NCLT declares Kapil Wadhawan bankrupt; what's next for DHFL's ex-promoter

Business Standard

a day ago

The National Company Law Tribunal (NCLT), Mumbai, on Monday declared Kapil Wadhawan, the former promoter and personal guarantor of Dewan Housing Finance Corporation Ltd (DHFL), bankrupt following a plea by Union Bank of India over a Rs 4546 crore default. According to experts, the bankruptcy order carries sweeping professional and personal consequences for Wadhawan.
What does it mean for Wadhawan and DHFL?
The tribunal has directed Wadhawan to file his financial statement with Bankruptcy Trustee Sanjay Kumar Mishra, nominated by Union Bank of India and appointed by the tribunal. This order follows creditors' decision in their September 2024 meeting to end the insolvency resolution process against Wadhawan due to his failure to submit a repayment plan, opting instead for bankruptcy.
'The declaration against Kapil Wadhawan follows the earlier ruling on Neeraj Wadhawan in March 2024. This concludes a lengthy legal process initiated by Union Bank. Following the appointment of a bankruptcy trustee, Wadhawan's assets will be controlled and liquidated for creditor satisfaction. He will be required to cooperate fully and provide complete details of his affairs and assets. Importantly, he will be barred from acting as a director, entering into contracts, and travelling abroad without permission,' said Parth Contractor, Founder of Chambers of Parth Contractor.
Rahul Hingmire, Managing Partner of Vis Legis Law Practice, explained that the order formalises Wadhawan's liability as a guarantor.
'By virtue of Sections 128 and 154 of the Insolvency and Bankruptcy Code (IBC), his estate now vests in the bankruptcy trustee, stripping him of control. This legally brands him insolvent, restricts his access to credit, and adds to the impact of SEBI's five-year market ban,' he said.
Sections 128 and 154 of the IBC address the impact of bankruptcy on a guarantor's estate, ensuring that the bankrupt's assets are transferred to the trustee.
Union Bank filed the case in December 2020 after DHFL defaulted on loans exceeding Rs 39,582 crore, guaranteed by Wadhawan under a 2019 deed of guarantee. The NCLT admitted the petition in April 2024; Wadhawan's appeal before the appellate tribunal (NCLAT) was dismissed in August, and the case is now pending before the Supreme Court.
Hingmire further noted that personal insolvency under the IBC typically leads to asset liquidation for creditor recovery, as courts have consistently upheld that guarantors' liability matches that of the borrower.
'The debtor must file a statement of affairs, which the trustee reviews before liquidating assets and distributing proceeds. While repayment plans under Section 105 are possible, asset liquidation is the usual course, ensuring creditors' recovery,' he added.
What lies ahead for DHFL and Wadhawan?
Wadhawan is now required to disclose his complete financial position, including the assets in his name and those of his immediate family members, along with liabilities from the past three years, within seven days of the bankruptcy order. The entire estate, including all assets belonging to him, will now vest with the bankruptcy trustee appointed by the NCLT, explained Rishabh Sharma, Counsel at DMD Advocates.
On the possibility of an appeal, Shiv Sapra, Partner at Kochhar & Co, noted that relief seems unlikely. 'While an appeal is possible, given the background and the failure to submit a repayment plan, it's unlikely that relief will be granted. The situation would have been different if a plan had been submitted and rejected or not considered,' Sapra said.
Other Cases
Legal commentators note that this order adds to the growing list of personal insolvency cases against promoters and guarantors under the IBC, strengthening creditors' ability to pursue recovery.
'Subhash Chandra of Essel Group faced proceedings initiated by Indiabulls Housing Finance Ltd., while Anil Ambani of Reliance Communications faced insolvency triggered by the State Bank of India for corporate debt guarantees. More recently, GVK Energy Limited entered insolvency after IDBI Bank filed a petition for dues of over Rs 1,100 crore,' Hingmire explained. Courts have upheld that guarantors' liability under the IBC and Section 128 of the Indian Contract Act, 1872 is independent and survives even if the company undergoes resolution.
'While Subhash Chandra's petition was admitted but later disposed of, with connected applications still pending, Anil Ambani's case is ongoing before the NCLT Mumbai with a new resolution professional appointed, and GVK Energy's insolvency proceedings are active,' Hingmire added.