NCLAT issues notice to IIHL on RCap plea seeking interest on payment

The NCLAT on Friday issued a notice to IndusInd International Holdings Ltd (IIHL) over a plea filed by lenders of Reliance Capital seeking interest on the payment for the extended period.

A three-member bench led by Chairperson Justice Ashok Bhushan directed the Hinduja Group firm, IIHL to file reply within two weeks.

The National Company Law Appellate Tribunal (NCLAT) was hearing the petition from Committee of Creditors (CoC) of RCap.

The lenders have sought modification in the order passed by the Mumbai Bench of National Company Law Tribunal (NCLT), which had on July 23, directed IIHL to deposit the equity component of Rs 2,750 crore in the CoC escrow accounts.

It has requested the appellate tribunal to direct IIHL to "allow interest on the Upfront Cash Amount till August 8, 2024" and also " 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.

Mauritius-based IIHL emerged as the successful bidder for acquisition of Reliance Capital (RCap).

NCLT-Mumbai on February 27, 2024, approved IIHL's Rs 9,861-crore resolution plan for the debt-ridden financial firm.

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".

On August 8, NCLT had directed IIHL to transfer Rs 2,750 crore into the accounts of RCap's lenders within 48 hours.

The lenders had submitted that the amount payable under the Resolution Plan, which is below the liquidation value 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 equity holder pursuant to 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.

"The CoC has suffered huge losses (approx Rs 400 crore), assuming return equivalent at least to the current rate of interest payable on LIC bonds for the Corporate Debtor i.e 16.65 per cent, given that Corporate Debtor is under default. The all-in financing costs/IRR of IIHL is also similar," it said.

Therefore, the recompense to the CoC should be equivalent at least to the all-in financing costs, otherwise in effect CoC would be funding extension for IIHL at a reduced rate.

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

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.