Lenders approve second round of auction for bankrupt Reliance Capital

In the first round, Torrent group emerged as the highest bidder by offering Rs 8,640 crore

In a landslide decision, the Indian lenders voted in favour of conducting a second round of auction for the assets of bankrupt Reliance Capital. 

The first round of auction saw Ahmedabad-based Torrent group emerging as the highest bidder with an offer of Rs 8,640 crore, while the Hinduja group bid was Rs 8,110 crore. Hinduja changed its offer after the auction to Rs 9,000 crore in a separate communication to the committee of creditors.

However, Torrent challenged the second round in court, saying post-auction offers should not be entertained as it vitiates and delays the process. The National Company Law Tribunal (NCLT) will give its order on Thursday. If approved, the second round will begin next week.

Piramal-Cosmea and Oaktree are eligible to participate in the second auction, along with Torrent and the Hinduja group. The second round of challenge mechanism is likely to have a minimum reserve price of Rs 9,500 crore and a minimum cash upfront payment of Rs 8,000 crore for each bidder. This will give Torrent an advantage of Rs 640 crore, as they have already made an all-cash offer of Rs 8,640 crore.

Bidders said in several bankruptcy cases, the resolution timeline has not been honoured due to submission of later bids or moving the courts. 

In fact, to prevent cases such as Binani and DHFL, lenders received multiple toppling bids and considerable delay to resolution process, the IBBI introduced in September 2021 the option of conducting a challenge mechanism in the bankruptcy cases. The aim was to balance the twin objectives of maximisation of value for stakeholders and timely resolution of the corporate debtor. On September 30, 2021, the auction mechanism was introduced to prevent toppling bids.

The first challenge mechanism process in the nature of e-auction was concluded on December 21 last year, but after Hinduja’s post-auction higher offer, a second auction is being planned. In a similar case of Srei, the CoC has rejected a late bid submitted by one of the bidders.

“A second auction in the case of Reliance Capital will be ultimately decided by the courts. But accepting late bids could set a bad precedent for future insolvency cases and bidders will continue to submit toppling bids even after the auction deadline and litigate in future,” said a bidder of Reliance Capital, asking not to be quoted.

Story so far

Aug 29, 2022: Lenders receive 14 non-binding offers for RCap & few select units

Nov 28: Lenders receive four binding bids. Piramal-Cosmea offers highest Rs 5,032 cr 

Dec 13: Lenders decide to hold auction with base price of Rs 6,500 cr 

Dec 21: Torrent makes highest offer of Rs 8,640 cr in the auction

Dec 22: Hinduja improves offer to Rs 9,000 cr after the auction

Jan 3, 2023: Torrent approaches NCLT, which restraints administrator to place non-compliant plan with COC 

Jan 6: COC declares the highest NPV is sub- optimal and proposes to conduct another challenge mechanism