National company law tribunal Current Affairs - 2020

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DHFL becomes 1st financial services firm to be taken to NCLT

The Reserve Bank of India (RBI) has referred Dewan Housing Finance Corp. Ltd (DHFL) to the National Company Law Tribunal (NCLT) for insolvency proceedings, making it the first financial services player to go NCLT for a possible debt resolution. DHFL has a debt of Rrs.83,873 crore. As per the statutory inspection of DHFL conducted by the National Housing Bank, the DHFL showed a serious deterioration in its finances. It had public deposits of Rs.6,188 crore as on 6 July 2019, down from Rs.10,166.72 crore as on 31 March 2018.

Key Highlights

RBI has filed an application for initiation of corporate insolvency resolution process against DHFL under Section 227 of Insolvency and Bankruptcy Code (IBC), 2016 read with Rules 5 and 6 of Insolvency and Bankruptcy Rules, 2019.

R. Subramaniakumar, the RBI-appointed administrator for DHFL, will take over lender’s affairs once his appointment is approved by National Company Law Tribunal (NCLT).

New Powers Granted to RBI

DHFL is first financial services firm to be sent to bankruptcy tribunal after government notified the rules for referring financial services providers (FSPs) on 15 November 2019. Thereby now, unlike insolvency proceedings for companies from other sectors, a Financial Services Providers (FSPs) creditor/debtor cannot approach tribunal- the firm has to be referred by a regulator.

Under new powers granted to RBI in Union budget, the central bank can take over administration of privately-held financial services companies. Moreover, RBI can also remove auditors, call for an audit of any group company, and have a say on compensation of top management of an Non-Banking Financial Companies (NBFCs). As per new FSP insolvency rules, an interim moratorium will start from the date of filing of application till its admission/ rejection.

Way Forward:  Most likely this model will be followed for other NBFC as well because currently there is a lot of discussion about other NBFCs not being in a position to meet their debt servicing obligations. This could also be a used as a tool for RBI to ensure timely resolution for large NBFCs with significant public investments.

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 Induslnd Bank- BFIL merger to be effective from July

The merger of Induslnd Bank and Bharat Financial Inclusion Ltd (BFIL) will be effective from 4 July 2019. This decision to file National Company Law Tribunal (NCLT) Order on 4 July, by lender IndusInd , BFIL and IFIL with Registrar of Companies was taken by the boards of IndusInd and BFIL.

Key Highlights

Background: In October 2018, IndusInd Bank decided to acquire India’s leading micro-finance player BFIL, earlier known as SKS Microfinance. On 10 June 2019, National Company Law Tribunal (NCLT), a quasi-judicial body in India that adjudicates issues relating to Indian companies, sanctioned Scheme of Arrangement among BFIL, IndusInd and IFIL and their respective shareholders and creditors.

Key Changes:

After the merger current CEO of BFIL, M R Rao, will become the CEO of IndusInd Financial Inclusion Ltd (IFIL) and all employees of BFIL will become part of Induslnd family.

The Business Correspondent (BCs) network of BFIL will operate under IFIL.

All Assets and liabilities of BFIL will be merged with IndusInd’s balance sheet.

The consolidated financial results for 1st quarter of FY19 will be published on 12 July 2019.

In accordance with Scheme of Arrangement, BFIL’s shareholders will get 639 shares of bank for every 1,000 they held. The scheme also contemplates a preferential allotment of share warrants to promoters of bank in accordance with scheme, which says that each share warrant, upon exercise, shall entitle Promoters to one Equity share.

Importance:

Financial Inclusion: This merger of IndusInd Bank Limited and BFIL will enable 8.8 million microfinance customers of BFIL to access savings, deposits and other banking products. Thus the merger will help in boosting financial inclusion in its truest form.

Increase Banking Reach: Also talent, capabilities and distribution of BFIL will enable IndusInd Bank to play a more meaningful role in rural India and will fulfill ambition of building financial inclusiveness and sustainability in large swathes of unbanked and underbanked India.

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