J_2021_SCC_OnLine_NCLT_6015_20bbl094_nirmauniacin_20240705_123635_1_26

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2021 SCC OnLine NCLT 6015
†
In the National Company Law Tribunal
(BEFORE H.P. CHATURVEDI, MEMBER (JUDICIAL) AND RAVI KUMAR DURAISAMY, MEMBER
(TECHNICAL))
TDH Realty LLP … Applicant;

Versus
DHFL Investments Limited and Others … Respondent No. 1.
between
Reserve Bank of India … Financial Sector Regulator;
Versus
Dewan Housing Finance Corporation Limited … Corporate Debtor.
‡
IA 2168 of 2020 in CP (IB) 4258/MB/C-II/2019
Decided on March 26, 2021
Advocates who appeared in this case :
For the Applicant: Mr. Monish Panda, Advocate a/w Mr. Kshitiz Arya, Mr. Harsh
Kesharia, Mr. Dipen Furia, Advocates i/b Shah and Furia Associates.
For the Respondent No. 1: Mr. Ravi Kadam, Ld. Senior Counsel a/w Mr. Ranjit
Shetty, Ms. Priyanka Shetty, Ms. Avina Karnad, Advocates.
For the Respondent No. 2: Mr. Gaurav Joshi, Ld. Senior Counsel a/w Mr. Rohan
Rajadhyaksha, Advocate.
For the Respondent No. 3: Mr. Ashish Kamat, Counsel a/w Mr. Animesh Bisht, Ms.
Richa Roy, Ms. Saloni Kapadia and Ms. Pragya Dahiya, Advocates i/b Cyril Amarchand
Managaldas.
For the Respondent No. 4: Mr. JP Sen, Ld. Senior Counsel a/w Mr. Rohan Dakshini,
Mr. Vishesh Malviya, Ms. Nikita Mishra and Ms. Pooja Vasandani, Advocates i/b
Rashmikant and Partners.
For the Respondent No. 5: None
For the Respondent No. 6: Mr. Sanjay Bajaj, Advocate a/w Mr. Rajat Prakash, Mr.
Samarth Bajaj Advocates.
For the Respondent No. 7 & 8: Mr. Rohit Gandhi, Counsel a/w Mr. Kaustubh Gupte,
Advocate.
The Order of the Court was delivered by
RAVI KUMAR DURAISAMY, MEMBER (TECHNICAL):— This is an Application filed under
Section 60(5)(B) and (C) of the Insolvency and Bankruptcy Code, 2016 (hereinafter
referred to as “IB Code”) Read with Rule 11 of the NCLT Rules, 2016 for challenging
the action of the Administrator and Committee of Creditors (CoC) and of the Corporate
Debtor (CD) approving the proposal to sell 50% stake of DHFL Investments Limited,
which is wholly owned subsidiary of the Corporate Debtor in DHFL Pramerica Life
Insurance Company Limited.
Submissions Made by Applicant by way of Interlocutory Application:
2. The Applicant is a Non-Convertible Debenture holder (NCDs) of Wadhawan Global
Capital Limited (R4) and has a security interest in Compulsory Convertible Debentures
(CCDs) pledged by Wadhawan Global Capital Limited.
3. The CCDs were issued to Wadhawan Global Capital Limited by DHFL Investment
Limited (R1) to finance its acquisition of 50% stake in DHFL Pramerica Life Insurance
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Company Limited (R5) the only asset of DHFL Investment Limited and it has no other
assets which would be equal to the value of redeeming of the NCDs held by the
Applicant.
4. The CCDs held by Wadhawan Global Capital Limited will only be
marketable/saleable if DHFL Investment Limited continues to hold its stake in DHFL
Pramerica Life Insurance Company Limited. The proposed action by Administrator of
the Corporate Debtor and DHFL Investment Limited in attempting to liquidate/sell
their 50% stake in DHFL Pramerica Life Insurance Company Limited would render
value of DHFL Investment Limited shares at Nil. This will have direct adverse impact
on the value of CCDs held by Wadhawan Global Capital Limited because such CCDs
after the divorcement of 50% shares by DHFL Investment Limited in DHFL Pramerica
Life Insurance Company Limited will render them worthless and unmarketable. As
such the only pledge or security that the Applicant has for redeeming its NCDs will
also become worthless/redundant.
5. The Corporate Debtor has refused to adhere to its obligations under the deed and
pledge Agreement to purchase the CCDs held by WGC on the ground of moratorium
being applicable in view of CIRP of the Corporate Debtor. The only avenue available to
the Applicant for redeeming its NCDs will be by seeking to sell the pledge CCDs held
by Wadhawan Global Capital Limited in an open market.
6. However, the action of the administrator in attempting to alienate the only
valuable consideration in DHFL Investment Limited would render the attempt to sell
the CCDs redundant. The action of the administrator and the CoC in attempting to sell
the stake of DHFL Investment Limited in DHFL Pramerica Life Insurance Company
Limited is also bad in law and illegal for the reason that the entire value of 50% shares
held by DHFL Investment Limited in DHFL Pramerica Life Insurance Company Limited
already stands realized by the Corporate Debtor in March, 2017 itself, which amount
was directly received by them only because of the NCDs subscribed by the original
NCD holders. Therefore, the attempt of the administrator and the CoC to defeat the
rights of the NCD holders in order to unjustly enrich themselves by again selling the
same security for which they have already received consideration is bad in law, illegal
and unethical.
7. The Shareholding of DHFL Investment Limited in DHFL Pramerica Life Insurance
Company Limited can not be legally diluted as the CCDs issued by DHFL Investment
Limited are pledged in favour of the Applicant. The Applicant will be gravely prejudiced
if the illegal sale of 50% stake of DHFL Investment Limited in DHFL Pramerica Life
Insurance Company Limited takes place as CCDs issued by DHFL Investment Limited
are pledged in favour of the Applicant and it is ultimate beneficiary of the CCDs issued
by DHFL Investment Limited which has 50% stake in DHFL Pramerica Life Insurance
Company Limited. The CCDs issued by DHFL Investment Limited have to be
mandatorily converted into equity shares after 110 months from the date of issuance
of CCDs. As such upon conversion of CCDs into equity shares the shareholding of DHFL
Investment Limited would be as following:
a) The holder of CCDs - 99.74%
b) DHFL and its 6 other nominees - 00.26%
8. The proceeds from the sale of CCDs will help in redemption of the NCDs of the
Applicant and the buyer of the CCDs will ultimately become a shareholder of DHFL
Investment Limited which has 50% stake in DHFL Pramerica Life Insurance Company
Limited takes place then the CCDs shall become worthless and unmarketable and
Applicant will not be able to redeem its NCDs.
9. A prospective purchaser of the CCDs would be interested in purchasing the CCDs
of DHFL Investment Limited as DHFL Investment Limited has 50% stake in the DHFL
Pramerica Life Insurance Company Limited which is leading life insurance company
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and purchasing CCDs would be beneficial as the buyer would become stakeholder in
DHFL Pramerica Life Insurance Company Limited through its shareholding in DHFL
Investment Limited. However, if the sale of DHFL Investment Limited's stake in DHFL
Pramerica Life Insurance Company Limited takes place before the pledged CCDs can
be disposed of in the open market by the Trustee then the CCDs issued by DHFL
Investment Limited will become worthless and the Applicant will not be able to
redeem its NCDs.
10. In response, a statement was made by DHFL Investment Ltd. (DIL) to the
effect that sale in terms of the notice dated 06.10.2020 will, for now, not take place
and the process has been concluded. That this Hon'ble Tribunal thereafter listed the
matter on 26.02.2021 on which date orders were reserved by this Hon'ble Tribunal on
the issue of maintainability of the present application and this Hon'ble Tribunal gave
liberty to file written submissions. In pursuance thereto, a limited written submission
is being filed on behalf of the applicant. The applicant reserves its right to file a
detailed submission after the decision on the issue of maintainability is rendered by
this Hon'ble Tribunal.
11. However, the underlying transactions leading to the present matter is being
detailed hereinunder:
a) DHFL has sometime in 2013 acquired 50% stake in DPLI for a sum of Rs. 32
Crores. DHFL subsequently sought to divest its 50% equity stake in DHFL
Pramerica Life Insurance Company (hereinafter DPLI), and accordingly, entered
into a Share Purchase Agreement (“SPA”) dated 21.02.2017 with DHFL
Investment Ltd. (hereinafter DIL) to purchase the Corporate Debtor's 50% stake
in DPLI for INR 2000.50 Crores (Annexure-B, Page 46 to 64 of the
Application).
b) DIL in order to raise money to purchase 50% stake of DHFL in DPLI, issued CCDs
which were subscribed to by WGC by way of Debenture Subscription Agreement
dated 30.03.2017 (Annexure C, Page 65 to 90, of the Application). The CCDs
were to be compulsorily converted into equity after 110 months from the date of
subscribing to CCDs (Clause 6, Page No. 84 of the Application). These CCDs,
upon maturity would each convert into 1 equity share of DIL (Clause 4, Page
No. 82).
c) Clause 5.6 of the Debenture Subscription Agreement, (Page - 83 of the
Application) contains a categorical clause on impairment which bars any act of
DIL which could diminish the value of the CCDs and defeat its conversion rights
guaranteed under the CCDs.
I. The aforementioned clause protects the conversion rights of the CCD investors
from impairment of the value of the same.
II. The abovementioned clause means that DHFL directly or through DIL cannot
take any action which will diminish or damage the CCDs or the underlying
rights thereto. In other words, DHFL/DIL cannot do anything which will impair,
restrict or prohibit the conversion rights of CCDs into equity.
III. The aforementioned parties cannot voluntarily do anything which results in
depletion of the value of the assets of the company which includes the
investment of DIL or DPLI.
IV. By virtue of clause 5.6 above, there's a restriction on the change in
ownership of DIL in favour of the third party without the express consent of
WGC.
d) These CCDs issued by DIL were subscribed by WGC. WGC, in order to subscribe
to the CCDs issued NCDs to two Mutual Funds companies and an NBFC, and R-6
(IDBI Trusteeship Services) was appointed as the security trustee for the NCDs
subscribed by these NBFC/mutual fund companies and issued by WGC. For this
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purpose, a trusteeship deed with IDBI dated 30.03.2017 was entered into (Page
91 to 193 of the Application).
e) The monies so realized by way of issuance of CCDs by DIL and NCDs by WGC
(and paid for by the three mutual fund companies/NBFC) were utilized by DIL for
purchasing 50% stake in DPLI held by DHFL. Therefore, the flow of money is
clear and evident and the money raised by DIL to purchase DPLI's 50% stake
held by DHFL was, in essence, paid for by the mutual fund companies/NBFC. This
is clearly evident from the annual reports of FY 2016-2017 of DHFL which clearly
shows that it has already realized its money for sale of its stake to DIL. The
aforesaid report clearly and categorically states that DHFL sold the entire equity
stake held in DPLI for Rs. 2000.50 Crores and “earned a profit of Rs. 1,969.43
crores on the DPLI stake sale.” (Page 83 of Rejoinder to reply filed by
DHFL). The aforementioned annual report was annexed as Annexure-A to the
rejoinder to DHFL's reply filed by the Applicant (Page 20 to 288). The entire
transaction has been clearly stated and expressed in the annual report of the
DHFL for the FY 2016-2017 (page 161 of the rejoinder to reply filed by
DHFL). Also, it is clearly evident from the cash flow statement of DHFL for the
year ended March 31, 2017, that an amount of Rs. 2000.50 crore is mentioned
as cash flowed from the sale of investment in Joint venture (page 184 of the
rejoinder to reply filed by DHFL), which amount is indirectly reflected in the
cash and cash equivalents' head of the balance sheet of FY 2016-2017 (Refer
Note 18 of the balance sheet of DHFL on page 215 of the rejoinder to
reply filed by DHFL).
f) Further, in order to secure the underlying interest of the NCD subscribers, WGC
and IDBI security trustee also entered into a pledge agreement dated
30.03.2017 (Page 194 to 231 of the Application) under which the CCDs
subscribed to by WGC were pledged as security in favour of NCD holders i.e. the
referred mutual fund companies.
g) Further, an Option Agreement dated March 30, 2017 was entered into between
WGC and the DHFL/Corporate Debtor (Page 237 to 249 of the Application).
