The Supreme Court on Friday agreed to hear HDFC’s appeal seeking to initiate insolvency proceedings against RHC Holding, an entity promoted by billionaire brothers Malvinder Mohan Singh and Shivinder Mohan Singh for recovery of `41 crore.
A Bench led by Justice Arun Mishra sought response from RHC Holding and others on the HDFC’s petition against the National Company Law Appellate Tribunal’s July order that had dismissed its petition against RHC Holding, which is engaged in the business of investment of shares, bonds, etc in group companies.
The NCLAT, while upholding the order of the principal Bench of the National Company Law Tribunal order, held that non-bank financial companies come under the purview of the RBI and should seek remedies from the central bank and not from the bankruptcy court. The tribunal on December 6 had also observed that RHC Holding was an NBFC as per the certificate of registration issued by the RBI and does not come under the purview of the Insolvency and Bankruptcy Code (IBC).
Senior counsel KL Vishwanathan, appearing for HDFC, argued that mere NBFC registration is not sufficient to show that RHC falls within the definition of a financial services provider. The definition of financial services provider under Section 3(17) of the IBC says that a person must actually be engaged in the business, which means that it must be providing services on an ongoing basis and not as a one-time activity.
Besides, the business must be that of providing financial services and such business must be carried out in terms of an authorisation issued or registration granted by a financial sector regulator, the senior counsel said.
He added that the September 2016 report of the Committee to Draft Code on Resolution of Financial Firms stated that financial firms that do not handle consumer money and do not pose a systemic risk may be covered under the Code.
While RHC Holding had taken a loan of Rs 200 crore from HDFC in April 2016 for repayment of the existing debts and other general corporate purposes, it had defaulted on paying its dues, thus prompting HDFC to move the NCLT claiming that even after adjusting the proceeds from the sale of pledged shares, an amount of Rs 41.09 crore remained due.
According to the HDFC appeal, RHC had undertaken to pledge such number of shares of Religare Enterprises which will maintain the required cover (such value of pledged shares which will maintain the cover of 0.5 times of the outstanding amount under the facility) at all times. Even Fortis Healthcare Holdings had undertaken to pledge Fortis Healthcare shares in favour of IL&FS Trust Company (security trustee) so as to maintain the cover of 1.5 times of the outstanding amount, it added.
Between August 2017 and September 2017, HDFC had sold over 28 lakh pledged equity shares of Religare for a net value of Rs 12.81 crore and 10 lakh pledged shares of Fortis Healthcare for a net value of Rs 14.53 crore. However, even after adjusting the proceeds from the sale of pledged shares, some amount remained outstanding, the lender said.