High court allows DHFL to repay loans to banks

The Bombay high court (HC) has granted relief to a clutch of banks and financial institutions, by allowing Dewan Housing Finance Limited (DHFL), to make payments

The Bombay high court (HC) has granted relief to a clutch of banks and financial institutions, by allowing Dewan Housing Finance Limited (DHFL), to make payments to the banks with which the housing finance company had entered into securitisation transactions (Assignment Agreements).

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The HC order was passed on Wednesday after the banks sought a relaxation of a previous HC order passed in October, in which DHFL was restrained from making payments to any creditors, following a suit filed by Reliance Nippon Life Asset Management.

In its order on Wednesday, HC directed DHFL to maintain a security cover of 1.1 times the amount of the outstanding non-convertible debentures it owed to Reliance Nippon Life Asset Management. A bench of justice AK Menon, while hearing Reliance’s suit, was informed that a clutch of financial institutions, which include State Bank of India, Bank of Baroda, Union Bank of India, Indian Overseas Bank, UCO Bank, Canara Bank, Bank of India, DCB Bank, Standard Chartered Bank, IDFC First Bank, HDFC Bank, Aditya Birla Finance Ltd and Aditya Birla Housing Finance Ltd, had filed an intervention application in the suit .

The banks had claimed that DHFL had assigned certain receivables under the Assignment Agreements and it was merely appointed as a collection agent. The banks further said that the amount collected by DHFL was not towards the repayment of any loan amount. However, as the HC had on October 10, restrained DHFL from making any payment, the interests of the banks had been affected.

The October stay was granted by HC after Reliance claimed that they were DHFL’s debenture holders and the housing finance company had defaulted in making the repayments. Reliance had further claimed that DHFL had made preferential payments to its other creditors including unsecured creditors. Hence, Reliance had an apprehension that they would not receive their investments, and thus sought a stay.

On Wednesday, the counsel for Reliance said that if DHFL maintains a security cover 1.1 times the amount of the outstanding non-convertible debentures (NCDs), it did not object to DHFL repaying the banks under the Assignment Agreements.

The counsel for the banks submitted that as the Assignment Agreements were executed prior to the debenture trust deeds (DTDs) suit, Reliance could not have a claim. DHFL’s counsel submitted that as per the records and its unaudited results as on September 30, the security cover was of 1 to 1.2 times the amount in terms of the DTDs, and that the housing finance firm shall maintain the same in terms of the DTDs. An affidavit was also filed to this effect.

After hearing the submissions, the bench held, “In view of the statement, the ad-interim order dated 10th October, 2019 is modified to the extent that DHFL shall make payments in accordance with the various Assignment Agreements entered into between DHFL and the Applicants and the other assignees of such loans.” The order has also included those banks which have not filed an intervention application in the case.

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