Season two of the legal tussle over DHFL is likely, to begin with banks pursuing insolvency proceedings against personal guarantees given by the Wadhawan brothers — Kapil and Dheeraj — the promoters of the debt-saddled non-bank mortgage lender.
Banks, sources said, have examined the possibility of moving the National Company Law Tribunal (NCLT) with the Supreme Court last month paving the way for financial creditors to go after personal assets of promoters and directors who stood as guarantors once the borrowing company is taken to bankruptcy court or faces liquidation.
The Mumbai bench of NCLT this week allowed the plea filed by DHFL’s administrator to approve the Piramal Group’s resolution plan for the company. “After the supreme court judgement, the approval of the resolution plan will not absolve the personal guarantors of their liability under the guarantee documents. Therefore, after the invocation of personal guarantee, proceedings can be initiated. Further, the proceedings against the company and the personal guarantors are independent and can continue simultaneously,” said Ashish Pyasi, Associate Partner at the law firm Dhir & Dhir Associates.
While lenders in India, unlike their peers in advanced countries, have often sought personal guarantees from promoters due to the owner-managed nature of several corporate borrowers, banks have rarely succeeded in salvaging sticky loans by invoking personal guarantees. Guarantee invocation, often a long-drawn legal process, has increased since 2014 after banks were directed by the then RBI governor Raghuram Rajan to clean up their loan books through accelerated provisioning.
“To the extent that debt has been secured by personal guarantees of the promoters, banks can attempt to recover the balance amounts through such guarantees. However, promoters often move assets around in order to ring-fence them from such proceedings,” said Sudip Mahapatra, partner at law firm S&R Associates. “If that’s the case, lenders may not be able to recover significant amounts from the promoters under the guarantees,” he said.
A week ago, Kapil Wadhawan moved the SC to challenge the stay order passed by National Company Law Appellate Tribunal (NCLAT) on his settlement offer to DHFL’s lenders. On May 25, NCLAT had stayed the NCLT’s May 19 order directing banks to examine the offer given by the DHFL promoter.
“If insolvency proceedings are initiated against the promoters, then that will have an impact on the chances of settlement offered by them for the borrower company,” said Pyasi. Some of the promoters who offer to settle would oppose lenders decision to invoke guarantees while refusing to consider their one-time settlement offer.
Guarantees Don’t Help NCD holders
Some of the non-bank financial creditors are unhappy that they may not gain from proceeds of any future recovery through legal action against personal guarantors. Meanwhile, in an application before the NCLT Mumbai bench, Jyoti Khemka, an investor in non-convertible debenture (NCD) issued by DHFL, said, “.. the debts advanced by the banks to the Corporate-Debtor were secured by the personal guarantees of the Promoters to the tune of Rs79,344. crore. Complete exclusion of the Promoters’ personal guarantees from the present resolution exercise is detrimental to the interests of the small FD/NCD holders.”
