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Dec 22, 20237 min read

DHFL the (N)BFC, RBI’s Decree and the “Bad Precedent” (?)

Posted on 22/12/2023 (GMT 11:30 hrs)

In continuation with


Was DHFL the NBFC under the RBI?


Fixed Deposits: Insecurely Secure? A Letter to the Finance Minister and RBI Governor

I. THE TRAJECTORY OF METAMORPHOSIS: THE TALE OF NBFCs

We had earlier asked the following question to the Department of Economic Affairs through our RTI dated 21/10/2023:

Was the Dewan Housing Finance Corporation Limited (DHFL) under the Reserve Bank of India (RBI) before being put under the Insolvency and Bankruptcy Code (IBC)?

To this question, after going through the trajectory of the said Ministry to the RBI and from the RBI to the NHB, the NHB gave a concluding reply on 17/11/2023:

Dewan Housing Finance Corporation Limited (DHFL) was under the regulatory purview of the National Housing Bank (NHB) till 08-08-2019, Pursuant to the Department of Financial Services, Ministry of Finance Notification No. S.O.2902 (E) dated 09-08- 2019, the regulation of Housing Finance Companies (HFCs) has been transferred to the Reserve Bank of India with effect from August 09, 2019.

Thus, the regulation of the Non-Banking Finance Companies (NBFCs) was under the NHB till 8th August 2019 (under the NHB Act), after which it was transferred to the RBI, thus getting under the RBI Act itself.

This was done with the instrumentality of THE FINANCE (NO.2) BILL, 2019 (page 45 onwards), which was amended from the National Housing Bank Act, 1987, to transform Housing Finance Companies into NBFCs regulated by the RBI.

Hence, NBFCs are under the RBI Act now.

What does the RBI say regarding NBFC-FD investments?

“…deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.” (i.e., FDs of NBFCs belong to the “unsecured” category, unlike in the case of Banks, where such deposits are insured.)

Sed Contra: If one takes RBI as the apex central BANK of India (which it in fact is), does it entail that once the NBFCs come under the RBI rules/guidelines (which they did on August 2019), they lose their “N”-BFC status thereof?

II. The Questions That Arise!

Now, more pertinent questions that arise from this state of affairs are given as follows:

Is there any correspondence of the RBI Act, the NHB act and the IBC, i.e., do they reflect or mirror the de facto state of affairs accurately? The state of affairs only show bankruptcies after bankruptcies along with the rising assets of the ruling party⤡. How to explain such a correlative phenomenon in terms of the said acts?

If not correspondence, is there any coherence amidst the RBI Act, the NHB act and the IBC? It appears that there is not such an internal logical consistency betwixt the different provisions of these three acts? Which shall supervene upon the other? Is the IBC to be held “supreme”? If so, why?

What was the NHB or RBI, as vigilant agencies, doing before the Cobrapost findings in January 2019? Were they high on sedatives or sleeping pills? Why could they not stop the massacre (i.e., the DHFL scam) from happening in the first place? Where did their “regulatory authority” vanish off?

If one goes by the fact that FDs and NCDs are “unsecured” investments (as we observed previously), we have to further ask:

In post-independent India, have you ever heard of Fixed and Recurring Deposits (FDs and RDs) as being liable to market risks?

Has anyone ever heard about anyone losing their money in fixed deposits?

There is NO disclaimer such as the “SUBJECT TO MARKET RISKS. INVEST RESPONSIBLY AFTER READING ALL THE RELEVANT DOCUMENTS CAREFULLY” statutory warning in the case of FDs, like in the case of Share Market, SIP or Mutual Funds.

Why did the SEBI not make the investors aware through their Awareness Programme⤡ about the insecurity of FDs?

Why does the government, as a welfare state, not mention this message of underlying insecurity in the case of FD, RD and NCD?

III. The Wadhawan Brothers, paramavaisnava and even more…

Moreover,

in the case of the DHFL scam, the Wadhawan brothers, the ex-promoters/suspended directors of the DHFL, were solely targeted by the RBI for siphoning off funds by creating shell companies and for committing loan defaults. However, is not every corporate the creator of such shell companies for the transactions of their corporate empire? Even Gautam Adani has created multiple number of “shell entities”, as pointed in the Hindenburg Report⤡:

“Adani family members allegedly cooperated to create offshore shell entities in tax-haven jurisdictions like Mauritius, the UAE, and Caribbean Islands, generating forged import/export documentation in an apparent effort to generate fake or illegitimate turnover and to siphon money from the listed companies.“

“Gautam Adani’s younger brother, Rajesh Adani, was accused by the Directorate of Revenue Intelligence (DRI) of playing a central role in a diamond trading import/export scheme around 2004-2005. The alleged scheme involved the use of offshore shell entities to generate artificial turnover.”

Why the Wadhawan brothers were singled out, of all the other corporate tycoons? Is it because they were not in the “good-book” of the BJP, the current ruling party of India? Is it because the BJP will never go against its favoured/patronized tycoons, viz., Adani, Ambani and their family members like Ajay Piramal- the so-called “new owner” of the DHFL?

