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MUMBAI : An appeals court on Tuesday stayed a bankruptcy tribunal order that directed lenders to Dewan Housing Finance Corp. Ltd to consider a proposal by Kapil Wadhawan, the former promoter of the insolvent mortgage lender.

This follows DHFL’s committee of creditors, led by the Union Bank of India, as well as the Reserve Bank of India-appointed administrator filing separate applications before the National Company Law Appellate Tribunal (NCLAT), challenging the order of the Mumbai bench of the National Company Law Tribunal (NCLT) that asked them to evaluate Wadhawan’s offer within 10 days.

NCLAT said the appeal should not delay a resolution process currently underway, where the Ajay Piramal-led Piramal Group has received approval to acquire DHFL. In its appeal, the RBI-appointed administrator has termed the NCLT’s order as “illegal and in breach of the settled provision of law". “The impugned order passed by the Hon’ble adjudicating authority has been passed without application of mind and without considering facts of the present case," the administrator said in its appeal.

On 19 May, NCLT directed the lenders to consider Wadhawan’s offer to fully settle DHFL’s dues worth 91,000 crore, including 43,000 crore in the initial few years, for its “consideration, decision, voting". The consortium of creditors, in its appeal, said the NCLT order was passed without any jurisdiction as there is no such provision in law or, more specifically, under the Insolvency and Bankruptcy Code (IBC). “Incorrectly failing to recognize any legal basis, either under Section 29A or Section 12A, which underlay the Second Proposal (Wadhwan’s offer), instead choosing to simply accept Respondent 1’s (Kapil Wadhawan) baseless statement that this was a “precursor" to a settlement proposal under Section 12A of the Code: a concept not recognized under any provision of law," the RBI administrator said in its appeal.

Section 29A bars promoters of a bankrupt firm from submitting a resolution plan, while Section 12A deals with withdrawing the firm from bankruptcy proceedings.

RBI had in November 2019 referred DHFL to NCLT for insolvency proceedings. The corporate affairs ministry is probing the Mumbai-based firm through the Serious Fraud Investigation Office. The Enforcement Directorate is also investigating the company in relation to loans given by it to certain borrowers.

“The impugned order has the effect of creating a disruption from the strict discipline of the timelines set out under the CIRP (corporate insolvency resolution process) and has the effect of compelling CoC to vote on a settlement proposal offered by Respondent 1, which the CoC in its commercial wisdom had chosen not to," according to the administrator’s appeal.

Lenders said the NCLT order may set a bad precedent, with more promoters moving the court to consider their offer.

“That if the impugned orders were allowed to operate, it would be extremely prejudicial as it creates a new process, which is contrary to the express provisions of the Code and, if allowed, the CIRP will be never ending where parties will be permitted to keep making offers without regard to sanctity of the process or timelines, including after CoC has exercised its commercial wisdom and approved a plan, which has been submitted by an eligible resolution applicant in compliance with the Code," DHFL’s lenders said in their appeal.

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