Clause 4 of the Option Agreement (Page 244 of the Application) provides that
on the occurrence of certain events of default (including payment defaults) under
the Debenture Trust Deed, WGC shall have the right to require the Corporate
Debtor and the Corporate Debtor shall have the absolute obligation to purchase
the CCDs at thee specified price that would ensure that WGC receives an
extended internal rate of return (“XIRR”) of 9.95% as per a prescribed formula,
regardless of the market value of the CCDs/shares.
h) The mutual fund companies/NBFC which were the original holders of NCD
subsequently liquidated them in the open market and these NCDs were inter
alia purchased by West End (R-7) and Advent (R-8). DHFL had also advanced
certain loans by way of ICDs in favour of West End and Advent between October,
2018 to March, 2019. On 30.10.2019 West End and Advent transferred NCDs of
WGC to the Applicant by way of purchase agreements and deeds of accession.
The purchase agreements and thee deeds of accession were annexed as
Annexure - H and Annexure-I to the Application (Pages 250 to 298 of the
Application). Thus, the applicant purchased the NCDs (issued by R-4 i.e. WGC)
from West End and Advent and in consideration thereof took over the repayment
obligations in respect of the ICDs advanced by DHFL in favour of R7 and R8. The
applicant became entitled to all rights under the NCDs and in consideration
thereof, took over the repayment liability from the contracting parties i.e. West
End and Advent.
i) Further, the fact that the applicant is an NCD holder is duly recorded in the
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documents of the debenture trustee (Page 339 of the Application) and neither
West End/Advent from whom NCDs have been purchased, nor the debenture
trustee have disputed the fact that the present applicant is the holder of NCDs.
No other party can be permitted to dispute the claim of the present applicant as
an NCD Holder.
12. The Applicant purchased the NCDs from West End and Advent for consideration
is the present holder of NCDs issued by WGC which are secured by way of pledge
created on CCDs issued by DIL and held by WGC. To ensure that the NCDs are
redeemed when they get matured or in the event of a default, to protect the interest
of NCD holders, WGC pledged the CCDs which it had subscribed to in favour of the
NCD holders. It is reiterated that on the occurrence of certain events of default
(including payment defaults) under the Debenture Trust Deed, WGC shall have the
right to require the Corporate Debtor and the Corporate Debtor shall have the absolute
obligation to purchase the CCDs at a specified price.
13. On 03.12.2019, the CIRP of DHFL was initiated and moratorium under Section
14 of the IBC commenced. This constituted an event of default in terms of clause
15.1(ee) of the Debenture Trust Deed (Page 147 of the Application).
14. In such light, WGC in terms of the Trusteeship Deed and Letter Agreement
issued a Put Option 1 Notice to DHFL on 18.12.2019 calling upon DHFL to purchase
CCDs at the Put Option 1 price (Pages 299 to 301 to the Application). However, in
gross violation of the contractual terms, the administrator of DHFL informed WGC that
Corporate Insolvency Resolution Process (“CIRP”) of DHFL has commenced and a
moratorium has been imposed, therefore, if WGC has any claim against DHFL it may
file the same, which shall be considered in accordance with law (Pages 302 and 303
of the application).
th
15. DIL on 6 October, 2020 (Page 345 of the Application) issued a notice dated
th
6 September, 2020 inviting EOI for sale of its stake in DPLI in the Economic Times
which cannot be allowed to be proceeded with, lest grave and irreparable loss would
be caused to the Applicant/deponent in his rights as a holder of NCDs issued by WGC.
The only valuable asset held by DIL is the 50% stake in DPLI which if alienated will
render the NCDs held by the applicant completely worthless as the said NCDs have
been secured by way of pledge created on CCDs issued by DIL and subscribed by
WGC. Therefore, the applicant is the ultimate beneficiary of the CCDs issued by DIL,
whose value shall be rendered worthless if the only assets held by DIL are allowed to
be sold.
16. The present matter was heard for the first time on 16.12.2020 and thereafter
on 04.01.2021 on which date the matter was part heard and listed on 11.01.2021.
That the Hon'ble Tribunal being prima facie satisfied with the merits of the Applicant's
case passed an interim order dated 11.01.2021 with the direction to not to sell the
subject shares of CD held in R-1/R-5 till further orders. Thereafter, the matter was
taken up again on 19.01.2021 when this Tribunal heard arguments at length and
listed the matter on 22.02.2021. This Hon'ble Tribunal heard the matter at length
again on 22.02.2021. On 24.02.2021, this Hon'ble Tribunal directed the applicant to
bring on record the balance sheets of the applicant which was duly complied with by
way of additional affidavit. That on 24.02.2021 the Applicant concluded its
submissions.
Submissions Made by DHFL Investment Limited i.e. Respondent No. 1 by way
of Affidavit in Reply:
17. The Respondent No. 1 is a wholly owned subsidiary of Respondent No. 2 i.e.
Dewan Housing Finance Corporation (“DHFL”).
18. On November 20, 2019 the Reserve Bank of India (“RBI”) superseded the
(erstwhile) Board of Directors of Respondent No. 2 in exercise of powers provided
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under Section 45-IE(2) of the Reserve Bank of India Act, 1934 and appointed Mr. R.
Subramaniakumar as the Administrator of the Respondent No. 2/Corporate Director.
Pursuant thereto, RBI having filed a petition before this Hon'ble Tribunal and an order
dated December 3, 2019 came to be passed admitting the insolvency petition. As
such, Respondent No. 2 is undergoing Corporate Insolvency Resolution Process
(“CIRP”) before this Hon'ble Tribunal under the provisions of the Insolvency and
Bankruptcy Code, 2016 (“IBC”). This Hon'ble Tribunal also confirmed the
Administrator's appointment to perform all the functions of the Resolution Professional
and complete the CIRP of Respondent No. 2.
19. The Respondent No. 1 is admittedly neither undergoing any CIRP nor is under
liquidation.
20. It is also an admitted fact that the Applicant is neither a promoter/a
shareholder or a creditor of Respondent No. 1 nor is the Applicant connected and/or
associated with Respondent No. 1 in any manner whatsoever. Neither does
Respondent No. 1 have any privity of contract against the Applicant.
21. In the year 2017, the Respondent No. 1 intended to purchase Respondent No.
2's 50% (Fifty percent) stake in Respondent No. 5 i.e. DHFL Pramerica Life Insurance
Company. The amount required for this purchase was Rs. 2000.50 Crores.
22. To raise the amount, the Respondent No. 1 issued 190,10,00,000 (One
Hundred and Ninety Crores and Ten Lakhs) non-redeemable, non-participating,
mandatorily and Compulsorily Convertible Debenture (“CCDs”) which were fully
subscribed by Respondent No. 4 i.e. Wadhwan Global Capital Limited (“WGC”). The
CCDs were subscribed pursuant to the Debenture Subscription Agreement dated March
30, 2017 executed between the Respondent No. 1 and Respondent No. 4/WGC
(“Debenture Subscription Agreement”). As per this Debenture Subscription
Agreements, CCDs were convertible into equal number of equity shares of Respondent
No. 1 after the expiry of 100 months from the date on which the CCDs were issued
and mandatorily to be converted after the expiry of 110 months.
23. The Applicant is admittedly not a party to this Debenture Subscription
Agreement.
24. It appears in the Application that the Respondent No. 4, to finance the
subscription of the said CCDs, had in turn issued 19,000 (Nineteen Thousand) Non-
Convertible Debentures (“NCDs”) in two tranches of 9500 each, to three mutual funds
i.e. Franklin Templeton Mutual Fund, Aditya Birla Finance Limited and Birla Sunlife
Mutual Fund (“collectively referred to as ‘3 Mutual Funds/Debentures Holders”),
through Respondent No. 6, i.e. IDBI Trusteeship Services Limited acting as the trustee
(“Debenture Trustee”). The NCDs seem to have been subscribed pursuant to a
Debenture Trust Deed dated March 30, 2017 executed between Respondent No. 4 and
the Debenture Trustee for an amount of Rs. 1900,00,000,00/- (Rupees One Thousand
Nine Hundred Crores only) (“Trust Deed”).
25. The Respondent No. 1 is neither privy to the said transaction, nor is in any
manner connected or concerned with the said transaction.
26. These NCDs seem to have been secured by way of a pledge created by
Respondent No. 4/WGC in favour of the Debenture Trustee of the 3 Mutual Funds over
the CCDs issued by Respondent No. 1 to Respondent No. 4/WGC. It appears that the
pledge was created by way of an agreement dated March 30, 2017 executed between
Respondent No. 4 and the Debenture Trustee (“Pledge Agreement”).
27. Once again, the Respondent No. 1 is neither privy to the said transaction, nor is
in any manner connected or concerned with the said transaction.
28. The Applicant claims that the NCD's issued by Respondent No. 4/WGC and
subscribed by the 3 Mutual Funds through their Debenture Trustee, were sold in the
open market, and “a majority” of the said NCDs were purchased by one West End
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Investment and Finance Consultancy Private Ltd. (“West End”) and one Advent
Buildwel Private Limited (“Advent”) i.e. Respondent Nos. 7&8 respectively.
29. The Applicant does not mention how many of the NCDs were purportedly
purchased by Respondent Nos. 7 & 8.
30. The Applicant claims to be a subsequent purchaser of 10,605 NCDs from
Respondent Nos. 7 & 8.
31. However, the documents produced by the Applicant in support its (purported)
claim of having acquired the NCDs issued by Respondent No. 4/WGC, does not reflect
the same. From the (purported) agreements dated October 30, 2019 (“Purchase
Agreements 1&2”) allegedly executed between the Applicant and West
End/Respondent No. 7 produced by the Applicant may have acquired certain NCDs
issued by (i) Respondent No. 4 aggregating to Rs. 1393,50,00,000/- (Rupees One
Thousand Three Hundred Ninety-Three Crores and Fifty Lakhs only) and (ii)
Respondent No. 2 aggregating to Rs. 70,55,00,000/- (Rupees Seventy Crores and Fifty
-Five Lakhs only), by way of Purchase Agreements 1&2 respectively, in consideration
of the Applicant taking over certain repayment obligations in relation to inter-corporate
deposits issued by it to Respondent No. 2. However, it is not clear as to on what basis
does the Applicant claim to have acquired the NCDs from Respondent No. 7 which
were issued by Respondent No. 4/WGC to the 3 Mutual Funds.
