corporate law

DHFL Insolvency Timeline: Key Events and Regaining Control Analysis

Introduction

Dewan Housing Finance Corporation Ltd (DHFL) is a prominent Housing Finance Company that primarily operates in Tier-II and III cities. Once the second-largest lender in this segment—after HDFC—with a loan portfolio exceeding ₹90,000 Crore, DHFL has encountered numerous challenges due to operational irregularities. This culminated in the Reserve Bank of India suspending its Board of Directors and initiating the Corporate Insolvency Resolution Process (CIRP).

This article provides a timeline of significant events related to DHFL, from the initial allegations to the approval of the Resolution Plan by the National Company Law Tribunal (NCLT) and the subsequent delisting of shares from stock exchanges. Additionally, we will analyze how former promoter Kapil Wadhawan attempted to regain control of the company by leveraging legal provisions.

Timeline of Major Events

2019 – Allegations and Initiation of Insolvency

  • January: Investigative media outlet Cobrapost alleges financial misappropriations by DHFL’s controlling shareholders, claiming funds were diverted through shell companies. DHFL refutes these allegations as ‘unfounded and malicious.’
  • February: CEO Harshil Mehta resigns; ICRA and CRISIL downgrade DHFL’s commercial papers.
  • June: DHFL defaults on multiple debt payments.
  • August: Bankers formulate a resolution plan, which DHFL proposes to implement via an inter-creditor agreement.

Inter-Creditor Agreement Explanation

The Inter-Creditor Agreement (ICA) mandates a resolution plan for recovery among banks with stressed dues from a borrower, to be executed within a specific timeline.

  • October: A forensic audit conducted by KPMG reveals that ₹20,000 Crore was siphoned off through shell companies. Notably, ₹14,000 Crore was loaned to 25 companies with minimal profits, and DHFL did not classify these as Non-Performing Assets (NPAs) even after a specified non-payment period.
  • November: The RBI suspends the Board and appoints an advisory committee, subsequently filing an application for a Corporate Insolvency Resolution Plan with the Insolvency and Bankruptcy Board of India (IBBI).
  • December: The Adjudicating Authority admits the application, marking DHFL as the first financial company to enter insolvency under the IBC.

2020 – The Resolution Phase

  • March: Expressions of interest are received from 23 Prospective Resolution Applicants, including the Piramal Group.
  • October: In the first round of bidding, four bidders—SC Lowry, Adani Group, Oaktree Capital, and Piramal Group—submit offers. Kapil Wadhawan presents a larger settlement offer in the second round.
  • November: Wadhawan reiterates his offer in the third round. SC Lowry withdraws, while Adani revises its bid.
  • December: In the fourth round, both Piramal Group and Oaktree Capital enhance their offers by 14-15%.

2021 – Acquisition Phase and Promoter Strategies

  • January: The Committee of Creditors approves Piramal Group's offer of ₹37,250 Crore for the acquisition, which includes upfront payments of ₹14,700 Crore along with a carve-out consideration of ₹3,000 Crore.
  • February: The Reserve Bank grants in-principle approval for the acquisition plan.
  • May: On May 19, the NCLT directs DHFL's administrator to evaluate Wadhawan’s ₹91,158 Crore offer, which includes an upfront payment of ₹9,062 Crore for small investors and non-convertible debenture holders. However, on May 25, the NCLAT stays this order following an appeal from lenders and the administrator.

Additional Developments in June

  • On June 2, Wadhawan approaches the Supreme Court against the NCLAT's stay. By June 7, the NCLT approves the Piramal Group’s offer, subject to further orders from the NCLAT and Supreme Court. A challenge by 63 Moons Technologies is subsequently dismissed, leading to DHFL's shares being delisted effective June 14 as per the resolution plan.

How Kapil Wadhawan Tried to Regain Control

Part I: NCLT's Ruling on May 19

The NCLT’s order emphasized that Section 29A of the IBC expressly bars Wadhawan from submitting a resolution plan. Moreover, Regulation 30A stipulates that any application for withdrawal under Section 12A must include a bank guarantee for the estimated resolution process. The tribunal stated that Wadhawan's proposal is not a formal application under Regulation 30A but rather a precursor to a possible Section 12A application, as he requested the Committee of Creditors (COC) to reconsider his second offer.

Wadhawan proposed ₹91,158 Crore, which significantly exceeds the next highest bid from the Piramal Group (₹37,250 Crore). He also committed to using ₹9,062 Crore in available cash to fully repay dues to non-convertible debenture holders, external commercial borrowing, and public deposits. Given that his offer did not violate any legal provisions, the NCLT mandated the COC to consider it.

Part II: NCLAT’s Order on May 25

NCLAT noted that Wadhawan's first offer was rejected during the COC meeting on December 26, following which a second offer that did not differ from the first was also rejected. As the resolution plan was approved in January 2021 and subsequently submitted to the Adjudicating Authority, the NCLAT pointed out that the tribunal had disregarded existing decisions. It reiterated that Regulation 30A requires justifications for any application under Section 12A after the issuance of expressions of interest, especially when the resolution plan process was already advanced.

Consequently, the NCLAT stayed the NCLT's May 19 order.

Conclusion

The actions of promoter Kapil Wadhawan have significantly contributed to DHFL's current circumstances. Allowing business owners to repurchase firms that have defaulted on obligations undermines the intent of insolvency laws, which aim to place failing enterprises in capable hands for revitalization. The Wadhawan case underscores apparent regulatory loopholes, prompting a review to preclude promoters from re-entering the business post-default. Following the acquisition by the Piramal Group, DHFL is prohibited from accepting deposits and will be reclassified as a non-deposit-taking housing finance company.