Overturning a lower court’s order, the National Company Law Appellate Tribunal (NCLAT) Thursday permitted holding a second e-auction for Reliance Capital (RCap), a move that would help lenders maximise value.
However, this will further delay the insolvency proceedings of the former Anil Ambani group firm, as Torrent Group, a bidder in the final round, is slated to move the Supreme Court, sources close to the development said. “They are studying the order, and they are likely to take appropriate actions,” a source said.
In its order on Thursday, the appellate tribunal also asked the committee of creditors (CoC) to fix a date after two weeks for holding the revised challenge mechanism. It also asked the CoC to take steps for further negotiations with resolution applicants as per the relevant clauses of the request for resolution plan (RFRP).
“It is held that the CoC is fully empowered as per the clauses of RFRP to further negotiate with one or more resolution applicants, even after completion of challenge mechanism on December 21, 2022, and the decision of the CoC taken on January 6, 2023, to undertake an extended challenge mechanism is not violative of Regulation 39(1A),” the NCLAT said in its order.
The order provides CoC the power to negotiate and call for higher bids.
On February 2, the Mumbai bench of the National Company Law Tribunal (NCLT) declared the proposed second e-auction as a violation of bankruptcy rules. It also declared Torrent Group as the highest bidder under the first challenge mechanism and directed the administrator to take the process to its “logical conclusion”.
The CoC had decided to conduct the extended challenge mechanism on the basis of a late bid submitted by IndusInd International Holdings (IIHL), the firm through which the Hinduja Group had placed bids, NCLT had said in its order. It had also termed holding an extended challenge mechanism a violation of Section 39(1A) of the corporate insolvency resolution process (CIRP).
RCap’s lenders, in a written submission before the NCLAT, said irreparable harm could be caused by the continued stay on the extended challenge mechanism, even as the firm lost more than `275 crore in the last six weeks. Going forward, a loss of `45 crore is expected to be incurred per week.
Further, the stay on the second e-auction is preventing the CoC from discovering a higher value and has put RCap’s CIRP in “suspended animation”. It also stated that the CoC is being prevented from discovering the best price through the insolvency process, and reiterated its earlier stance that denial of extended challenge mechanism would result in a loss of `5,000 crore in upfront payment to lenders.
The tribunal had also directed all the respondents, administrator and the CoC not to allow any deviation in the highest net present value (NPV) proposal of `8,110 crore by IIHL and the highest NPV financial proposal of `8,640 crore by Torrent.
According to lenders, RCap’s administrator had admitted claims of more than `25,000 crore. About `13,500 crore of claims are by Life Insurance Corporation of India and Employees’ Provident Fund Organisation (together having 35% of voting rights in CoC), provident and pension funds and Army Group Insurance Fund, which are all public money.
RCap’s insolvency resolution process was initiated by NCLT on November 29, 2021. The company has a consolidated debt of about `40,000 crore. Four firms submitted bids. The lenders opined that the bid values were not acceptable and initiated a challenge mechanism process, which took place on December 21. Torrent and IIHL participated in this. FE