32. The Applicant also claims to have purchased NCDs from Respondent No. 8 for
an amount of Rs. 99,25,00,000/- (Rupees Ninety-Nine Crores and Twenty-Five Lakhs
only) issued by Respondent No. 4 vide an Agreement dated October 30, 2019
(“Purchase Agreement 3”) (at Page 271 of the Application) executed between the
Applicant and Respondent No. 8.
33. The Applicant has also annexed two other purchase agreements and certain
deeds of accession executed between the Applicant and the Respondent Nos. 7 & 8
with respect to certain intercompany deposits. These also do not seem to be connected
to the NCDs issued by Respondent No. 4. Notwithstanding this, it is the Applicant's
case that the Applicant claims to have invested an amount of Rs. 1060,50,00,000/-
(Rupees One Thousand Sixty Crores and Fifty Lakhs Only) (which does not tally with
the amounts in the Purchase Agreements). The Applicant is put to strict proof thereof.
34. The Respondent No. 1 is not privy to these Purchase Agreements executed
between the Applicant and the Respondent Nos. 7 & 8.
35. Nevertheless, on the basis of these (purported) Purchase Agreements, the
Applicant is (purportedly) claiming as a “pledgee” of the CCDs issued by Respondent
No. 1 in favour of Respondent No. 4, which pledge was created by Respondent No. 4 in
favour of Debenture Trustee of 3 Mutual Funds, under the Trust Deed and the Pledge
Agreement.
36. However, no documents have been produced by the Applicant which indicates
that the security created by Respondent No. 4 in favour of the Debenture Trustee of
the 3 Mutual Funds came to be assigned to the Applicant. The Applicant has not
produced any document to show that the rights under the Pledge Agreement came to
be assigned to the Applicant.
37. The entire case of the Applicant is based on its claim to have become a pledgee
of CCDs held by Respondent No. 4/WGC in Respondent No. 1.
38. Based on this assumption, the Applicant is seeking reliefs against the
Respondent No. 1 with regard to its internal management despite having no relation or
privity whatsoever with the Respondent No. 1.
39. The Applicant has failed to show as to how the Applicant can claim to be a
pledgee with regards to the said CCDs, to claim any rights whatsoever with regards to
Respondent No. 1.
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40. Strictly without prejudice, assuming whilst denying the facts stated by
Applicant to be correct, at the highest, Applicant would be an unsecured creditor of
Respondent No. 4/WGC. Applicant has no relation to or any privity with the
Respondent No. 1.
41. The Applicant is now attempting, in an ingenious manner, to come across as a
second creditor of Respondent No. 1 which even Respondent No. 4/WGC never was
when it subscribed to the CCDs of Respondent No. 1.
42. The Applicant is now attempting, in an ingenious manner, to come across as a
secured creditor of Respondent No. 1 which even Respondent No. 4/WGC never was
when it subscribed to the CCDs of Respondent No. 1.
43. Assuming whilst denying in future upon invocation of the alleged pledge, the
Applicant becomes a holder of the CCDs, even then the Applicant, would not have a
better right, title and interest than Respondent No. 4/WGC.
44. Pertinently, even Respondent No. 4/WGC, has till date did not raise any
claims/contentions that Respondent No. 1 cannot sell its stake in Respondent No. 5.
45. There is no contractual right to make such submissions by Respondent No.
4/WGC and much less the Applicant.
46. The entire case of the Applicant is hereby expressly denied. Further, strictly
without prejudice, even assuming whilst denying the case of the Applicant to be
factually accurate, still the Application is completely misconceived and bad in law and
is liable to be dismissed at the threshold.
47. Currently, the board of directors of Respondent No. 1 have decided to sell
Respondent No. 1's 50% (Fifty percent) equity stake in Respondent No. 5. Respondent
No. 5 is essentially a joint venture between Respondent No. 1 and one Prudential
Financial Inc (Prudential) USA (“Prudential). The Respondent No. 5 operates as a life
insurance policy.
48. The Board of Directors of Respondent No. 1 comprises of Mr. Pradeep
Bhadauria, Mr. Satya Narayan Baheti, and Mr. Sunil Kumar Bansal. The entire
shareholding of Respondent No. 1 is held by Respondent No. 2/Corporate Debtor. The
duly constituted Board of Directors in its commercial wisdom, have decided to sell
Respondent No. 1's 50% (Fifty percent) stake in Respondent No. 5, and the Applicant,
who is neither a shareholder/promoter and/or creditor of the Respondent No. 1, and
who has no locus in any manner whatsoever is attempting to obstruct/create such a
hindrance or restrict the powers of the board of Directors of the Respondent No. 1.
49. Further, there is a lack of contractual privity between Respondent No. 1 and the
Applicant. The Applicant does not hold any contractual right to restrain Respondent
No. 1 from selling off in 50% (Fifty percent) stake in Respondent No. 5.
50. Assuming (without admitting) that the issues raised by the Applicant can form
the subject matter of proceedings before this Hon'ble Tribunal, the entire case of the
Applicant is based on speculation that if the Respondent No. 1 sells its 50% stake in
Respondent No. 5, the CCDs would be rendered unmarketable, which in turn would
render the Applicant incapacitated to redeem the NCDs.
51. The Applicant apprehends that a prospective buyer would not be interested in
purchasing the CCDs if Respondent No. 1 sells its stake in Respondent No. 5.
52. The (purported) claim and the reliefs sought by the Applicant against
Respondent No. 1, has nothing to do whatsoever with the ongoing CIRP of Respondent
No. 2.
53. Any claim that the Applicant may have with regards to its alleged rights as the
(purported) pledgee of the CCDs and as a NCD holder, would have to be a subject
matter of civil proceedings. The Application cannot fall within the ambit of the IBC.
54. The Applicant has filed the present Application against Respondent No. 1, under
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section 60(5)(b) & (c) of IBC, despite the fact that the Applicant has absolutely “no
claims” against the Respondent No. 1 (which is a requirement to file an application
under Section 60(5)(b) & (c), as there has never been any contractual relationship
and/or any privity of contract between the Applicant and the Respondent No. 1.
55. The said pledged CCDs have till date not been sold and the Respondent No.
4/WGC continues to be the owner of the said CCDs. If at all the Applicant has any
claim, the same would be against Respondent No. 4. The Applicant could possibly sell
the pledged CCDs, and for the unrealized monies (if any), the Applicant may continue
to remain a creditor of Respondent No. 4/WGC. This has no bearing to Respondent No.
1, whatsoever.
56. Either ways, the speculative apprehensions of the Applicant are misplaced
because even in the event of the sale of Respondent No. 1's 50% stake in Respondent
No. 5, the Respondent No. 1 will receive the valuable consideration for the same, and
it would not render its value nil nor worthless as wrongly contended by the Applicant.
57. Moreover, this Tribunal does not possess the jurisdiction to hear and entertain
the present Application, and the present Application ought to be dismissed so that the
Applicant may approach the appropriate forum for seeking relief.
Submissions Made by Dewan Housing Finance Corporation Limited (DHFL) i.e.
Respondent No. 2 by way of Affidavit in Reply:
58. The Applicant seeks relief on the basis that if Respondent 1's stake in DPLI is
sold, the CCDs will cease to remain marketable as the only asset that DIL will have
been sold.
59. This argument cannot be maintained, least of all by the Applicant. Any rights
and obligations arising out of the CCDs are a matter between the issuer of the CCDs
(i.e. Respondent No. 1) and the holder of the CCDs (i.e. Respondent No. 4). Merely by
virtue of having been granted a security interest in the CCDs, the Applicant does not
obtain any rights under the CCDs themselves let alone the right to prevent the issuer
of these CCDs in selling its equity stake in a joint venture. It must also be noted that
the CCDs themselves convert only 110 months from issuance.
60. The Applicant has no privity of contract either with WGC as the CCD-holder, or
DIL as the CCD - issuer. In fact, it may be added, WGC itself has not raised any
allegations thus far that DIL ought not to be permitted to sell its stake in DPLI.
61. The Corporate Debtor is not party to the CCDs. However, from a review of the
documents, it is clear that the CCDs themselves do not impose any obligation on DIL
that would prevent it from selling its shares in DPLI.
62. Even the holder of the CCDs, WGC, is not entitled to seek a restraint on DIL's
actions. In these circumstances, the Applicant, whose claim is tenuous and one degree
even more remote, can in no way claim to have a better title than WGC itself.
63. It belies logic for the Applicant to claim that a third party that it has no
contractual or commercial relationship with is bound to restrain or inform its decision
making keeping in mind the Applicant's commercial positions and weaknesses.
64. The decision to purchase the NCDs was taken by the Applicant knowing fully
well the terms of the CCDs, and the fact that there were no further rights available to
the NCD - or the CCD-holder to dictate to DIL how to run its business or whether or
not its assets could be sold.
65. However, by arguing before this Tribunal that DIL's sale of its stake in DPLI
ought to be stopped, the Applicant is seeking to make the NCD more secured than it
was at the time it purchased it.
66. CCDs. It rests its entire case on the fact that the NCDs are secured by CCDs,
and takes as an undisputed fact that circumstances will arise that enforcement of the
security interest in the CCDs will become necessary.
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67. All of these assertions/allegations are raised belatedly, and very obviously as a
response/counter-offensive to the Avoidance Application, where Respondent 2 has
sought (amongst other relief):
a. A declaration that the CCDs issued by DIL (DHFL Investments Limited), the
Option Agreement dated March 30, 2017, the Tripartite Agreement dated March
31, 2017 and several other agreements are void on account of being undervalued
transactions under Section 45 of the IBC and fraudulent transactions under
Section 66(1) of the IBC;
b. Direction that entities including the Applicant jointly and/or severally restore to
the Corporate Debtor an amount of INR 1,739.57 crores (Rupees One Thousand
Seven Hundred Thirty Nine crores and Fifty Seven lakhs)) towards principal
outstanding, an amount of INR 125.27 crores (Rupees One Hundred Twenty Five
crores and Twenty Seven lakhs) towards accrued interest, and an amount of INR
58.34 crores (Rupees Fifty Eight Crores Thirty Four lakhs) as notional loss on
interest, along with further interest at the rate of 18% from December 1, 2019
till payment and/or realization;
c. A declaration that the Corporate Debtor is not in fact obliged to purchase the
CCDs; and
d. interim relief in terms of the above, including (i) restraining WGC from dealing
with, disposing of, alienating, encumbering, transferring or creating third party
rights in relation to the CCDs, or exercising any rights or taking any steps in
furtherance of the Tripartite Agreement dated March 31, 2017; (ii) restraining
the conversion of CCDs; (iii) restraining IDBI from exercising any rights or taking
any steps under or in furtherance of the Debenture Trust Deed dated March 30,
2017 in relation to the CCDs; and (iv) disclosure and attachment of assets of the
Applicant to account for proceeds of the fraudulent transaction.
68. As is evident, the Applicant's whole case is premised on facts that the Applicant
has brought to the Tribunal's attention as being evidence of fraudulent and
undervalued transactions. Through the Application, the Applicant is trying to abuse the
process of law and launder and enforce these undervalued and fraudulent transactions.
