NEW DELHI, March 2 (PTI): The National Company Law Appellate Tribunal (NCLAT) on Thursday allowed lenders of Reliance Capital to hold an extended challenge mechanism or second round of auction for the sale of the debt-ridden financial services company.
A two-member bench of NCLAT also said lenders of Anil Ambani-promoted Reliance Capital had the power to negotiate and call for a higher bid.
It overturned an order of the Mumbai bench of National Company Law Tribunal (NCLT) which had declared the extended challenge round illegal.
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NCLAT ruled that the Committee of Creditors (CoC) can renegotiate the bid amount or call for another round of auction in its “commercial wisdom”.
On February 2, NCLT said the challenge mechanism for financial bids stood concluded as on December 21, 2022, with the bid of Torrent Investments at Rs 8,640 crore being the highest.
However, the lenders which had decided to go for an extended challenge mechanism, petitioned against the order before NCLAT.
NCLT in its order had said after concluding the challenge mechanism, no negotiation or value maximisation exercise can be individually undertaken by the CoC.
Rejecting it, NCLAT said it has “committed an error” and is contrary to the CIRP regulations. The very concept of negotiation envisages dialogue between two parties, it said.
“It is held that 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 21.12.2022 and the decision of CoC taken on 06.01.2023 to undertake an extended challenge mechanism is not violative of Regulation 39(1A),” said NCLAT.
It said even if Torrent Investments’ bid consequent to challenge mechanism, which was held on December 21, 2022 was with 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 appellate tribunal further said:”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 was the highest bidder offering Rs 8,640 crore in the last round of the challenge mechanism. It had approached NCLT on January 9, requesting the tribunal to quash the lenders’ plan to hold a fresh auction for the takeover of Reliance Capital.
According to industry sources, Torrent is considering moving the Supreme Court against the NCLAT order.
The NCLAT bench comprising Chairperson Justice Ashok Bhushan and Barun Mitra also allowed a further exclusion of 30-day period from the Corporate Insolvency Resolution Process (CIRP) of Reliance Capital.
Hinduja Group firm Indusind International Holdings Ltd (IIHL) also challenged the NCLT order before the appellate tribunal.
CIRP against Reliance Capital was initiated by NCLT on November 29, 2021. The company has a consolidated debt of about Rs 40,000 crore.
An RFRP was issued on April 26, 2022, and four Resolution Applicants — Torrent Investments, IIHL, Cosmea Financial-Piramal Group and Oaktree Capital submitted their bids.
The CoC opined that the bid values that have been received are not acceptable and challenge mechanism process was initiated.
On December 21, 2022, challenge mechanism process was conducted in which only two bidders – Torrent and IIHL participated.
IIHL participated until the third round of the challenge mechanism with a final NPV of Rs 8,110 crore and Torrent submitted a bid till fourth round with a final NPV of Rs 8,640 crore.
However, on December 23, 2022, a CoC meeting was conducted on the submission of the revised draft resolution plan as per the challenge mechanism with an email of IIHL which included additional payments totalling Rs 9,000 crore.
This was objected by Torrent and it moved NCLT, which had directed Reliance Capital’s administrator not to submit any non-compliant plan to CoC.
On January 3, 2023, a CoC meeting was held and the process advisor informed the lenders that the NPV calculated on the basis of the financial proposal of Torrent and IIHL was different from the NPV submitted by the Resolution Applicants in the challenge mechanism. It sought clarification from IIHL and Torrent, including on draft resolution plan.
Torrent gave a draft resolution plan with revised offer offering the entire amount of Rs 8,640 crore upfront, while IIHL gave its revised draft resolution plan including some additional payment.
After that in its next meeting on January 6, 2023, CoC opined that outcome of the challenge mechanism undertaken was sub optimal and not satisfactory and proposed that an extended round of challenge mechanism with the existing bidders be conducted.
A resolution was passed by CoC in the next meeting with 98 per cent votes in favour of the extended challenge mechanism.
Following this, Torrent moved NCLT.
