Dewan Housing Finance Corp. Ltd (DHFL) became the first financial services firm to be taken to National Company Law Tribunal (NCLT) by RBI for insolvency proceedings.
The statutory investigation conducted by the National Housing Bank revealed that DHFL has debt as of July 2019, DHFL owed Rs. 83,873 crore to banks, the National Housing Board, mutual funds and bondholders/retail bondholders. Of this secured debt is Rs. 74,054 crore and Rs. 9,818 crore is unsecured, which is a serious deterioration of finance.
- RBI has filed an application for the initiation of corporate insolvency resolution process against DHFL and suspended the board of DHFL November 20.
- The process has been initiated under Section 227 of Insolvency and Bankruptcy Code (IBC), 2016 read with Rules 5 and 6 of Insolvency and Bankruptcy Rules, 2019.
- R. Subramaniakumar, the RBI-appointed administrator for DHFL, will take over lender’s affairs. Once his appointment is approved by National Company Law Tribunal (NCLT), the appointed administrator will perform the duties of a resolution professional and run the company with the help of three member advisory committee.
Powers Granted to RBI
DHFL is the first financial services firm to be sent to bankruptcy tribunal after the government notified the rules for referring financial services providers (FSPs) on 15 November 2019.
Therefore, Financial Services Providers (FSPs) creditor/debtor cannot approach tribunal- the firm has to be referred by a regulator.
Under new powers granted to RBI in Union budget, the central bank can take over the administration of privately-held financial services companies. Moreover, RBI can also remove auditors, call for an audit of any group company, and have a say on the compensation of top management of Non-Banking Financial Companies (NBFCs).
As per new FSP insolvency rules, an interim moratorium will start from the date of filing of application till its admission/ rejection.