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NCLAT allows another round of bidding for bankrupt firm Reliance Capital

Torrent has moved the court appealing to stop the second round of auction after its offer of Rs 8,640 crore has emerged as the highest bid for the company

Topics
Reliance Captial | NCLAT | National Company Law Tribunal

Dev Chatterjee  |  Mumbai 



Reliance Capital

The National Company Law Appellate Tribunal (NCLAT) has allowed another round of bidding for the bankrupt firm Reliance Capital. The order will help the Indian lenders to seek better offers from the two bidders -- the and Ahmedabad-based Torrent group.

Torrent had moved the court appealing to stop the second round of auction after its offer of Rs 8,640 crore emerged as the highest bid for the company. The Hindujas made an offer of Rs 9,000 crore after the auction closed.

Lenders of Reliance Capital have submitted before the that the Committee of Creditors (CoC) of Reliance Capital Ltd is being prevented to discover the best price in the Corporate Insolvency Resolution Process (CIRP) and (NCLT) has acted in excess of its jurisdiction at a stage where even signed plans were not placed before the CoC for consideration.

In its written submission before NCLAT, Vistra ITCL said, "NCLT has usurped the jurisdiction of the CoC by holding that the CoC has to vote on the Rs 8,640 crore plan of Torrent and Rs 8,110 crore plan of IIHL (Hindujas) and that CoC has no jurisdiction to negotiate even on the figures."

It further argued that NCLT has not even looked at these plans and there is no Rs 8,110 crore plan of IIHL and NCLT has substituted its opinion for that of CoC, which is not permissible under the Insolvency and Bankruptcy Code (IBC).

Denial of the extended challenge mechanism and sale of Reliance Capital assets to Torrent at a value discovered in the first challenge mechanism would result in a loss of Rs 5,000 crores upfront monies to the banks.

In their written submission filed with the NCLAT, the lenders have stated that Torrent is a private entity, while Reliance Capital has admitted claims of over Rs. 25,000 crores, most of which is public money.

This includes Rs 13,500 crores of claims belong to Life Insurance Corporation (LIC), Employees' Provident Fund Organisation (EPFO), other provident and pension funds, and Army Group Insurance Fund, and Torrent has sought unjust enrichment at public expense.

The lenders also argued that continued stay on the extended challenge mechanism will cause irreparable harm to the lenders. It has already resulted in an interest loss of over Rs 275 crores in the last six weeks, with a further loss of Rs 45 crores per week.

COC, in the exercise of its commercial wisdom, which is one of the core principles of IBC identified by the Supreme Court, has voted unanimously for an extended challenge mechanism, as the outcome of the first challenge mechanism was suboptimal and unsatisfactory.

The stay on extended challenge mechanism has foreclosed the COC from discovering higher value and has put the resolution process in suspended animation.

The lenders had argued that according to the terms of the auction, the COC has complete freedom to choose any method or process of negotiations, and one of such method can include a challenge mechanism and said there was no limitation on the number of methods of challenge mechanisms adopted. The auction rules sufficiently support the power of the lenders to hold multiple challenge mechanisms, it had said.

The lenders said that even if there was a successful resolution applicant, the COC is free to negotiate with other applicants, prior to voting.

In their submissions, lenders said Torrent misused the ex-parte order of the NCLT on January 3rd to rewrite its own resolution plan. On January 6, the company revised the upfront payment from Rs 3,750 crores to Rs 8,640 crores, while deliberately not making the COC a party in the NCLT.

The revised resolution plan of Torrent dated 6 January, with upfront payment of Rs 8640 crores, was a "toppling bid", designed to score higher than Hindujas in an evaluation Matrix scoring.

Reliance Capital was sent for debt resolution under the Insolvency and bankruptcy code in November 2021.


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First Published: Thu, March 02 2023. 12:29 IST

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