Resolution process of DHFL debt
- Posted By
11th Jun, 2021
The Nation Company Law Tribunal (NCLT) has approved the Piramal Group's Rs 37,250 crore bid for debt-ridden Dewan Housing Finance Ltd (DHFL).
About the resolution
- Resolution arrangements: DHFL is among the largest mortgage lenders in the country.
- It was the first financial services company to be notified for insolvency resolution under Section 227 of the Insolvency and Bankruptcy Code by the Reserve Bank of India.
- The corporate insolvency resolution process under the Insolvency and Bankruptcy Code is not applicable to financial service providers or banks.
- The government had notified rules for the insolvency proceedings of financial service providers in November 2019 to enable the insolvency process of DHFL, which had defaulted on payment obligations.
What was the DHFL case?
- DHFL promoter raised issues about the suitability of the bid by the Piramal group which was dependent on the ability to merge DHFL with Piramal Capital and Housing Finance Ltd (PCHFL).
- In May, the Competition Commission of India approved the merger of DHFL with PCHFL. The matter was moved before the National Company Law Appellate Tribunal (NCLAT), by the promoter, which stayed the order allowing the resolution process for DHFL to continue.
- It was stayed on the basis of that any withdrawal of an insolvency process under Section 227 of the IBC would require the approval of the regulator which is the RBI in this case.
Insolvency and Bankruptcy Code, 2016 (IBC)
- The Insolvency and Bankruptcy Code, 2016(IBC) is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy.
- The bankruptcy code is a one stop solution for resolving insolvencies which previously was a long process that did not offer an economically viable arrangement.
- The code aims to protect the interests of small investors and make the process of doing business less cumbersome.
- The Code establishes the Insolvency and Bankruptcy Board of India, to oversee the insolvency proceedings in the country and regulate the entities registered under it.
- The Board will have 10 members, including representatives from the Ministries of Finance and Law, and the Reserve Bank of India.