The Delhi High Court has issued notice in a petition by India Leprosy Foundation, a public Charitable Trust, against the initiation of insolvency proceedings against Dewan Housing Finance Corporation Limited (DHFL) [India Leprosy Foundation vs RBI].
A Bench of Chief Justice DN Patel and Justice Jyoti Singh sought response from the Reserve Bank of India (RBI) in the petition by a public depositor having fixed deposits in DHFL.
It is the petitioner’s case that it was incumbent upon RBI to resolve DHFL crisis in terms of Section 45-MBA of the RBI Act and to give effect to the provisions of Section 45-QA (1) which guarantees repayment of deposits to depositors of NBFC.
Instead, the petitioner submits, the RBI adopted a course which is gravely detrimental to small depositors as it initiated corporate insolvency resolution process against the DHFL under Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 read with the Insolvency and Bankruptcy Code, 2016.
The petitioner has submitted that public depositors were constrained to participate in the IBC process for an amount which is about 6% of the total amount outstanding to all of DHFL’s financial creditors.
Consequently, being a marginal minority on the Committee of Creditors of DHFL comprising of large banks and financial institutions, a resolution plan assuring only 20-25% of the deposited amounts to the petitioners was approved.
In its petition, the petitioner has assailed the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019.
As per the petitioner, the insolvency resolution of financial institutions is contrary to public interest and the interest of public depositors.
The Rules discriminate between depositors of NBFCs and those of banks which are also regulated by the RBI and proscribe the exercise of RBI’s powers under Chapter III-B of RBI Act 1934 to actively protect the interests of the depositors of an NBFC.
Advocates Rony John, Piyush Swami and Arshdeep Singh appeared for petitioner.
The matter would be heard next on March 5.