Will Reliance Capital lenders get their dues fast or will there be legal delays

With another round of bidding for Reliance Capital Ltd slated later this month, the question is whether the final value of the debt-laden company would be found and lenders will be able to realise their monies early or will the matter go to the apex court?

Recently, the National Company Law Appellate Tribunal (NCLAT) ordered in favour of Reliance Capital lenders and allowed another round of auction for the financial services company.

The lenders had approached NCLAT against an earlier order of the National Company Law Tribunal (NCLT) restraining the Committee of Creditors (CoC) from extending the auction round to find higher value for the company.

The initial bidding process ended on December 21, 2022 and Torrent Investments was found to be the highest bidder with Rs 8,640 crore.

Soon after that, the Hinduja Group's IIHL made an offer of Rs 9,000 crore.

In its written submission before NCLAT, one of the members of CoC 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 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).

The appellant submitted that Torrent Investments has, within a span of 24 days, increased the values of the bid from Rs 1,100 crore upfront to Rs 3,750 crore upfront and then further within 2 weeks from Rs 3,750 crore upfront to Rs 8,640 crore upfront, and the same was the case with IIHL.

The appellant contended that CoC therefore clearly feels that there is more value to be discovered and the same cannot be interdicted by judicial intervention at this stage.

In the next round of bidding, the minimum/reserve price will be Rs 8,000 crore cash upfront, then round one will be Rs 9,500 crore and then it will be Rs 10,000 crore and Rs 250 crore after each round, it is learnt.

But the moot point is if Torrent Investments goes to the Supreme Court against the NCLAT order then there will be a legal delay in the resolution process and why would bidders participate if the matter is to be settled by the apex court.

Incidentally, maximisation of the value for the stakeholders is the ground on which the IBC firmly rests.

There are several examples of the success of COC's commercial wisdom and the ability to renegotiate to get a better deal for the stakeholders of a corporate debtor.

For instance, in the case of DHFL which had a debt of Rs 88,000 crore, the first offer made by the Piramals to acquire was Rs 15,000 crore.

But after negotiations/revision/fresh plans, the revised offer went up by Rs 22,250 crore to Rs 37,250 crore.

In respect of the SREI debt (Rs 32,791 crore) resolution, the initial offer for the company was Rs 3,402 crore and National Asset Reconstruction Company Ltd (NARCL) while the value of the resolution plan after negotiation/revision/considering fresh plans the amount went up by Rs 11,465 crore to Rs 14,867 crore.

The same is the case with a couple of other corporate debt resolution plans:

Essar Power, the initial resolution plan value of ArcelorMittal was Rs 32,000 crore and was revised upwards by Rs 10,000 crore to Rs 42,000 crore.

Bhushan Power and Steel - debt Rs 48,719 crore; first-round value was said to be Rs 15,000 crore and revised for about Rs 24,500 crore by JSW Steels;

Binani Cement - debt Rs 7,500 crore; initial resolution plan value was Rs 6,932 crore and later went up to Rs 7,950 crore by Ultratech Cement;

Bhushan Steel - debt Rs 59,207 crore; value of resolution plan after negotiation/revision/fresh plans Rs 35,200 crore plus 12 plus equity stake;

Videocon - debt Rs 64,938 crore; first-round value about Rs 2,962 crore by Twinstar Technologies. After the CoC withdrew its approval of Twinstar's plan, three Expressions of Interest for the company have been received, as per reports.

Interestingly in the case of Reliance Capital with a debt of about Rs 25,500 crore, the value of the resolution plan after the first round was about Rs 2,591 crore. The resolution value went up to Rs 9,000 crore which was made by the Hinduja group's IIHL.

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