The Application ought to be dismissed on these grounds alone.
69. As already set out above, the Applicant has no locus to challenge DIL's stake
sale, and the fact that the marketability of the CCDs may be affected does not give the
Applicant any right to interfere with the stake sale process.
70. A detailed description of the facts leading upto the Applicant's purchase of the
CCDs has been set out in the Avoidance Application, a summary is set out below for
the convenience of the Tribunal. Respondent 2 craves leave to refer to a copy of the
Avoidance Application and annexures thereto, when produced.
a. DIL acquired the Corporate Debtor's stake in DPLI. This purchase was financed by
DIL issuing CCDs worth around INR 1900 crores to WGC. (at the time, WGC held
37.30 shares of the Corporate Debtor, and Mr. Kapil Wadhawan was a director on
the boards of all three entities involved: WGC, DIL, and the Corporate Debtor).
b. WGC itself funded the subscription to these CCDs by further issuing NCDs to the
Original NCD Holders. The NCDs were secured by way of a security interest
created over the CCDs.
c. In an act of disingenuity, these NCDs were acquired by entities three entities
from the Original NCD Holders, with funds transferred to them by the Corporate
Debtor by way of inter-corporate deposits or ICDs. The obligation to repay these
ICDs themselves appears to have been assigned to the Applicant. A review of
Annexure I to the Application will show that the Applicant has undertaken to
repay the ICDs, in consideration for which NCDs appear to have been transferred
to it. The Applicant has suppressed from this Tribunal the fact that on March 19,
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2020, Respondent 2 addressed a recall notice to West End and to the Applicant,
recalling the ICDs. Respondent 2 reserves its rights to produce documents in this
regard if required.
d. Additionally, WGC was granted the right to convert its CCDs to equity in DIL,
which would lead to DIL's stake being almost entirely diluted: an outcome highly
value destructive to the Corporate Debtor.
e. In effect the Corporate Debtor itself financed DIL's purchase of its stake in DPLI.
To make matters worse, this circular transaction also had the result that upon
conversion of the CCDs (purchased through finance from the Corporate Debtor),
its stake in DIL would be reduced to an insignificant amount, without any
valuable consideration being received in return.
f. As is evident, the entire scheme of transactions involved is both undervalued and
fraudulent, and Respondent 2 has sought to avoid them as set out above.
71. Respondent 2's submissions with regard to the relevance of Applicant's
arguments on marketability of CCDs are reiterated. As set out above, the Applicant
has not furnished any information or evidence to substantiate its claim that the CCDs
held by Respondent No. 4 (Wadhawan Global Capital Ltd.) will be marketable or
saleable only if Respondent No. 1 (DIL) continues to hold its 50% shareholding in
Respondent No. 5 (DHFL Pramerica Life Insurance Company Limited). It is evident
from a bare perusal of the terms of the Debenture Subscription Agreement dated
March 30, 2017 executed between Respondent No. 4 (Wadhawan Global Capital Ltd.)
and Respondent No. 1 (DIL) (“DSA”), that the CCDs held by Respondent No. 4
(Wadhawan Global Capital Ltd.) are unsecured debentures and the shares held by
Respondent No. 1 (DIL) in Respondent No. 5 (DHFL Pramerica Life Insurance Company
Limited) do not provide any security for, or attribute any value to, the CCDs. Further,
the DSA does not provide the holder of the CCDs any rights, title, interest or claim
over the 50% shareholding of Respondent No. 1 (DIL) in Respondent No. 5 (DHFL
Pramerica Life Insurance Company Limited). Therefore, the proposed sale of the shares
held by Respondent No. 1 (DIL) in Respondent No. 5 (DHFL Pramerica Life Insurance
Company Limited) will not prejudice the value, marketability or salability of the CCDs
in any manner whatsoever.
72. It is submitted before this Hon'ble Tribunal that the contentions made by the
Applicant as regards the value of the CCDs, the value of the shares of DIL and the
impact of the proposed sale of shares held by Respondent No. 1 (DIL) in Respondent
No. 5 (DHFL Pramerica Life Insurance Company Limited) are mere conjecture, not
supported by any substantial evidence or rationale by the Applicant. The Applicant has
failed to indicate any linkage between the marketability of the CCDs and the shares
held by Respondent No. 1 (DIL) in Respondent No. 5 (DHFL Pramerica Life Insurance
Company Limited).
73. It is further submitted before this Tribunal that the Corporate Debtor has not
realised any value from its sale of the 50% shareholding held in Respondent No. 5
(DPLI) to Respondent No. 1 (DIL), on account of such transactions being fraudulent
and undervalued transactions perpetrated by the erstwhile management of the
Corporate Debtor, which have caused irreparable loss and injury to the Corporate
Debtor. Respondent 2's submissions in this regard as set out above and in its
Avoidance Application are reiterated.
74. Obligations inter se WGC and the Applicant in respect of the pledge are not
Respondent 2's concerns. In any event, as set out in the preceding paragraphs, the
Applicant has no rights, title and interest over the shares held by Respondent No. 1
(DIL) in Respondent No. 5 (DHFL Pramerica Life Insurance Company Limited).
Therefore, Respondent No. 1 (DIL) has the unfettered and unrestricted right, power
and authority to sell any of its assets (which includes the 50% shareholding in
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Respondent No. 5 (DHFL Pramerica Life Insurance Company Limited) without obtaining
the consent of the Applicant.
75. It is further submitted before this Tribunal that the contentions of the
Applicant, regarding the illegality of the actions of the Administrator and the
Committee of Creditors of the Corporate Debtor, are entirely baseless and devoid of
merit. A bare perusal of the minutes of the meeting of the Committee of Creditors
dated October 26, 2020 indicate that the committee did not approve the sale of the
shares held by Respondent No. 1 (DIL) in Respondent No. 5 (DHFL Pramerica Life
Insurance Company Limited). The committee at its meeting held on October 26, 2020
merely passed a resolution regarding the payment of the costs incurred by Respondent
No. 1 (DIL) in relation to such sale. The extract of the resolution passed by the
committee at its meeting held on October 26, 2020 is set out below:
“Resolved that the CoC approves the process related cost for sale of stake of DIL
in DPLI considering that the ultimate beneficiary of the stake sale process would be
DHFL”.
76. It is pertinent to note that the approval of the sale of the shares held by
Limited) was accorded by the board of directors of Respondent No. 1 (DIL) at its
meeting held on October 05, 2020. The board of directors of Respondent No. 1 (DIL)
was well within its rights to approve such sale and was neither contractually nor
legally obligated to obtain the Applicant's consent, since the Applicant has no rights
over such shares. In fact, even under the subscription agreement entered into by
Respondent No. 1 and Respondent No. 4 (who holds the CCDs), Respondent 4 has no
ability to restrict the sale, let alone the Applicant who merely claims a security over
the CCDs.
77. Further, the proposed sale of the shares as described above was discussed at
the 6th, 7th and 8th meeting of the Committee of Creditors of the Corporate Debtor. The
Applicant has failed to take note of the simple fact that Respondent No. 1 (DIL) is a
wholly owned subsidiary of the Corporate Debtor and therefore, any assets owned by
Respondent No. 1 (DIL) are indirectly owned by the Corporate Debtor. Consequently,
the shares held by Respondent No. 1 (DIL) in Respondent No. 5 (DHFL Pramerica Life
Insurance Company Limited) are also indirectly owned by the Corporate Debtor.
Therefore, the committee of creditors was well within its rights to discuss the disposal
of any assets owned directly or indirectly by the Corporate Debtor, in order to realise
the maximum value from such assets as part of the CIRP. Be that as it may, it is
submitted before this Tribunal that the final decision as regards the proposed sale of
the shares as described above was accorded by the board of directors of Respondent
No. 1 (DIL).
78. The fact of WGC's failure to make its repayment in accordance with its
obligations under the NCDs is in no way related to the fact that the CCDs themselves
may or may not reduce in value. This is a commercial consequence of the transactions
that the Applicant has voluntarily entered into, and this Tribunal cannot be used to
change the terms of a contract.
79. As set out above, the Applicant's contentions that a proposed purchaser of the
CCDs will refuse to purchase the CCDs merely on account of Respondent No. 1 (DIL)
ceasing to hold any shares in Respondent No. 5 (DHFL Pramerica Life Insurance
Company Limited) are mere conjecture, not substantiated by any cogent evidence or
substantial basis. The Applicant has failed to establish that at the relevant time it
proposes to effect a sale of the CCDs, such CCDs will be worthless in the open market.
It is submitted before this Tribunal that a bona fide sale of the shares held by
Respondent No. 1 (DIL), which are indirectly the assets owned by the Corporate
Debtor, cannot be prevented on account of a mere conjecture of the Applicant.
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It is further submitted before this Tribunal that the Applicant, by way of its
contentions and prayers sought in the Application, is attempting to create a notional
and artificial security over the CCDs in the form of the 50% shareholding held by
Limited). The actions of the Applicant will ultimately result in an illegal enhancement
of the value of the CCDs, by creating rights over the shares held by Respondent No. 1
(DIL), in favour of any purchaser of the CCDs. Such an action will greatly prejudice the
rights of the Corporate Debtor and Respondent No. 1 (DIL) and Respondent No. 3
(Committee of Creditors of Dewan Housing Finance Corporation Limited) preventing
them from dealing with a valuable asset over which such entities possess unqualified
and unrestricted rights.
Submissions Made by Catalyst Trusteeship Limited [Members of The
Committee of Creditors of Dewan Housing Finance Corporation Limited]
Respondent No. 3 by way of Affidavit in Reply:
80. The main contention of Catalyst Trusteeship Limited [Members of The
Committee of Creditors of Dewan Housing Finance Corporation Limited] Respondent
No. 3 are on the grounds of maintainability stated. By the IA, TDH is inter alia seeking
an injunction against DIL from dealing with the DIL (Pramerica) Shares. TDH is
alleging its right under a transaction between TDH and WGCL (i.e. purchase of the
NCDs) secured by the CCDs issued by DIL to WGCL. In this regard it is pertinent to
note that:
i. Neither TDH nor WGCL nor DIL are under insolvency resolution before this Hon'ble
Tribunal.
ii. The transaction (i.e. issuance and purchase of the NCDs) and the security
thereunder i.e. the CCDs are in no manner connected with the CIRP of DHFL.
iii. TDH has not filed any claim in the CIRP of DHFL for its alleged rights under the
NCDs or CCDs nor is the transaction assailed in the IA connected with the CIRP
of DHFL.
iv. TDH does not have any claim against DHFL for its alleged rights under the NCDs
or CCDs.
It is submitted that in light of the aforesaid, this Hon'ble Tribunal being ceased of
the matter pertaining to the CIRP of DHFL does not have the jurisdiction to entertain
the IA, where TDH is claiming rights under a transaction which is in no manner
connected to DHFL.
