DHFL’s Fixed Depositors Challenge Decision To Restart Lending

More than 250 fixed depositors of Dewan Housing Finance Corporation Ltd. have moved the Supreme Court challenging the decision to restart lending at the beleaguered housing finance company, two people aware of the matter told BloombergQuint.The retail fixed depositors are arguing that their dues should be paid before the company starts lending again, the people said on the condition of anonymity. The petition was filed last week, and the apex judicial body is set to hear the case on Thursday.R Subramania Kumar, the Reserve Bank of India-appointed administrator for DHFL, declined to comment on the developments.Earlier this month, the committee of creditors to DHFL agreed to restart lending at a rate of Rs 500 crore a month, BloombergQuint had reported. The lending was expected to restore some of the value in the home financier’s books, as it has stopped lending for months.In the absence of a specific financial bankruptcy law, DHFL is being resolved under a special window of the Insolvency and Bankruptcy Code. The housing financiers’ board was superseded by RBI on Nov. 20..WATCH | DHFL FD Holders Seek Dues Before Lending Resumes.According to the rules notified for the IBC window for non-bank lenders, once insolvency proceedings are initiated, the lender is placed under moratorium. The moratorium applies to all except creditors except “third-party assets or property, including any funds, securities or assets held in trusts”.An earlier proposed Financial Resolution and Deposit Insurance Bill, which is yet to be finalised, had proposed a bail-in of certain categories of deposits, including fixed deposits beyond a certain limit. Concerns over this ‘bail-in’ provision had led to a rethink on the bill.As such, the Supreme Court’s decision on the plea by DHFL fixed deposit holders may set a precedent for how retail deposits are treated during the insolvency process of a non-bank lender.“It is unlikely that the court will allow preferential payments to one class of financial creditors qua others as it will be against the tenets of the IBC, though the code may consider providing priority and preferences. Even in the homebuyers’ case, the Supreme Court only allowed representation on the committee of creditors, which the deposit holders already have,” said Babu Sivaprakasam, partner, Economic Laws Practice.According to Sivaprakasam, even among deposit holders there are different sub classes - institutional and retail depositors, which may make it further difficult to discriminate. If one class of creditors gets preferential treatment, it may well open up challenges from others like the mutual funds, where public money is involved, he added..Resolution Process Status CheckDHFL has been facing a liquidity stress since troubles at Infrastructure Leasing & Financial Services Group subsidiaries led to a funding freeze in the market. Its wholesale borrowers, comprising real estate developers, have been unable to meet their repayments, leading to further stress in its loan book.More than 55,000 fixed deposit holders have claims worth more than Rs 4,500 crore against DHFL. Financial creditors, including banks, mutual funds and other bondholders have submitted claims worth over Rs 87,000 crore against the company.The administrator is in the process of reviewing the claims and admitting them.The CoC is also finalising the terms of engagement with prospective bidders and is setting the minimum qualification criteria. According to the first person quoted above, lenders have decided that any prospective bidder must have a minimum net worth of Rs 3,500 crore. Lenders are also considering splitting the company’s loan book into retail, wholesale and slum rehabilitation projects, to find more bidders.Also Read: Sachin Bansal-Led Navi Technologies To Buy DHFL General InsuranceTo be sure, previous attempts to split DHFL’s book and finding bidders did not get the regulator's approvals as lenders had sought to convert debt to equity and control the company under a holding structure till it was sold. Lenders expect that under the IBC they can attempt to find a resolution for the stressed housing finance company.

DHFL’s Fixed Depositors Challenge Decision To Restart Lending

More than 250 fixed depositors have argued in Supreme Court that their dues should be paid before DHFL starts lending again.

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