The Dewan Housing Finance Corporation Ltd (DHFL) has defaulted on Rs.3958 crore loan from Union Bank of India. Now, Union Bank of India has taken legal action against the former promoter – Kapil Wadhawan. But Kapil Wadhawan, the former promoter of Dewan Housing Finance Corporation Ltd (DHFL), has taken legal action to challenge the initiation of personal insolvency proceedings against him by Union Bank of India for a ₹3,958-crore default. The National Company Law Appellate Tribunal (NCLAT) briefly heard the case before deferring the matter to 18 July without issuing a notice.
Background and Legal Proceedings
On 2 April, the Mumbai bench of the National Company Law Tribunal (NCLT) accepted Union Bank’s application to begin insolvency resolution proceedings against Wadhawan. This followed a similar application against his brother and co-promoter Dheeraj Wadhawan, which the NCLT had admitted on 20 March. DHFL had taken various term loans exceeding ₹4,000 crore and working-capital loans worth ₹450 crore, for which Kapil Wadhawan had provided unconditional and irrevocable guarantees from Union Bank and other lenders.
In response to the bank’s insolvency plea, Wadhawan argued that he had signed a joint deed of guarantee in favor of Catalyst Trusteeship Ltd, a trustee appointed by a consortium of 29 banks. He contended that individual lenders within the consortium did not have the authority to approach the tribunal directly, as the trustee held the securities in trust for the consortium’s benefit. However, the tribunal disregarded this argument, noting that individual financial institutions could pursue the guarantor as if he were the primary debtor
Impact of Legal Developments
This case is significant in the context of increasing scrutiny on personal guarantors following a Supreme Court ruling on 9 November 2023, which upheld crucial provisions of the Insolvency and Bankruptcy Code (IBC). The ruling reinforced the accountability of personal guarantors for defaulted debts, aligning with the Insolvency and Bankruptcy Code (Second Amendment) Act 2018 and subsequent notifications that directly subject personal guarantors to insolvency proceedings without creditors having to pursue action against the corporate debtor first.
Conclusion
Kapil Wadhawan’s challenge to the personal insolvency proceedings against him reflects the evolving legal landscape surrounding personal guarantors and their accountability for defaulted debts. The outcome of this case could have broader implications for the treatment of personal guarantors in insolvency proceedings.
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