81. It is further submitted that in the IA, TDH has sought reliefs inter alia against
an alleged resolution passed by the CoC allegedly approving the sale of the DIL
(Pramerica) Shares. It is noteworthy that TDH has failed to identify the date of such
alleged resolution passed by the CoC. It is submitted that no such resolution
approving the sale of the DIL (Pramerica) Shares has been taken by the Board of
Directors of DIL and not by the CoC of DHFL. The CoC has merely with a view to
maximize the assets of DHFL, passed a resolution to bear and approve the costs of the
Process of sale of the DIL (Pramerica) Shares. Hence, the entire case of TDH is
premised on false, incorrect facts and misrepresentations made to this Hon'ble
Tribunal. It is submitted that the IA deserves to be dismissed.
82. Without prejudice to the aforesaid, it is submitted that a perusal of the
Administrator's Reply would evidence that the transaction under which TDH is claiming
to have the alleged right itself has been impugned by the Administrator in an
application (being IA 1912/2020) filed before this Hon'ble Tribunal under Sections 25
(2)(j), 26, 45, 46, 49 and 66 of the Code as being fraudulent and undervalued
transactions (“Avoidance Application”). It is clear that the IA is nothing but malafide
attempt by TDH to circumvent the Avoidance Application.
83. It is clear from the aforesaid that the IA is not maintainable and further that
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TDH has not approached this Hon'ble Tribunal with clean hands and on these counts
alone the IA deserves to be dismissed with costs.
84. The IA does not disclose any contract between TDH and DIL or DHFL, hence, it
is amply clear that there is no privity of contract between TDH or DIL. Further TDH has
also failed to disclose any right under any contract which entitles TDH to seek
injunction on the sale of the DIL (Pramerica) Shares. Hence, the IA miserably fails to
demonstrate any right under law on the basis of which TDH can said to be entitled to
any reliefs whatsoever in relation to the DIL (Pramerica) Shares.
85. Without prejudice to CoC's rights and contentions, and assuming, without
admitting, that the entire case disclosed in the IA to be true, even then, TDH's right at
the highest, is that TDH has an interest in the assets of WGCL (i.e. the CCDs) under
the DTD, Option Agreement, the Pledge Agreement (together referred to as the “said
Agreement”). It is humbly submitted that merely by having some security interest in
the CCDs, TDH cannot seek to prevent DIL from dealing with its shares. It is pertinent
that WGCL has, till date, not raised any objection to the sale of the DIL (Pramerica)
Shares.
86. It is submitted that the document relied on by the Applicant in the IA fail to
show any privity of contract between Applicant and DIL let alone any obligation by DIL
to not dispose of its shares. It is pertinent that the only privity that TDH has is with
WGCL and DIL is not even a party to the said Agreement. Therefore, on the basis of
alleged rights under the Said Agreement TDH cannot bind or injunct DIL from
exercising its lawful rights over its own assets, namely the DIL (Pramerica) Shares.
Therefore, TDH has no basis to seek an injunction on the sale of the DIL (Pramerica)
Shares or any other reliefs sought for in the IA.
87. It is submitted that TDH has voluntarily and knowingly purchased NCDs with
the limited security of the CCDs.
88. It is submitted that the decision to sell the DIL (Pramercia) Shares has been
taken and approved by the Board of Directors of DIL inter alia in board meeting held
on October 05, 2020 (Annexure-X to the IA). The relevant extract from the minutes of
the meeting held on October 05, 2020 of the Board of Directors of DIL. (“Minutes”)
shows that there are strong commercial reasons for selling the equity shares of DIL in
PLICL. The Minutes record representations from Prudential and PLICL that in order to
check further attrition of PLICL's business and to maximize the value of DIL, it was
advisable for DIL to sell its equity shares in PLICL. Accordingly, by public notice dated
September 06, 2020, Expression of Interest (“EOI”) was invited from potential
acquisition of DIL Shares was given by DIL.
89. Since DIL is a wholly owned subsidiary of DHFL, the sale of shares of DIL and
the impact of the same on the CIRP of DHFL was discussed by the COC at various
meetings, in order to realize the maximum value from such assets. The CoC, in its
commercial wisdom, and with a view to maximize the value of DHFL, has decided to
bear the cost of the sale of the DIL Shares, as DHFL being the parent company of DIL,
would be benefited of the sale of the DIL Shares. However, it is reiterated and clarified
that the CoC has not passed any resolution approving the sale of the DIL (Pramercia)
Shares and the said decision has been taken by the Board of DIL.
90. It is submitted that the documents placed on record by TDH show that the
decision of DIL to sell the DIL Shares is supported by all the relevant parties, viz., DIL,
PLICL and Prudential. Further, even WGCL who has a privity with DIL has not raised
any objection to the same.
91. It is humbly submitted that in the IA TDH has alleged that the sale of the DIL
(Pramerica) Shares is illegal without any evidence to support the said allegation. It is
humbly submitted that the decision of DIL to sell the DIL (Pramercia) Shares has been
taken by the Board of Directors of DIL and further the decision of the CoC to bear the
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cost for the sale process has been taken with a view to maximize the assets of DHFL.
It is hence submitted that there is no illegality whatsoever in relation to the
transaction and the entire IA is filed with bald, misplaced and malafide allegations
completely unsubstantiated in law or fact. In light of the same it is submitted that the
IA deserves no indulgence of the Tribunal.
92. It is submitted that the entire case of TDH is based on its contention that the
sale of the DIL Shares will allegedly drastically reduce the marketability and value of
the CCDs which are secured to TDH.
93. It is submitted that TDH willing and knowingly purchased the NCDs which were
only secured by the unsecured CCDs. Hence, at all times TDH was aware of the
commercial risks associated with purchase of the NCDs. It is well established principle
of law that commercial ramifications to transactions cannot be looked at to grant any
reliefs. Hence, the alleged possible commercial hardship to TDH (on account of the
alleged reduction of value of the CCDs) cannot be a ground for grant of reliefs under
the IA.
94. Without prejudice to CoC's rights and contentions, and assuming, without
admitting, that the entire case disclosed in the IA to be true, this Tribunal is not the
correct forum to adjudicate the rights of TDH. The remedy of TDH under the Said
Agreement is against WGCL before the appropriate forum being a civil court.
95. It is submitted that the prayers set out in the IA are aimed at (i) obtaining
injunctive reliefs to secure DIL Shares; and (ii) obtaining specific performance of the
Said Agreements. It is humbly submitted that this Hon'ble Tribunal as the
Adjudicating Authority under the Code is not empowered to direct rank third parties to
a CIRP to perform obligations under agreements as that jurisdiction is strictly with a
civil court with competent jurisdiction or any other appropriate forum. In view of the
above, it is submitted that the IA deserves to be dismissed at the very threshold. The
reliefs as sought in the IA are misplaced, misconceived and baseless, and as such
cannot and ought not to be granted by this Tribunal. It is submitted that interim
reliefs may only be in aid of the main reliefs. Therefore, as demonstrated above, since
the main reliefs in the IA are not maintainable, no interim reliefs be granted in favour
of the Applicant/TDH. Considering the aforesaid it is humbly submitted that the
Application deserves no indulgence.
Submissions Made by Wadhawan Global Capital Limited, Respondent No. 4 by
way of Affidavit in Reply:
96. Respondent No. 2 herein, supported by the Committee of Creditors of the
Corporate Debtor, has submitted that Respondent No. 4 is not concerned and not
affected as no relief or prayers have been sought against Respondent No. 4. To place
the correct perspective before this Hon'ble Court, the correct facts and events as they
have occurred to the extent concerning and affecting Respondent No. 4 are being
placed by way of this Limited Reply.
97. Furthermore, the submissions made by Respondent No. 2 are self-destructive.
Respondent No. 2 cannot approbate and reprobate at the same time. Respondent No.
2 is stating that the Non-Convertible Debentures purchased by the Applicant (“NCDs”)
taken against consideration of taking over the obligations to repay to the Corporate
Debtor sums advanced in the form of Inter-Corporate Deposits (“ICDs”), cannot be
claimed on account of the transactions to be undervalued or fraudulent. However,
Respondent No. 2 is claiming sums owed under the ICDs and at the same time is
seeking to avoid the legitimate transactions entered into by it, whereby it had
significantly benefited, in an attempt to approbate and reprobate for its own gain.
Further, Respondent No. 2 as aforesaid has filed an Application being Application No.
1912 of 2020 (hereafter referred to as “Avoidance Application”) before this Hon'ble
NCLT. In the said Avoidance Application, Respondent No. 2 is seeking to declare the
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below mentioned transactions as void. In the event the said transactions are declared
void, Respondent No. 2 would continue, through Respondent No. 1, to indirectly hold
its original 50% shareholding in DLF Pramerica Life Insurance Company Limited,
Respondent No. 5 (“DPLI”), and at the same time would continue to be the recipient
of Rs. 2000,50,00,000 (Rupees two thousand crore and fifty lakhs) as received under
the Share Purchase Agreement executed on 21st February 2017 (“SPA”) for the sale of
the 50% stake. If Respondent No. 2's reliefs are granted wherein on one hand it has
sought the cancellation of the transactions involving issuance of 1901,00,00,00
Compulsorily Convertible Debentures (“CCDs”) and on the other hand Respondent No.
2 will not be refunding and accounting for the monies received due to issuance of said
CCDs whilst simultaneously receiving its 50% stake in DPLI. Respondent No. 2 would
thereby continue in control of Respondent No. 1 without having to repay the
consideration received under the subject transaction.
98. The Corporate Debtor was India's second largest private housing finance
company with a focus on enabling financial access to lower and middle income
customers through its wide network across the country. In 2013, the Corporate Debtor
and Prudential International Insurance Holdings Limited (“Prudential”) proposed to
enter into a joint venture, following regulatory approvals including that of IRDAI, to
provide life insurance products to customers in India. On 25th July 2013, a
Shareholder's Agreement was executed between Prudential, the Corporate Debtor,
Yardstick Developers Pvt. Ltd. and Resources Realty Pvt. Ltd. (“SHA”), whereby the
Corporate Debtor agreed to acquire 74% of the Equity Share Capital of DPLI and the
remaining 26% of the Equity Share Capital was to be owned by Prudential. Prudential
entered into the said SHA in order to take advantage of the Corporate Debtor's
distribution network to enhance their ability to offer a broader array of products and
services to a wider range of customers and clients. DPLI was engaged in the life
insurance business and was registered with IRDAI. The SHA was thereafter amended
from time to time. Prudential held 49% of the paid up equity share capital of DPLI and
the balance 1% was held by Yardstick Developers Private Limited.
99. Post the Corporate Debtor's acquisition, DPLI recorded a significant growth in
gross premium collections as well as net profits (on a standalone basis for each
financial year after acquisition). The net profit for the financial year 2015-2016 of DPLI
stood at Rs. 50.84 crores.
100. To the best of my knowledge, the Corporate Debtor's investment in DPLI
(including the original cost of acquisition) was approximate Rs. 31,06,89,296 (Rupees
Thirty-One Crores Six lakh Eighty-Nine Thousand Two Hundred and Ninety Six only).
