DHFL moves SAT against Sebi for action during resolution process

Published: July 21, 2020 1:30 AM

FE had earlier reported that Sebi sent a showcause notice to DHFL for non maintenance of debenture redemption reserve (DRR).

Experts believe that final order in the matter will provide clarity on regulatory powers during the time of resolution under IBC.Experts believe that final order in the matter will provide clarity on regulatory powers during the time of resolution under IBC.

By Ankur Mishra

Dewan Housing Finance Corp (DHFL) has moved Securities Appellate Tribunal (SAT) against markets regulator Securities and Exchange Board of India (Sebi) for taking action against it during resolution proceedings. The regulator had earlier imposed a penalty of Rs 20 lakh on DHFL for not complying with norms, while issuing non-convertible debentures (NCDs) in 2016-17. In an interim order last week, the court has put a stay on recovery by Sebi during the pendency of the appeal.

“The question which arises for consideration is, whether Sebi could initiate proceedings under Sebi Act, 1992, inspite of issuance of a moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC), “ Justice Tarun Agarwala said in its order. Section 14 of IBC prohibits the institution of suits or proceedings against the corporate debtor during the resolution process. SAT has asked Sebi to reply in four weeks. The matter will be heard next on September 15, 2020.

Experts believe that final order in the matter will provide clarity on regulatory powers during the time of resolution under IBC. Sonam Chandwani, managing partner at KS Legal & Associates, said, “ By permitting Sebi, such sweeping regulatory powers would lead to a confidence deficit among potential investors and deter successful resolutions under the IBC. ”

FE had earlier reported that Sebi sent a showcause notice to DHFL for non maintenance of debenture redemption reserve (DRR). The companies raising capital through debentures are required to create a debenture redemption reserve as a provision to protect investors, in case of default. Unhappy with the explanation given by DHFL, market regulator slapped a penalty of Rs 20 lakh on the company in May, 2020.

During its examination, Sebi observed that DRR was not created for 15 NCD issues in financial year 2017, despite DHFL earning net profit of Rs 2,897 crore during the year.

DHFL is undergoing insolvency proceedings at National Company Law Tribunal (NCLT), Mumbai. The committee of creditors (CoC) had earlier decided to extend the deadline for submission of bids for till July 24, due to Covid-19 disruptions. DHFL had shortlisted 22 applicants for the resolution of the troubled company.

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