Why was the NCLT’s 19/05/2021 verdict to the RBI-CoC for DHFL for reconsidering Wadhawan’s full repayment proposal left unheard, unanswered? Was that not a (possible) contempt of court done by Piramal and the CoC? Mr. Piramal got rapid justice at the NCLAT on 25.05.2021 when it indefinitely stayed the said NCLT order without any ado, without turning a hair.

This is a chaosophical situation that is only possible within an oligarchy, in which those who are close to the ruling party are treated well. Others are left to perish. In the case of the NCLAT order dated 27.01.2022 that declared the entire resolution process as “contrary to law”, Piramal did the same thing and got hastened justice at the Supreme Court under the garb of a “blanket” (?) stay order on 11.04.2022.

Is Ajay Piramal more equal than others, especially when thousands of cases are pending at various levels of the Indian courts?


Piramal is more equal than the other 98%!

IV. DHFL: a (in)solvent concern?

Furthermore, how was the DHFL so easily put under the ill-conceived Insolvency and Bankruptcy Code (2016, amended more than 35 times) by the RBI? Was the DHFL proven to be “insolvent”? Or was it solvent in actuality?

As per the Bombay High Court’s orders on this issue in relation to Reliance Nippon Life Insurance’s filed case against the DHFL, all payments to the small creditors were stopped during the second week of October, 2019. However, in November 2019, the self-same court ordered the DHFL administration to pay back the pending amount to its lenders such as the SBI, UBI etc. The DHFL was ready to do that.

Excerpts from the above report:

“DHFL’s counsel told the court that it will ensure that a security cover of at least 1.1 times of its outstanding dues towards the NCDs is maintained, in accordance to the trustee agreements. The cover was 1.2 times as on 30 June 2019 and, according to information available with DHFL’s counsel, it was 1-1.11 times as on 30 September.

“In view of this, the order is modified to the extent that the first defendant (DHFL) shall make payments under the securitisation agreement and to other assignees of receivables,” said Justice Menon.“

Moreover, previously when Congress politician Priyanka Gandhi Vadra critiqued the terror-funding enterprise of the “fraudulent” DHFL on 2nd November, 2019⤡, the DHFL on 03.11.2019 reverted back to say that it is unable to pay its small creditors due to the Bombay High Court’s order. However, it has enough funds to pay them in full. It is further to be noted that till the time of the order, DHFL did not fail to meet its obligations to the FD-NCD holders, i.e., paying them at the right time.

Excerpts from the above report:

“The company continues to have strong collections and adequate liquidity to pay its fixed deposit holders, it said.“

“The company was making all payments for maturity and interest on all fixed deposits held with the company, on their respective due dates, and there has been no delay in making any payment to any fixed deposit holders until the orders,” DHFL said.”

What happened, then, all of a sudden, that the DHFL had to go into the IBC as per the RBI’s order? It appears that the DHFL was indeed a solvent, profitable, ongoing company till that time!

Is this some sort of fishy conspiracy of sorts???

Was it done only to avoid a “bad precedent”, and to save the face of the current ruling party, i.e., a way to legitimize the IBC? Couldn’t they have applied the SARFAESI act, instead, to revive the ongoing company?


If SARFAESI (2002) is there, why fluid IBC (2016) is applied to the DHFL?

The thing is that, after the said NCLT’s first order in May 2021, the DHFL lenders stated the following:

“Lenders said the NCLT order may set a bad precedent, with more promoters moving the court to consider their offer.”

“That if the impugned orders were allowed to operate, it would be extremely prejudicial as it creates a new process, which is contrary to the express provisions of the Code and, if allowed, the CIRP will be never ending where parties will be permitted to keep making offers without regard to sanctity of the process or timelines, including after CoC has exercised its commercial wisdom and approved a plan, which has been submitted by an eligible resolution applicant in compliance with the Code,” DHFL’s lenders said in their appeal.”

SOURCE: Appeals Court Stays Order on Wadhawan VIEW HERE ⤡ (As reported on 26th May, 2021 ©The Mint)

The lenders said that the verdict of the NCLT would set a “bad precedent” (if their first order was being followed), since the DHFL case was the first case to go under the experimental, ill-conceived IBC (2016). “Bad precedent”? Such statement made by lenders is not only irrational or illogical, it is also ridiculously idiotic! Be it the first or last precedent, we must call spade a spade! An illegal resolution process does not become legal solely in order to legitimize the newly-introduced IBC! Why is the RBI-appointed CoC deliberately providing help to the present politico-legal administration and their engineered codes/laws/policies by the help of their wis(h)dom (The CoC can do no wrong? ‘Wis-h-dom’ of the CoC is presupposed?⤡)?  

Due to just this…

just this…

along with the holistic form of political vendetta against the Congress-oriented Wadhawans,

that the DHFL victims as “guinea pigs”⤡ are suffering today as penniless paupers in the state of utter hopelessness, as financially abused pariahs in despair within the dilapidated Indian economy….!!!!!

SEE ALSO:


Requesting for Returning the Fees from the Administrator and Representatives of the RBI-appointed CoC for DHFL


An Open Letter to Two Public Servants: Mr. R Subramaniakumar and Mrs. Charu Sandeep Desai

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