In and around 2017, in order to unlock the value of the Corporate Debtor's investment
in DPLI, the Corporate Debtor proposed to transfer its entire shareholding in DPLI to a
wholly owned subsidiary by way of a share purchase agreement at fair market value to
be determined by an internationally reputed actuarial consultant, Willis Towers
Watson. The preliminary range of the fair market value of the shares proposed to be
transferred, as provided by the actuarial consultants, was between Rs. 1690,00,00,000
(One thousand six hundred and ninety crores only) and Rs. 2020,00,00,000 (Two
thousand and twenty crores only). The additional capital so raised by the Corporate
Debtor would be deployed towards expansion of the Corporate Debtor's core business
and/or prepayment of its high-cost borrowings.
th
101. Respondent No. 1 had been incorporated on 13 February 2017 as a core
investment company under the Master Directions issued by RBI on 25th August 2016
to facilitate the aforesaid transaction. Respondent No. 1's business objective was to
acquire any shares, stock, debentures stocks or securities in accordance with RBI.
th
102. On 14 February 2017, Respondent No. 4 addressed an application to RBI
seeking approval for entering into the life insurance business owing to the growth in
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the life insurance market in the last 5 years close to over 20% p.a. With this rationale
and in order to diversify its investment and business activities, Respondent No. 4
intended to invest in CCDs issued by Respondent No. 1 which would acquire the entire
share capital of DPLI currently held by the Corporate Debtor at the fair market value
such that post the conversion of the compulsory convertible debentures, Respondent
No. 4 would own the majority of the equity shares of Respondent No. 1. Respondent
No. 4 sought RBI's approval/no objection letter for investing in the share capital of
Respondent No. 1 and thereby indirectly investing into the share capital of DPLI which
is engaged in the life insurance business. Simultaneously, such an application was
made by DPLI before the IRDAI. It further records that the transaction was not merely
an investment of subscription but an investment of capital.
st
103. On 21 February 2017, the SPA was executed between the Corporate Debtor
and Respondent No. 1 inter alia, agreeing that the Corporate Debtor shall transfer its
entire shareholding of DPLI i.e., 18,70,30,934 shares amounting to 50% of the total
issued and paid-up share capital of DPLI (“Sale Shares”) by Respondent No. 1 on a
spot delivery basis, free and clear of any encumbrance for a consideration. Pursuant
thereto, the Corporate Debtor ceased to be a shareholder of DPLI. The obligation of the
Corporate Debtor to sell the Sale Shares and the obligation of Respondent No. 1 to
purchase the Sale Shares was subject to and conditional on approvals from the
regulatory authorities.
rd
104. On 23 February 2017, Respondent No. 1 submitted an application to IRDAI
for approval of the proposed transaction under the SPA in terms of Section 6A of the
Insurance Act, 1938. On even date, DPLI addressed a letter to IRDAI confirming that
they have no objection to the revised shareholding pattern of DPLI pursuant to the
proposed transaction subject to: (i) prior written approval from Prudential; (ii) prior
approval from shareholders of the Corporate Debtor; (iii) receipt of all regulatory
approvals; and (iv) amendment to the SHA to incorporate the terms of a backstop
undertaking on the part of the Corporate Debtor to unconditionally, irrevocably and
absolutely ensure that the ownership and control of the Sale Shares remain with the
Corporate Debtor or one of its affiliates.
105. On the same date, DPLI submitted an application to the IRDAI seeking
approvals for the waiver of the 5 year lock-in requirement imposed earlier, transfer of
the Sale Shares to Respondent No. 1, subscription by Respondent No. 4 to the CCDs
issued by Respondent No. 1 and creation of a pledge by Respondent No. 4 in favour of
lenders over the CCDs issued by Respondent No. 1. It is pertinent to note that IRDAI's
approval was sought for the creation of the pledge.
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106. The Corporate Debtor addressed a letter dated 10 March 2017 to DPLI on the
clarifications sought by IRDAI. The letter clearly records that the Corporate Debtor
desires to enhance its capital base by unlocking the value of its investment in DPLI in
a tax efficient manner, hence it proposes to transfer the ownership of the shares at
market value to Respondent No. 1. Further, the transaction also aims to retain the
ownership of the shares within the promoter entity i.e., Respondent No. 4 who will
fund the transaction by subscribing to CCDs issued by Respondent No. 1. Further,
Respondent No. 4 for its market borrowings will offer the CCDs as collateral in favour
of lenders. In order to ensure that the CCDs remain within the group, it was informed
to IRDAI that Respondent No. 4 would have the option to call upon the Corporate
Debtor to buyback CCDs in the event of its inability to fulfil the conditions of market
borrowings. The exercise of such put option would constitute a binding obligation of
the Corporate Debtor to acquire the CCDs from Respondent No. 4. On even date, DPLI
enclosed the said letter dated 10th March 2017 to IRDAI in view of the clarification
sought by them.
107. In furtherance of the requirements of the IRDAI, Respondent No. 4 addressed
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a letter dated 23rd March 2017 to DPLI with the drafts of the financing
documents/agreements proposed to be executed by Respondent No. 4 for raising
funds by way of NCDs viz. Debenture Trust Deed, Debenture Trust Agreement, CCD
Pledge Agreement, CCD Power of Attorney, Option Agreement, Escrow Agreement and
Deed of Hypothecation, subject to Prudential's sign off.
108. In the meanwhile, on 23rd March 2017, the RBI addressed a letter to
Respondent No. 4 granting approval for Respondent No. 4 to invest in CCDs issued by
Respondent No. 1 and thereby indirectly investing in the share capital of DPLI which is
engaged in the business of life insurance.
109. On 23rd March 2017, the SHA was amended to incorporate, inter alia, the
Corporate Debtor's proposal to transfer its shareholding in DPLI to its wholly owned
subsidiary Respondent No. 1 by way of the SPA (“Tenth Amendment Agreement”).
To acquire the Sale Shares, it was proposed that Respondent No. 1 would be financed
by Respondent No. 4. Respondent No. 4 would subscribe to CCDs of Respondent No. 1
for an amount ranging from Rs. 1550,00,00,000 to Rs. 1940,00,00,000 and the CCDs
would have a maturity period of 100 months. Upon conversion of the CCDs,
Respondent No. 4 would hold more than 50% of the total issued and paid up capital
equity of Respondent No. 1 and Respondent No. 1 would cease to be a subsidiary of
the Corporate Debtor. Respondent No. 4 would in turn issue NCDs to lenders who
would enter into Private Placement Offer Letter and other Financing Documents to
record the terms of the loan. Thereafter, Respondent No. 4 and the Corporate Debtor
would enter into an agreement that would entitle Respondent No. 4 to sell or
otherwise put and require the Corporate Debtor to acquire the Security for a purchase
price that was sufficient to allow Respondent No. 4 to repay the outstanding amounts
due under the NCDs in full upon maturity or an event of default.
110. It is pertinent to note that Prudential agreed to execute the Tenth Amendment
Agreement and the said transaction only on the condition that the CCDs and DPLI
indirectly remains within the group of the Corporate Debtor and Respondent No. 4 has
the option to call upon the Corporate Debtor to buyback CCDs in the event of its
inability to fulfil the conditions of market borrowings. It was based on the
understanding that the Corporate Debtor would eventually be liable to repay the
outstanding amounts due under the NCDs in full upon maturity or an event of default.
It is only due to the goodwill and market share of the Corporate Debtor that Prudential
had agreed to enter into the joint venture forming DPLI in 2013. As seen hereinabove,
the regulatory authorities were made aware of this understanding and the role of the
Corporate Debtor and Respondent No. 4 in the transaction. It is only pursuant to the
voting of the shareholders of the Corporate Debtor and the approvals from the
regulatory authorities such as RBI and CCI that the parties entered into the
transaction.
111. Upon conversion of the CCDs, Respondent No. 4 would hold more than 50% of
the total issued and paid up capital equity of Respondent No. 1 and Respondent No. 1
would cease to be a subsidiary of the Corporate Debtor. Respondent No. 4 would in
turn issue NCDs to Lenders who would enter into Private Placement Offer Letter and
other financing documents to record the terms of the loan.
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112. The CCI addressed a letter dated 28 March 2017 to the legal advisors of
Respondent No. 1 stating that pursuant to the consideration of the proposed
combination, they were approving their application under Section 31(1) of the
Competition Act, 2002.
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113. The IRDAI vide letter dated 30 March 2017 granted approval under Section
6A of the Insurance Act, 1938 for the transfer of 50% of the equity shares of DPLI held
by the Corporate Debtor to Respondent No. 1 subject to certain conditions and granted
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a waiver of the five year lock-in period imposed on the Corporate Debtor while
approving the transfer of shares on 13th December 2013.
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114. On 30 March 2017, a Debenture Subscription Agreement was executed
between Respondent No. 4 and Respondent No. 1 since Respondent No. 1 was in the
need of funds for the purpose of undertaking and facilitating its business activities of
investing, acquiring and holding and otherwise dealing in stocks and other financial
instruments (“Debenture Subscription Agreement”). As per the Debenture
Subscription Agreement, Respondent No. 1 has agreed to issue and allot
190,10,00,000 partly paid non-redeemable cumulative non-participating CCDs with a
face value of Rs. 10 to Respondent No. 4 upon payment of Rs. 1901,00,00,000
(“Subscription Consideration”) in two tranches subject to the terms and conditions
laid down therein. The tenure of the CCDs were to be 110 months from the date of
issuance of the CCDs, after which the CCDs were to be mandatorily converted into 1
equity share each, which would provide Respondent No. 4 with a majority of the
shareholding of Respondent No. 1. None of the CCDs were to be capable of conversion
to equity shares for 100 months from the date on which the CCDs have been issued.
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115. Further, on 30 March 2017, an Option Agreement was executed between
Respondent No. 4 and the Corporate Debtor in relation to the CCDs issued by
Respondent No. 1 to Respondent No. 4 which set out the rights of Respondent No. 4 to
require the Corporate Debtor to purchase all of the CCDs, upon issuance of the Put
Option 1 or Put Option 2 and the Accelerated Put Option 1 or Accelerated Put Option 2
available to the Applicant in each case in respect of the CCDs, pursuant to the
Debenture Subscription Agreement (“Option Agreement”). The parties agreed that
on deposit of the Put Option 1 Notice by Respondent No. 4, the Corporate Debtor
would deposit the Put Option 1 Price in the Escrow Account on the Put Option 1 Notice
Date and on the exercise of Put Option 2 Notice, pursuant to a Put Option 2 Intimation
Letter, the Corporate Debtor would deposit the Put Option 2 Price into the Escrow
Account on the same day. Further, the parties agreed that Respondent No. 3 would be
entitled to call upon the Corporate Debtor to purchase all the CCDs at the Accelerated
Put Option 1 Price, in the circumstances specified in Clause 17 of the Debenture Trust
Deed (“Accelerated Put Option 1 Events”). It was further agreed that once an
Accelerated Put Option 1 Notice was served by Respondent No. 4, the Corporate
Debtor would without protest or demur and without satisfying itself or investigating
whether the Accelerated Put Option 1 Events have arisen or not, deposit the
Accelerated Put Option 1 Price at or before 4pm into the Escrow Account, on the
Accelerated Put Option 1 Notice Date itself. The Option Agreement recorded that
Respondent No. 4 would pay the Corporate Debtor certain monies as payment towards
fees which was mutually agreed upon in consideration of the Put Option granted by
the Corporate Debtor. As seen hereinabove, the regulatory authorities including IRDAI
were intimated of the Option Agreement and the Corporate Debtor's obligatory put
option that could be exercised and the authorities had duly approved the same.
