DHFL Insolvency: Indiabulls Group Entities Move NCLT To Secure Assigned Loans 

Two Indiabulls Group entities have moved the NCLT against IDBI Trusteeship Ltd. to recover dues against loans assigned to them by Dewan Housing Finance Ltd.

DHFL, a non-banking finance company, had entered into an arrangement for assignment of loans with Indiabulls Commercial Credit Ltd. and Indiabulls Housing Finance Ltd. for a consideration.

As per the arrangement, the Indiabulls entities became assignee of the loans and DHFL ceased to hold any rights in such loans after the assignment. The non-bank lender continued to act as a collecting agent for the two Indiabulls entities. It deposited the collections with IDBI Trusteeship. As per the arrangement, IDBI Trusteeship was entitled to 20 percent of the collections deposited with it against certain loans.

The Insolvency and Bankruptcy Code was amended last year to bring financial service providers within its purview. The Reserve Bank of India moved an application in November last year for initiation of insolvency proceedings against DHFL. NCLT had allowed RBI's application and imposed a moratorium. DHFL's creditors had also moved Bombay High Court to recover dues.

Counsel for the Indiabulls entities informed the tribunal on Monday that the money deposited by DHFL with IDBI Trusteeship under the assignment arrangement were outside the scope of moratorium, as the insolvency regulations specifically exclude third party assets held by a corporate debtor.

DHFL has been facing considerable financial stress since 2018 when a series of defaults by companies like IL&FS led to a liquidity squeeze in the credit market, resulting in the drying up of funds for non-bank lenders.

Indiabulls' Arguments

Zal Andhyarujina, counsel representing the Indiabulls entities sought the Tribunal's directions against IDBI Trusteeship on the following grounds:

• IDBI Trusteeship was a trustee for the two Indiabulls entities. DHFL deposited the money with it on behalf of the Indiabulls group entities. At a later stage, Indiabulls entities themselves started collecting the funds from the debtors. Therefore, the Indiabulls group entities seek directions against IDBI Trusteeship while no action is being initiated against DHFL.
• The regulations specifying the manner in which an administrator can deal with third-party assets held by a corporate debtor are yet to be notified by the Insolvency and Bankruptcy Board of India.
• In the absence of a timely recovery, Indiabulls group entities will have to classify amounts lying in custody of IDBI Trusteeship as non-performing assets. It may also have to initiate action under the SARFAESI Act against the borrowers who were mostly home owners.

Counsel for IDBI Trusteeship informed the Tribunal that it would seek directions from the RBI and DHFL's administrator for further actions.

The NCLT has directed the parties to file replies and will hear the matter on Feb. 3