders was inappropriate.
  • Supported the submissions made by the Solicitor General that the Impugned Order was improper in context.

Respondent No.1 (represented by Mr. Sudipto Sarkar, Sr. Advocate)

  • Supported the observations and reasoning of the Adjudicating Authority as set out in paragraphs 81 to 95 of the Impugned Order.
  • Referred to judgments relied on by the Adjudicating Authority in support of its order (the opinion records that judgments were referred to, but does not identify them by name in the provided text).

Administrator / Other Respondents

  • The Administrator has filed a separate appeal against the Impugned Order (not yet numbered), and counsel appearing for the Administrator indicated support for the Solicitor General's submissions.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The appellate court considered the matter at the preliminary/admission stage and conducted a prima facie review. The court identified "serious issues" requiring consideration, and its reasoning proceeded on the following lines as recorded in the opinion:

  • The court noted CoC minutes (Annexure A6, Page 149) which showed the CoC had discussed a letter dated 17.10.2020 from Respondent No.1 that had been publicized and created confusion among fixed deposit holders and NCD holders; this fact made the court unable to appreciate any haste to have the Administrator and CoC consider the Second Settlement Proposal.
  • The court observed that counsel for the Appellant raised legal issues about whether the settlement proposal was being styled as a precursor or preliminary stage to an application under Section 12A of the IBC, which raised regulatory and procedural concerns.
  • The court referred to Regulation 30A of the CIRP Regulations, which requires reasons for filing under Section 12A if such an application is made after the issue of an Expression of Interest; that procedural safeguard was relevant to the question before it.
  • The court took note that the matter had already proceeded to the stage where a Resolution Plan had been approved by the CoC and was before the Adjudicating Authority (under Section 31). The court expressed concern about reversals at that stage and the potential for endless litigative or procedural reversals if such routes were permitted.
  • The court specifically questioned whether Section 12A could be used to bypass the regulator's "No Objection" requirement (Rule 5(d)(iii) of the F.S.P. Rules) that is necessary for change of control/ownership where the regulator's consent is prerequisite to a resolution plan coming into effect.
  • On the basis of these prima facie observations and identified issues, the court concluded that staying the Impugned Orders until the appeal is decided would be appropriate.
  • The court also directed that the Adjudicating Authority should proceed to decide I.A. No. 449 of 2021 in Company Petition No. 4258 of 2019 (filed by the Administrator under Section 30 read with Section 31 of the IBC) at the earliest and that the pendency of the present appeal would not prevent such decision-making.

Holding and Implications

Core Ruling: The appellate court granted an interim stay of the Impugned Orders. Specifically, the court stayed both Impugned Order 1 (direction to place the Second Settlement Proposal before the CoC) and Impugned Order 2 (oral request for stay having been declined by the Adjudicating Authority) in terms of prayer A and B of I.A. No. 885/2021, until the hearing and final disposal of the appeal.

Direct consequences and further directions recorded in the order:

  • Caveat Petition No. 153 of 2021 was disposed.
  • Respondents were directed to file their Reply-Affidavits within two weeks; the Appellant may file Rejoinder in one week thereafter.
  • The appeal was listed "For Admission (After Notice)" with hearing on 25th June, 2021.
  • The Adjudicating Authority was asked to decide I.A. No. 449 of 2021 at the earliest; the pendency of the present appeal shall not impede that consideration.

The opinion does not state that a new precedent was established; it records an interim procedural disposition (stay) and directions for further proceedings. No broader legal principle was declared as a final holding in the text provided.

Show full summary ...

    Union Bank Of India v. Kapil Wadhawan And Others

    1. Heard.

    2. Issue Notice.

    3. Mr. Sudipto Sarkar, Sr. Advocate with Mr. Mahesh Agarwal, Advocate appears on behalf of Respondent No. 1. Service of formal notice is dispensed with. Mr. Ravi Kadam, Sr. Advocate with Mr. Rohan Rajadhyksha, Advocate appears on behalf of Respondent No. 2 for the Administrator. Mr. Vivek Sheety, Advocate appears on behalf of Respondent No. 3-Reserve Bank of India. Service of formal notice is dispensed with.

