Reliance Capital’s resolution: Bidders dissatisfied with another auction plan

On March 20, 2023, the Supreme Court (SC) accepted Torrent Investments’ (the highest bidder with an 8,640 crore resolution plan) challenge against the lenders’ decision to arrange another round of auction. Reliance Capital’s resolution: Bidders dissatisfied with another auction plan.

According to insiders, the intention of debt-ridden Reliance Capital‘s lenders to conduct a second round of auction has hit a snag because bidders are apparently not interested in another round under the bankruptcy resolution process.

Meanwhile, the Supreme Court has scheduled a hearing on the second sale for August.

On March 20, 2023, the Supreme Court (SC) accepted Torrent Investments’ (the highest bidder with an 8,640 crore resolution plan) challenge against the lenders’ decision to arrange another round of auction.

The court, however, refused to stay the auction’s second round.

Reliance Capital’s insolvency has been ongoing for more than 450 days, much exceeding the statutory time limit of 330 days.

According to sources, Torrent just informed lenders that it will not participate in the second round of bidding. The other bidder, Hinduja Group’s IndusInd International Holdings Ltd (IIHL), has also informed the lenders that it wishes to withdraw its amended bid of 9,000 crores, which it made after the auction process, and keep the prior offer of 8,110 crores made in the first round of auction.

This has thrown a wrench in the Committee of Creditors (CoC) plan to hold a second round of auctions with a base price of Rs 9,500 crore in order to maximize recovery from the RCAP resolution process.

According to sources, a consortium of Cosmea Financial and Piramal, which submitted binding bids for Reliance Capital in November, has written to the administrator, requesting a refund of their earnest money deposit (EMD) of 75 crores each, as both companies do not wish to continue participating in the ongoing resolution process.

While the CoC may proceed with the extended challenge procedure, allowing lenders to conduct a second round of auction, the auction outcome will be subject to the final judgment of the CoC.

According to the sources, Reliance Capital is on the verge of liquidation if the lenders and bidders fail to reach an agreement to break the standoff.

According to estimates, lenders would receive 13,000 crores if they were liquidated.

Torrent last week proposed holding a Swiss Challenge auction with their earlier proposal of 8,640 crores as the barrier, according to bankers involved in the process. If the lenders agree, Torrent will have the first right to match any counteroffer from Hinduja Group‘s IIHL, according to one of the sources.

According to the sources, the challenge mechanism may be flawed because serious bidders will be hesitant to participate in such open-ended processes. They added that because the Supreme Court will be examining the interpretation of Regulation 39 (1A) for the first time, the decision will have far-reaching implications for the future of IBC (Insolvency and Bankruptcy Code).

According to a lender involved in the process, the Swiss Challenge or closed envelope bid process may go against the apex court’s order allowing the lenders to proceed with an extended auction.

The controversy over RCAP’s bidding occurred after Hindujas promised to pay the lenders 9,000 crores in upfront cash a day after the first round of the auction ended on December 21.

Following this, lenders agreed to hold one more round of auctions in order to maximize their recovery from RCAP assets.

Torrent, who submitted a bid of 8,640 crores in the first auction, declared IIHL’s post-auction revised bid of 9000 crores unlawful and filed a National Company Law Tribunal challenge to Hindujas’ updated bid as well as the second round of auction (NCLT).

The NCLT ruled in favor of Torrent, but the NCLAT overruled the decision, allowing RCAP’s lenders to proceed with a second round of auction. Torrent petitioned the Supreme Court for a stay of the National Company Law Appellate Tribunal (NCLAT) judgment, but the high court refused to provide the business any remedy.

Due to payment failures and major governance difficulties, the Reserve Bank of India (RBI) superseded Reliance Capital’s board on November 29, 2021.

The RBI appointed Nageswara Rao Y as the administrator of the firm’s Corporate Insolvency Resolution Process (CIRP).

The third significant non-banking financial corporation (NBFC) against which the central bank has filed insolvency proceedings under the Insolvency and Bankruptcy Code is Reliance Capital (IBC).

Srei Group NBFC and Dewan Home Finance Corporation were the other two (DHFL).

Following that, the RBI filed an application with the National Company Law Tribunal’s Bombay bench to initiate CIRP against the company.

The RBI-appointed administrator requested expressions of interest for the sale of Reliance Capital in February of last year.