The National Company Law Appellate Tribunal (NCLAT) on Thursday permitted the lenders of Reliance Capital Ltd (RelCap) to hold a second round of auction for the sale of the Anil Ambani-promoted company.
A two-member bench of the appellate tribunal set aside an order passed by the Mumbai bench of the National Company Law Tribunal (NCLT), which had declared the extended challenge round as illegal. The NCLAT also said the lenders of RelCap had the power to negotiate and call for a higher bid.
Early last month, the NCLT said the challenge mechanism for financial bids was over on December 21, 2022. The bid of Torrent Investments was the highest at Rs 8,640 crore. The NCLT said no negotiation or value maximisation exercise can now be individually undertaken by the committee of creditors (CoC).
The lenders who had decided to go for an extended challenge mechanism had filed a petition in the NCLAT. Rejecting the NCLT order, the NCLAT said it has “committed an error” and the order was contrary to the CIRP (corporate insolvency resolution process) regulations.
It pointed out the very concept of negotiation envisages dialogue between two parties and that the "CoC is fully empowered as per the clauses of RFRP (request for resolution plan) to further negotiate with one or more resolution applicants, even after completion of challenge mechanism on December 21, 2022 and the decision of CoC taken on January 6, 2023 to undertake an extended challenge mechanism is not violative of Regulation 39(1A).”
Section 39 of the Insolvency and Bankruptcy Code relates to the approval of a resolution plan. The NCLAT said even if Torrent Investments’s bid had the highest net present value(NPV), “It has no right to insist that the plan should be put to vote by CoC, without taking any further steps by CoC”.
“The CoC may proceed to fix a date after two weeks for holding a revised challenge mechanism or/and to take any steps for further negotiations with the Resolution Applicants as per the relevant clauses of RFRP (Request for Resolution Plan).”
Torrent had approached the NCLT on January 9 to quash the lenders’ plan to hold a fresh auction for the takeover of the company. The company is reportedly planning to approach the Supreme Court against the NCLAT order.
The corporate insolvency resolution process (CIRP)against RelCap — with a consolidated debt of about Rs 40,000 crore— was initiated by the NCLT on November 29, 2021.
The request for proposal was issued on April 26, 2022, with four entities submitting bids: Torrent Investments, Hinduja group firm IndusInd International Holdings (IIHL), Cosmea Financial-Piramal Group and Oaktree Capital. The CoC said the bids were not acceptable that led to the challenge mechanism.