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116. In pursuance of Clause 6.4 of the Option Agreement, on 29 June 2019,
Respondent No. 4 paid sums of Rs. 19,00,00,000 (Rupees nineteen crores) to the
Corporate Debtor by way of RTGS bearing reference number 000129342421 as
payment towards fees for the put option granted by the Corporate Debtor. The Option
Agreement was not a device created to unjustly enrich Respondent No. 4 at the cost of
the Corporate Debtor indeed, the Corporate Debtor received sums as option fees in
consonance with the Option Agreement.
117. On 30th March 2017, the Finance Committee of the Board of Directors, in
exercise of the powers vested in it by the Board and Shareholders of the Corporate
Debtor, at its meeting held on the same date recorded and approved the valuation
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report dated 30 March 2017 prepared by an internationally reputed actuarial
consultant setting out the fair market value for the Proposed Transfer as Rs.
2000,50,00,000/- (Rupees two thousand crores and fifty lakhs) which was within the
preliminary range indicated in the Notice for postal ballot. The disclosure made to the
Stock Exchanges states that the Proposed Transfer has received the applicable
regulatory approvals of IRDAI, CCI and RBI.
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118. Further, on 31 March 2017, a Tripartite Agreement was executed between
the Corporate Debtor, Respondent No. 4 and Respondent No. 1 by which Respondent
No. 4 was given the right to appoint/remove a majority of the Directors on Respondent
No. 1's board of directors and control the composition of Respondent No. 1's board of
directors (“Tripartite Agreement”). The Tripartite Agreement records that
Respondent No. 4 has subscribed to 190,10,00,000 NCDs issued by Respondent No. 1
against the payment of Rs. 1901,00,00,000 (Rupees one thousand nine hundred and
one crores). Respondent No. 1 has utilised the said subscription amount for the
purposes of acquiring the Corporate Debtor's equity interests in DPLI for the
consideration of Rs. 2000,50,00,000 (Rupees two thousand crores and fifty lakhs)
such that Respondent No. 1 currently holds 50% of the equity share capital of DPLI. In
view of the proposed transaction mentioned, upon conversion of the CCDs, Respondent
No. 4 would hold more than 50% of the total issued and paid up capital equity of
Respondent No. 1 in 110 months. The consideration for the proposed transaction was
paid upfront and in view of the in-principle approvals from the regulatory authorities,
the transaction was proposed and structured. In view of the upfront amounts paid by
Respondent No. 4, to ensure that the value of the investment made by Respondent
No. 4 is protected, this Tripartite Agreement was executed giving Respondent No. 4
the right to appoint directors whilst Respondent No. 1 continued to hold control of the
Respondent No. 1.
119. Evidently, Respondent No. 1's audited Consolidated Financial Statements as
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on 31 March 2018 published in the public domain records that Respondent No. 4 is a
holding company based on control over board by the issuance of the CCDs. As per
Accounting Standard (AS 18) on “Related Party Disclosures”, Respondent No. 1
disclosed the rights of Respondent No. 4. However, no objections were raised and the
said agreement was at arm's length. Furthermore, even the audited Financial
Statements as on 31st March 2019 of Respondent No. 1, provided disclosures of
Respondent No. 4 having control on the board of Respondent No. 1.
120. Pursuant to the approvals from the regulatory authorities, the Corporate
Debtor transferred/sold its entire equity stake held in DPLI to Respondent No. 1 on
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31 March 2017. The said transaction was explained in the Annual Report for the
Financial Year 2016-2017.
121. As stated aforesaid, the Corporate Debtor transferred its entire shareholding in
DPLI to Respondent No. 1 by way of the SPA at a fair market value for a consideration
of Rs. 2000.50 crores. The Corporate Debtor's investment in DPLI (including the
original cost of acquisition) was approximately Rs. 31,06,89,296 (Rupees thirty one
crore six lakhs eighty nine thousand two hundred and ninety six) resulting in profit of
Rs. 1969.43 crores on the DPLI stake sale. The transaction has added Rs. 62.9 per
share to the Corporate Debtor's networth. The aforesaid transaction was a commercial
decision undertaken by the Corporate Debtor in the best interest of the company and
it drove the business for the next 2-3 years. The Corporate Debtor entered into the
Option Agreement with Respondent No. 4 to ensure that certain options may be
exercised requiring the CCDs to be transferred to the Corporate Debtor so that the
underlying shares of DPLI remain within the group. The entire transaction was
disclosed to the board of directors, audit committee, public shareholders and the
regulatory authorities. It is only pursuant to receiving all the requisite approvals that
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the transaction was consummated. There had been no challenge to the said
transaction by the authorities and the public.
122. Simultaneously in March 2017, the aforesaid 19000 NCDs issued by
Respondent No. 4 were subscribed to by Franklin Templeton Mutual Fund (in respect
of 5000 Units) and Aditya Birla Finance Limited (in respect of 14000 units)
(collectively referred to as “Original NCD holders”). Admittedly, these Original NCD
holders were unrelated parties who undertook the commercial decision and discretion
to invest in the NCD units offered by Respondent No. 4. Respondent No. 4 utilised
these amounts for raising funds to subscribe to the CCDs issued by Respondent No. 1.
As seen above, all the regulatory authorities had given their consent for Respondent
No. 4 to raise funds through the market by the issuance of NCDs. This was always
disclosed to the authorities and to the Members of the Corporate Debtor and had been
duly approved.
123. In and around 2018, certain ICDs were issued by the Corporate Debtor to
Respondent Nos. 7 and 8 in the ordinary course of its business.
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124. On 20 November 2019, the RBI superseded the Board of Directors of the
Corporate Debtor and on 29th November 2019, the CIRP in respect of the Corporate
Debtor commenced. This amounted to an event of default under the Debenture Trust
Deed particularly clauses 13.3(r), 15.1(dd) and 15.1(ee). In view thereof, Respondent
No. 4 addressed an Accelerated Put Option 1 Notice in pursuance to the Letter
Agreement, calling upon the Corporate Debtor to purchase the CCDs on the
Accelerated Put Option 1 Date at the Accelerated Put Option 1 Price (Annexure J to the
Application).
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125. However, the Corporate Debtor replied on 24 December 2019, stating that
there is a moratorium imposed and if Respondent No. 4 has any claims against the
Corporate Debtor, a claim may be filed in the relevant form of CIRP Regulations
(Annexure K to the Application). The Administrator of the Corporate Debtor has
wrongly rejected the claim filed by Respondent No. 4 under the CIRP Regulations
arising from the aforesaid exercise of put option.
126. the present Application is solely based on speculation. It is apparent that
upon the maturity of the CCDs after 110 months, the beneficiaries would have a direct
equity stake in Respondent No. 1 which would be an indirect stake in DPLI. If the only
asset of Respondent No. 1 (50% stake in DPLI) is permitted to be diluted, then the
CCDs would not remain marketable. Respondent No. 1 had been incorporated with the
intent of becoming a core investment company under the Master Directions issued by
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RBI on 25 August 2016 for the purposes of entering into the contemplated
transaction. It is apparent that Respondent No. 1 does not have any other asset
beneficial for the beneficiaries of the CCDs. As already set out hereinabove, even the
authorities understood that this Respondent is indirectly investing in shares of
Respondent No. 1 in DPLI.
127. Respondent No. 2 has sought to contest claims of the Applicant on a
completely erroneous basis by seeking to distinguish the CCDs issued from
Respondent No. 1's shares in DPLI. As is demonstrable from the aforesaid, the CCDs
were issued relying on the valuable stake Respondent No. 1 had in the insurance
business of DPLI. The entire transaction has been premised and based on the value of
the insurance business of DPLI. Respondent Nos. 1 and 2 cannot be permitted to sell
the stake of Respondent No. 1 in DPLI. Given otherwise, in the circumstances set out
hereinabove, this Respondent is entitled to management control of Respondent No. 1.
Further, Respondent No. 2 is seeking to digress from the matter in hand by making
various allegations reproduced from the Avoidance Application against Respondent No.
4, which are demonstrably incorrect. Such flagrantly misleading allegations ought not
to be countenanced and are in any event denied.
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128. Respondent No. 2 is intentionally mentioning such huge sums that are alleged
to be paid by the Applicant and Respondent No. 4 (amongst other parties) to wrongly
dispute its liability under the Debenture Subscription Agreement, Option Agreement
and Pledge Agreement. To ensure that the NCDs would be redeemed when they
mature or in the event of a default, to protect the interest of NCD holders, Respondent
No. 4 had pledged the CCDs which it had subscribed to. It is pertinent to note that the
transactions that Respondent No. 2 is seeking to impugn have in fact been duly
approved and appropriate permissions have been taken from various regulatory
authorities being the IRDAI, CCI and the RBI. It is stated that Respondent No. 2 has
failed to recognize that the approval from RBI had recorded that Respondent No. 4 has
indirectly investing in the share capital of DPLI. On the true construction and
interpretation of the documents as they stand, the stake in DPLI ought not to be
permitted to be transferred without the consent of Respondent No. 4. It is denied that
the Corporate Debtor did not receive any valuable consideration. The Corporate Debtor
received a sum of Rs. 2000,50,00,000 (Rupees two thousand crores and fifty lakhs) as
consideration for the fair market value of the Corporate Debtor stake in DPLI. It is
stated that the transaction resulted in a profit of Rs. 1969.43 crores to the Corporate
Debtor. The annual report of the Corporate Debtor records the entire transaction and
the profit therefrom (Annexure A to the Rejoinder to the Reply of Respondent No. 2).
129. It is denied that Respondent No. 4 has no privity of contract with the
Applicant. It is further denied that Respondent No. 4 being a holder of the CCDs is not
entitled to seek a restraint on Respondent No. 1's actions. It is once again stated that
the directors of Respondent No. 4 being in judicial custody were unaware of the
proposed sale of Respondent No. 1's stake in DPLI. Respondent No. 1 has taken
advantage of this handicap and completely disregarded the transaction which explicitly
provided for the NCD holders having a security interest in the CCDs pledged by
Respondent No. 4.
Submissions Made by DHFL Pramerica Life Insurance Company, Respondent
No. 5 by way of Affidavit in Reply:
130. No Reply is filed as well None appeared for Respondent No. 5.
Submissions Made by IDBI Trusteeship Services Limited, Respondent No. 6 by
131. The Respondent No. 6 is registered with the Securities and Exchange Board of
India as a Debenture Trustee under the Securities and Exchange Board of India
(Debenture Trustee) Regulation, 1993.
132. The Respondent No. 6 agreed to act as Debenture Trustee at the request of
Wadhawan Global Capital Limited (Respondent No. 4) on the basis of Consent Letter
dated 23.03.2017 whereby the Respondent No. 6 agreed to act as Trustee in trust and
on behalf of Debenture Holders.
133. The Respondent No. 1 had desired to raise funds for facilitation of its business
activities and had approached the Respondent No. 4 for the same. The Respondent No.
4 agreed to subscribe 1901,00,00,000 non-redeemable cumulative non-participating
compulsory convertible debentures, each having face value of Rs. 10/- in
dematerialization form allotted by Respondent No. 1 to Respondent No. 4 on the terms
and conditions detailed in Debenture Subscription Agreement dated 30.03.2017.
