RCap Insolvency: NCLAT notice to IIHL on CoC plea for interest for extended time & forfeiture

New Delhi: The NCLAT on Friday issued a notice to IndusInd International Holdings Ltd (IIHL) over a plea filed by lenders of Reliance Capital (RCap) seeking interest on payment for the extended period for the upfront payment by the Hinduja group firm and forfeiture of Rs 2,750 crore in case of default.

A three-member bench led by Chairperson Justice Ashok Bhushan directed the Hinduja Group firm, IIHL to file a reply within two weeks and directed to list the matter on September 30 for the next hearing.

The National Company Law Appellate Tribunal (NCLAT) direction came while hearing a petition from the Committee of Creditors (CoC) of RCap, currently going through the Corporate Insolvency Resolution Process (CIRP).

The lenders are seeking modificiation of the order passed by the Mumbai bench of the National Company Law Tribunal, which had on July 23, extended the period for implementation of the resolution plan till August 8, 2024.

In their petition, the lenders have requested NCLAT to modify the order of NCLT and "allow interest on the upfront cash amount till August 8, 2024" by IIHL and also to "allow interest on debt component of upfront cash amount from August 8, 2024, till transfer date which is the date of payment of upfront cash amount" of Rs 9,660 crore.

The lenders have also sought permission for "forfeiture of monies lying in CoC designated account (Rs 2,750 crore) upon the occurrence of an event of default".

Mauritius-based IIHL emerged as the successful bidder for the acquisition of RCap. NCLT-Mumbai on February 27, 2024, approved IIHL's Rs 9,861-crore resolution plan for the debt-ridden financial firm.

As per the deadline, IIHL was to pay Rs 2,750 crore in two escrow accounts by July 31 as per the approved plan. However, IIHL sought extension in the deadline, which was allowed by NCLT by modification. It directed to deposit the amount by August 10.

During the proceedings of NCLAT, counsel appearing for lenders submitted that modification in terms and conditions was like "unwinding of transaction".

The NCLT should not have granted an extension of time to IIHL for the implementation of the resolution plan, without adequately compensating the lenders.

They further said "CoC is spending Rs 125 crore to Rs 130 crore per month on interest cost on certain bonds of RCap," and delay in payment would amount to a "loss of Rs 400 crore" .

The lenders are looking for early closure of the transaction and for that, it has to pay LIC, which is one of the largest lenders in CoC and other lenders.

"This can not be taken unless there is certainty of funds," they added.

However, IIHL's counsel submitted they have deposited the amount as per the orders of the NCLT. The last phase will be implemented as per and the resolution plan On August 8, NCLT directed IIHL to transfer Rs 2,750 crore into the accounts of RCap's lenders within 48 hours.

In the petition, lenders had submitted that the amount payable under the resolution plan, which is below the liquidation value of RCap, was locked in more than a year ago when the plan was put to vote before the CoC. This is the only amount that is payable in the resolution process of the corporate debtor.

Moreover, RCap has been run as a going concern along with its subsidiaries, which have a significant value.

"Therefore, any increase in the value of the Corporate Debtor (RCap) and its subsidiaries is solely for the benefit of IIHL, being a successful RA who will be an equity holder pursuant to the implementation of the resolution plan," it said.

Even though the NCLAT order allows that cash and cash equivalents of RCap will go to CoC, but since it is not an operating company but a holding company, the cash and cash equivalents are not much and do not constitute adequate compensation for the stakeholders, it added.

"Currently the cost of extension to IIHL is nil while the CoC is suffering losses," it said.

The lenders also submitted that a significant amount of public money is involved in this case as a huge amount of debt is owed to pension funds, retail bondholders, insurers including LIC, EPFO and army welfare fund etc.

In November 2021, the Reserve Bank superseded the board of Reliance Capital on governance issues and payment defaults by the Anil Dhirubhai Ambani Group company.

The central bank had appointed Nageswara Rao Y as the administrator, who invited bids in February 2022 to take over the company.

Reliance Capital had a debt of over Rs 40,000 crore, and four applicants had initially bid with resolution plans. However, the CoC rejected all four plans for lower bid values and a challenge mechanism was initiated in which IIHL and Torrent Investments participated.