    4. Mr. Tushar Mehta, Learned Solicitor General with Learned Sr. Counsel Mr. Shyam Divan submits on behalf of the Appellant as well as the Administrator that the present Impugned Order is a unique order where the original promoter who was ineligible under Section 29A of Insolvency and Bankruptcy Code, 2016 (I&B Code, 2016 in short) finds out a route to enter by sending settlement proposals which were not even in accordance with provisions under Section 12A of IBC so as to stall the Corporate Insolvency Resolution Process (CIRP in short) which was initiated against the Respondent No. 1-Dewan Housing Finance Corporation Ltd. (DHFL in short). The CIRP was initiated by Reserve Bank of India under Rule 5 of Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 (F.S.P.-Rules). According to Ld. Solicitor General, the Reserve Bank of India took decision to proceed under these Rules read with the provisions of IBC considering the governance concerns and defaults of DHFL and mismanagement by the promoters. Reserve Bank of India suspe nded Board of Directors of Corporate Debtor under Section 45-1E (1) of Reserve Bank of India Act, 1934, and appointed Administrator and constituted a three Member Advisory Committee to assist Administrator under Rule 5 (supra). Subsequently Company Petition was filed under above Rule 5 of F.S.P Rules read with IBC and it was admitted on 03.12.2019. Same Order confirmed the Administrator to discharge functions of Resolution Professional.

    5. It is argued that the Respondent No. 1 sent various letters to the Administrator and the same were considered and response was given as can be seen from the particulars stated in the Appeal itself. It is stated that the Respondent No. 1 sent First Offer Proposal which was received on 19 December, 2020. The Ld. Solicitor General referred to extract of minutes of 18 Meeting of the CoC of the Corporate Debtor (DHFL) (Annexure A15 Page 226) and pointed out the discussion which was recorded in CoC for rejecting the first proposal which included discussion that the proposal of Ex-CMD may not be legally tenable. The Learned Solicitor General referred to the Orders of the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Court-II) to point out the stand which was taken by the Reserve Bank of India. It is stated that the Adjudicating Authority reproduced the stand of the Reserve Bank of India in paragraph 70 to 80 of Impugned Order. However, the same was not at all discussed and Adjudicating Authority directed that the Second Settlement Proposal dated 29 December, 2020 be placed by the Administrator before CoC and CoC should consider, decide, vote and inform the outcome in 10 days to the Adjudicating Authority. It is stated that the Second Settlement Proposal was nothing different from the First Settlement Proposal and there were already reasons recorded by the CoC in the minutes referred above with regard to the First Settlement Proposal. Stand of RBI showed Rule 5 of F.S.P Rules required specific procedure to the extent that even Resolution Plan approved by CoC would require No Objection of Regulator. All this has not been looked into it is stated.

    6. It is argued that in IBC when Resolution Process is initiated there can be only three contingencies: (i) Resolution Plan is approved, (ii) Orders of Liquidation are passed or (iii) the CIRP is disposed under Section 12A. The Learned Solicitor General referred to the Impugned Order to state that the Adjudicating Authority was aware that the settlement proposals do not fall either under the category of Resolution Plan nor the same are procedure under Section 12 A of IBC but still the Adjudicating Authority went on to pass the orders as it did in the Impugned Order which is dated 19 May, 2021.

    7. The Learned Solicitor General has further submitted that even the personal guarantee issued by Respondent No. 1 has been invoked and petition has been filed against the Respondent No. 1. It is argued considering all these and other factors appearing from record the Adjudicating Authority should not have passed the Impugned Order as has been done. It is stated that these aspects require to be considered and in the meanwhile Impugned Order be stayed.

    8. Dr. Abhishek Manu Singhvi, Sr. Advocate appeared on behalf of Resolution Applicant and submitted that the Resolution Plan of Piramal Capital and Housing Finance Ltd. was approved by CoC by 93.65 % of CoC. RBI issued No Objection under Rule 5 (d) (iii) of F.S.P. Rules on 16.02.2021 for change of control and ownership to Piramal. The Resolution Plan was placed before the Adjudicating Authority under Section 31 of IBC and even arguments were heard and concluded months earlier. The Orders were not passed and suddenly the Application of Respondent No. 1 was taken up and orders have been passed which was not appropriate. The Learned Sr. Counsel supported the submissions made by Learned Solicitor General.

