Category: Banking & Finance

Permitting Kapil Wadhawan, erstwhile promoter DHFL to present a settlement offer would enable him to benefit from his own wrong and could eventually lead to the liquidation of the company, the Reserve Bank of India has submitted to the National Company Law Tribunal (NCLT).

“…affording the Applicant even an opportunity of presenting a purported settlement offer may amount to permitting the Applicant to take benefit of its own wrong, which led to complete downfall of DHFL and resultantly, the various stakeholders,” the RBI said in its affidavit to the NCLT, noting that Wadhawan is in judicial custody with proceedings against him on allegations of cheating, fraud, siphoning of funds and such other serious offences.

It further said that since the resolution process is at an advanced stage, any interim relief would derail the process and force DHFL into liquidation, adding that the application against it should be dismissed.

The NCLT has asked DHFL’s committee of creditors to consider the offer made by Wadhawan within the next 10 days.

Settlement application

A copy of the ruling, reviewed by BusinessLine, revealed that the Committee of Creditors (CoC) to DHFL in its affidavit contended that any settlement application must first be acceptable to the original applicant, in this case the RBI, which should then be willing to withdraw the corporate insolvency resolution process (CIRP) initiated by it.

“It is only after this that this withdrawal application by the Original Applicant along with settlement proposal (by the promoter, shareholder) can be placed before the CoC for their approval as well,” the CoC had submitted.

However, the NCLT bench comprising of judicial member HP Chaturvedi and technical member Ravikumar Duraisamy in its order noted that Wadhawan’s settlement proposal is substantially higher at over one-and-a-half times of the value of the highest bidder, the same needs due consideration by the Administrator and the CoC.

“It appears that with the settlement proposal thousands of the small investors, fixed deposit holders would be paid fully thereby thousands of small investors would get 100 per cent of their principal sum outstanding,” the NCLT held.

It also said that Wadhawan has submitted an offer for settlement akin to One Time Settlement (OTS) and there is no express legal bar under the provision of IBC to a promoter for making a proposal for settlement.

In his second settlement offer, Wadhawan had offered ₹91,158 crore, which is over ₹50,000 crore more than the ₹34,250 crore being offered by Piramal Enterprises.

The Reserve Bank of India’s Central Board on Friday approved the transfer of ₹99,122 crore as surplus to the Central government for the accounting period of nine months ended March 31, 2021 (July 2020-March 2021). This is 73.50 per cent higher vis-a-vis the ₹57,128 crore transfer approved in the accounting year 2019-20.

This transfer of higher surplus comes in the backdrop of the government stepping up spending for healthcare and social sector schemes in the wake of the Covid-19 pandemic. This will boost its capacity to spend.

“In our projections, we had factored in a dividend of ₹65,000 crore from the RBI, while the government’s budget estimates included ₹45,000 crore from the Central bank. A larger-than-expected dividend from the RBI provides the fiscally stretched government with room to provide more relief measures to alleviate the impact of the second Covid-19 wave,” said Rahul Bajoria, Chief India Economist, Barclays Securities (India) Pvt Ltd, and Shreya Sodhani, Research Analyst, Barclays Investment Bank, Singapore.

They observed that the upside surprise could have been driven by increased returns from domestic assets and changes in accounting practices by the Central bank – the RBI recently allowed itself to book profits on its foreign exchange transactions from a weighted average cost perspective.

“Our estimates show that this move could have helped the Central bank boost yields on its foreign asset holdings. Further, increased holdings of domestic government securities likely further amplified the Central bank’s income for the year,” Bajoria and Sodhani said.

Risk buffer

The Board, at its 589th meeting on Friday, decided to maintain the Contingency Risk Buffer at 5.50 per cent.

“The Board reviewed the current economic situation, global and domestic challenges and recent policy measures taken by the Reserve Bank to mitigate the adverse impact of the second wave of Covid-19 on the economy,” RBI said in a statement.

With the change in the Reserve Bank’s accounting year to April-March (earlier July-June), the Board discussed the working of the RBI during the transition period of nine months (July 2020-March 2021) and approved the Annual Report and accounts of the Reserve Bank for the transition period.