134. In terms of the said Debenture Subscription Agreement, on the request of the
Respondent No. 4, the Respondent No. 6 agreed to act as Debenture Trustee for the
benefit of the Debenture holders. The Respondent No. 4 had issued two series of
Debentures called as Series 1 Debenture and Series 2 Debentures as defined in the
Debenture Trustee Agreement.
135. In terms of the Debenture Trustee Agreement, the trust was settled by the
Respondent No. 4 with Respondent No. 6 for the exclusive benefit of Debenture
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holders and/or their transferees. The Respondent NO. 4 issued non convertible
debentures which were subscribed by three mutual fund entities e.g. Aditya Birla
Finance Limited, Birla Sunlife Mutual Fund and Franklin Templeton Mutual Fund for
series 1 and series 2 debentures as described therein. At the time when the
agreement was executed, the Respondent No. 4 had made various representations and
warranties and confirmation with all applicable permits, compliances, have been duly
made and that the Respondent No. 4 has got all statutory approval for entering into
the transaction.
136. At the time of entering the said Debenture Trustee Agreement, the
Respondent No. 4 had forwarded consent/approval/NOC as received from RBI
Competition Commercial of India and so also from Insurance Regulatory Development
Authorities of India.
137. Further stated that the said NCDs were secured by way of securities as
detailed in Article 7.1 of the Debenture Trustee Agreement as detailed herein below:
a. A first ranking sole and exclusive charge in the nature of a hypothecation created
over the Escrow Account, the monies lying to the credit of such Escrow Account,
and any Permitted Investment made from such Escrow Account and all amounts
received in the Escrow Account pursuant to liquidation of the Permitted
Investment, by the Company in favour of the Debenture Trustee, to be created
on or prior to the Deemed Date of Allotment;
b. A first ranking sole and exclusive charge in the nature of a hypothecation created
over the rights, interests and benefits of the Company in, to an under the CCD
Subscription Agreement, in favour of the Debenture Trustee, to be created on or
prior to the Deemed Date of Allotment;
c. A first ranking sold and exclusive charge in the nature of hypothecation created
over all the monies realized out of the CCD Subscription Agreement including
monies realized on account of any claims and indemnities in favour of the
Debenture Trustee to be created on or prior to the Deemed Date of Allotment;
d. A first ranking sole and exclusive charge in the nature of a hypothecation created
over all monies received from the sale of CCDs pledged with the Debenture
Trustee pursuant to the enforcement of pledge in the manner and in accordance
with the terms of the Pledge Agreement in favour of the Debenture Trustee to be
created on or prior to the Deemed Date of Allotment;
e. A first ranking pledge over the CCDs to be created by the Company in favour of
the Debenture Trustee no later than 3 (Three) Business Days from the Deemed
Date of Allotment (‘Pledge Creatioin Date”). The Company shall for this purpose,
execute the Pledge Agreement and the Pledge Power of Attorney;
f. The Personal Guarantee issued/to be issued by the Personal Guarantors; in favour
of the Debenture Trustee on or about the date of this Deed; and
g. The Power of Attorney to be issued by the Company in favour of Debenture
Trustee on or about the date of this Deed.
(hereinafter, collectively referred to as the “Security”).”
138. In pursuance to the same the Share Pledge Agreement dated 30.03.2017 was
executed by Respondent No. 4 in favour of Respondent No. 6 thereby first ranking the
pledge was created with respect to the CCDs issued by Respondent No. 1 company.
139. It is states that occurrence of Event of Default is detailed in Article 15 much
particularly in Article 15.1 of the Debenture Trustee Agreement unless such Event of
Default is expressly waived by the Debenture Trustee. Event of Default Acceleration
and EOD Acceleration Notice has been fully detailed in article 15.2 and the Article 22
of the Debenture Trustee Deed relates to the Security Enforcement Events,
140. Further stated that in terms of the Debenture Trustee Agreement read with
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Pledge Agreement it was agreed that in the event pledge is created over the CCDs in
Pledge Agreement is required to be enforced upon consent and approval from the third
party including Reserve Bank of India, Competent Commercial of India and Insurance
Regularity and Development Authority of India and National Housing Board if
applicable shall be procured at the time of enforcement of pledge.
141. The three Mutual fund entities Aditya Birla Finance Limited, Birla Sunlife
Mutual Fund and Franklin Templeton Mutual Fund the Debenture Holders liquidated
the NCDs in open market. The Respondents No. 7 and 8 bought the said NCDs through
open market. Subsequently, the Respondents No. 7 and 8 transferred the said NCDs
issued by Respondent No. 4 to the Applicant herein on the basis of Purchase
Agreement and Deed of Accession, copies of which were provided to the Respondent
No. 6. Thus, as per the records of the Respondent No. 6, the outstanding payment as
on 16.04.2020 was as under:
Debenture Holders Principal Interest as on Total Outstanding
Outstanding (in 16.04.2020 (In (in Rs.
Rs.) Rs.)
TDH Realty LLP 10,605,000,000/- 2,628,532,834/- 14,233,532,834/-
Abhinandan 339,50,00,000/- 118,41,12,082/- 457,91,14,082/-
Management
Consultancy Private
Limited
Total 14,00,00,00,000/- 4,81,26,46,916/- 18,821,26,46,916/-
142. letter dated 18.09.2019 accelerated put option 1 notice was issued and in
view of the reply vide mail dated 28.12.2019 from DHFL, Event of Default had
triggered pursuant to clause 7.5, 15.1(aa) of the Debenture Trust Deed and thus, vide
notice dated 22.04.2020 the Respondent No. 4 was issued EOD Acceleration Notice
whereby the Respondent No. 4 was informed that the payment shall become due and
payable on the date falling in 110 (One Hundred Ten) calendar days notice from date
of EOD Acceleration Notice i.e. 09.08.2020 and the money required to be redeemed all
the debenture issued in Series 1 and Series 2 shall be deposited within 3 (Three)
calendar days from the EOD Acceleration Notice i.e. 24.04.2020 in the Escrow Account.
143. That along with the said notice, the statement of outstanding dues was also
issued wherein the Respondent No. 4 was required to deposit a sum of Rs.
142,33,532,834/- towards Applicant herein and Rs. 45,79,114,082/- towards
Abhinandan Consultancy Private Limited.
144. subsequent to the same vide notice dated 18.06.2020 the Respondent No. 4
was notified despite communication, the answering Respondent neither received any
communication nor received any proof of deposits into the Escrow Account. Thus, the
same has constituted the Security Enforcement as detailed in Clause 22 of the
Debenture Trustee Deed dated 30.03.2017. It was further intimated that the
Debenture Trustee is entitled to invoke the pledge, enforce the other securities as
determined by the Debenture Holders. That by virtue of Security Enforcement Notice,
it was notified to respondent No. 4 that the Respondent No. 6 shall dispose-of the
CCDs (190,10,00,000) Non-Redeemable Cumulative Non-Participating Compulsory
Convertible Debentures having face value of Rs. 10 (Rupees Ten) each issued by
Respondent No. 1 to Respondent No. 4.
Submissions Made by West End Investment and Finance Consultancy Private
Limited, Respondent No. 7 by way of Affidavit in Reply:
145. No reply is filed for Respondent No. 7.
Submissions Made by Advent Buildwel Private Limited Respondent, No. 8 by
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146. No reply is filed for Respondent No. 8.

ORDER
147. Heard Ld. Counsel Mr. Monish Panda for the applicant, Ld. Senior Counsel Mr.
Ravi Kadam appeared for the Respondent No. 1, Ld. Senior Counsel Mr. Gaurav Joshi
appeared for the Administrator/RP and Ld. Senior Counsel Mr. Janak Dwarkadas
appeared for the CoC and Ld. Senior Counsel Mr. J.P. Sen appeared for the Respondent
No. 4 (WGC).
148. Though the matter was heard at length on various occasions as stated above
Ld. Senior Counsel Mr. Ravi Kadam submitted that the sale of shares held by DHFL
Investments Ltd. in DPLI i.e. Respondent No. 5 did not fructify. Therefore, at this
juncture they are not selling the shares of DIL (R1) held in DPLI (R5). He further
submitted that in case the Respondent No. 1 intends to sell its shares in Respondent
No. 5 company DHFL Pramerica Life Insurance Ltd., prior notice of minimum 48 hours
to 72 hours would be given to the present applicant.
149. In view of the above submissions of the Ld. Senior Counsel Mr. Ravi Kadam,
Ld. Senior Counsels, Counsels appearing for the other Respondents also agreed with
the submissions of the Ld. Senior Counsel Mr. Ravi Kadam. Therefore, the prayers
sought by the Applicant in this IA No. 2168 of 2020 in CP (IB) No. 4258 of 2019 are
premature, hence could not be granted at this stage. However, he submitted that the
Successful Resolution Applicant after taking over the Corporate Debtor DHFL, would
decide on the same as DIL being a 100% wholly owned subsidiary of the Corporate
Debtor DHFL, which is under CIRP and the Successful Resolution Plan has been
approved by the CoC and also approved by the Banking sector Regulator RBI and the
same has been reportedly filed for approval of NCLT.
150. Further upon analysis of the balance sheet of the Applicant TDH Reality LLP it
is observed the paid-up capital of the Applicant is only Rupees One Lakh and the
Company was incorporated recently. Ld. Senior Counsel Mr. Joshi, submitted that the
purported claim/the transaction of the Applicant having made an investment of
approximately Rupees One Thousand Five Hundred Forty-Eight Crores and taking over
the liability of approx. Rupees Seventeen Hundred Crores is without any financial
backing of the Applicant. After perusal of the balance sheet of the Applicant the
Adjudicating Authority also concurs with the submissions of the Ld. Senior Counsel
and this transaction of having invested more than Rupees One Thousand Five Hundred
Crores in the CCDS is not convincing, satisfying without any financial backup,
capability and appears to be only book entry and not supported with any financials.
151. Therefore, the prayer in IA No. 2168 of 2020 in CP (IB) No. 4258 of 2019
sought by the Applicant have now become infructuous in view of the subsequent
statement made by the Learned Sr. Counsel for the Administrator of the DHFL that
Respondent No. 1 is currently not going to sell of the shares of DHFL in Respondent
No. 5 i.e. DHFL Pramerica Life Insurance Company, the sale could not be concluded
because there were no bids. Therefore, it has been decided by the Respondent No. 1
that the sale of its shares in Respondent No. 5 company will not take place and
accordingly the sale process has been cancelled for the time being.
152. In view of the above statement made by the Ld. Senior Counsel for the
Administrator of DHFL and taking in to consideration the subsequent development
took place and factual position in the matter, the cause of action in the present IA no
longer exits and the present IA becomes infructuous, cannot survive hence it is
disposed of. Therefore, the Interim Order, direction dated 11.01.2021 as not to sell the
shares of R1 in R5 till the next date of hearing or until further orders is now hereby
vacated. IA-2168/2020 stands disposed of accordingly.
———
†
Mumbai, Court II
-----------------------------------------------------------------------------------------------------------------------------------------------------------
‡
Under Section 60(5)(B) and (C) of the Insolvency and Bankruptcy Code, 2016 Read with Rule 11 of the NCLT
Rules, 2016
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Page 1 Friday, July 05, 2024

2021 SCC OnLine NCLT 6015

TDH Realty LLP … Applicant;

146. No reply is filed for Respondent No. 8.

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