    9. Mr. Shyam Divan, Sr. Advocate appearing for the Appellant submits that the Adjudicating Authority was aware of the provisions of Section 12A as well as Regulation 30A as can be seen from Paragraphs 56 to 57 but still without appreciating the facts in proper perspective and without considering arguments the orders have been passed.

    10. Mr. Ravi Kadam, Sr. Advocate mentioned the matter before us to state that even the Administrator has filed separate Appeal against the Impugned Order which is yet to be numbered. He stated that he is also supporting the submissions made by the Ld. Solicitor General.

    11. We have heard Mr. Sudipto Sarkar, Sr. Advocate for Respondent No. 1. The Learned Sr. Counsel referred to various portions from the Impugned Order and has supported the observations made by the Adjudicating Authority to pass the Impugned Order which are found in Paragraph 81 to 95 of the Impugned Order. The Learned Sr. Counsel referred the Judgments relied on by the Adjudicating Authority to pass the Impugned Order.

    12. Operative part of Impugned Order 1 reads as under:

    “Therefore, in accordance with the provisions of section 60(5)(c) of I&B Code and also by exercising the powers under rule 11 of NCLT Rules, 2016 this Adjudicating Authority hereby directs the Administrator to place the 2nd Settlement Proposal of the applicant Mr. Kapil Wadhawan before CoC for its consideration, decision, voting and inform the outcome of the same within 10 days from today and list the matter on 31.05.2021. Accordingly, the IA 2431 of 2020 in CP (IB) 4258 of 2019 is partly allowed and stands disposed of.”

    13. Vide Impugned Order 2 oral request for stay of Impugned Order 1 was declined by Adjudicating Authority.

    14. Having heard Learned Counsel for both-sides, and being conscious of the fact that we are at the stage of admission of the Appeal, we at this stage consider on prima facie basis. We find that there are serious issues which are being raised and which need consideration. Annexure A6 (Page 149) shows CoC discussed a letter dated 17.10.2020 of Respondent No. 1 when Administrator pointed out that the letter had been given vide Publicity in Media and had created confusion and was misleading the Fixed Deposit Holders, NCD Holders etc. As such we are unable to appreciate the hurry imposed on the Administrator and CoC to consider the Second Settlement Proposal. The Learned Counsel for the Appellant are raising various legal issues as to how the settlement proposal has been styled as a precursor or pre-stage process of application under Section 12A of IBC. Regulation 30A of CIRP Regulations requires reasons to be given for application under Section 12A of IBC if filed after issue of Expression of Interest. Here the matter had proceeded to the stage where even Resolution Plan had been approved and was before Adjudicating Authority. There would be no end if such reversals are allowed. There is no dispute regarding the fact that Resolution Plan has already been approved and is before the Adjudicating Authority. Without deciding the same, the present Order has been passed. When, even Resolution Plan requires No Objection of Regulator under Rule 5(d)(iii) it needs to be considered if Section 12A could be resorted to bye pass No Objection of Regulator.

    15. In the facts of the matter, it appears appropriate to us that till we decide the Appeal, the Impugned Orders should be stayed in terms of prayer A and B made in I.A. No. 885/2021 for stay of the Impugned Orders which reads as under:

    “(a) Stay the order and operation of Impugned Order 1 dated May 19, 2021 passed by the Hon'ble National Company Law Tribunal in I.A. No. 2431 of 2020 filed in Company Petition No. 4258 of 2019 till the hearing and final disposal of the present Appeal.

    (b) Stay the order and operation of Impugned Order 2 dated May 19, 2021 passed by the Hon'ble National Company Law Tribunal in I.A. No. 2431 of 2020 filed in Company Petition No. 4258 of 2019 till the hearing and final disposal of the present Appeal.”

    16. It would be appropriate for the Adjudicating Authority to decide I.A. No. 449 of 2021 in Company Petition No. 4258 of 2019 filed by the Administrator under Section 30 read with Section 31 of IBC at the earliest and pendency of the present Appeal would not be an impediment for the Adjudicating Authority to decide the I.A. No. 449 of 2021.

    17. Caveat Petition No. 153 of 2021 is disposed.

    18. Respondents to file their Reply-Affidavits within two weeks and the Appellant may file Rejoinder in a week thereafter.

    19. List the Appeal ‘For Admission (After Notice)’ Hearing on 25th June, 2021.

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    Comments

    Union Bank Of India v. Kapil Wadhawan And Others
    (May 25, 2021)