Approval of Resolution Plan for Reliance Capital

Document Summary

Reliance Capital Limited (RCL) informed the BSE and NSE on July 24, 2024, regarding a disclosure under Regulation 30(2) of the SEBI Regulations, 2015. The disclosure pertains to the approval of the resolution plan submitted by IndusInd International Holdings Ltd. ("IIHL"), the Successful Resolution Applicant, in the corporate insolvency resolution process (CIRP) of RCL by the NCLT Mumbai bench vide its order dated February 27, 2024.

NCLT Order IA 2561 of 2024 addresses a petition filed by IIHL seeking an extension of time to complete obligations under the implementation schedule (clause 8.4.1) of the resolution plan. The CIRP of RCL commenced on December 6, 2021, and the resolution plan was submitted by IIHL on June 6, 2023, which was approved by the Committee of Creditors (CoC) with a 99.60% majority. IIHL sought a 90-day extension beyond May 27, 2024. The salient features of the resolution plan include clauses related to the corporate debtor's cash balances, extension of the timeline, conditions precedent for implementation, and necessary approvals. The Resolution Plan was approved on February 27, 2024, and the Monitoring Committee (MC) was constituted on February 29, 2024.

IIHL sought the extension citing delays in obtaining approvals, particularly from the Government of India for FDI. The resolution applicant planned to fulfill the financial obligation of paying a total sum of Rs. 9861 Crores via a sum of Rs.2,500 Crores infused directly through a 100% subsidiary of the Applicant, namely, IIHL BFSI Ltd. from Mauritius, as and by way of equity. Another Rs.7,300 Crores would be paid directly to the Financial Creditors of the Corporate Debtor, as per the Resolution Plan, by raising finance/debt from domestic and international lenders. Finally, Rs.250 Crores would be infused into the Corporate Debtor as and by way of equity through an Indian entity namely, Cyqure India Private Limited. There was ambiguity whether this investment was permissible under automatic route or required specific government approval, which got clarified on April 29th 2024.

The Administrator and the Committee of Creditors contended that IIHL had confirmed in July 2023 that it did not need to apply for approval from the Government of India and that the belated seeking of approval in May 2024 is not bona fide. They also claimed that non-receipt of RBI approval would be a Material Adverse Event. They highlight IIHL has been in receipt of certain benefits from the delay. To satisfy the tribunal, the Applicant placed on record a certificate of its Chartered Accountant which confirms that funds to the tune of USD 300 million i.e. Rs. 2,500 crores have been earmarked for equity participation for the purpose of acquisition of the Corporate Debtor.

Lenders had confidence in the ability to arrange the debt financing, as evidenced by term sheets from 360 One Asset Management Limited and Barclays Bank PLC, Mumbai Branch. However, RBI disapproved the cross-guarantee proposal which led to rework of the entire financial arrangement. Despite obtaining IRDAI approval which would have enabled the Resolution Applicant to take over and carry out the business of the subsidiaries of the Corporate Debtor and generate more revenue and income, the delay in funding is preventing it from doing so.

The erstwhile Resolution Professional argued that IIHL sought an extension from the MC until June 30, 2024 and subsequently filed an application seeking a 90-day extension. IIHL has not shown its bonafides in seeking extension of time by paying interest and deposit the amount of equity contribution in escrow. They contend that all cash recovery from RCL from the Revised Submission Plan Date is for the benefit of IIHL. He also claims the clause pertaining to Material Adverse Event does not apply in this case.

The Financial Creditors argue that IIHL has failed to demonstrate financial tie up both debt and equity, to the satisfaction of CoC. They also point out savings on IIHL's financing costs and returns on equity due to delay, against the CoC suffering losses of at least INR 400 crores for the period of 90 days. The CoC is not seeking liquidation of the Corporate Debtor, it is only seeking recompense and certainty of Plan resolution within the extended time period.

The Tribunal notes that the Successful Resolution Applicant is under obligation to pay the resolution money within 90 days of NCLT approval date. They also take note of several key terms in the Resolution Plan including those related to receipt of approval from RBI and the conditions of a MAE (Material Adverse Event).

The Tribunal allowed the Applicant to implement the resolution plan by August 10th, 2024, subject to conditions, including:

• Depositing Rs. 250 crores towards domestic equity in an escrow account in India designated by the Committee of Creditors.
• Depositing Rs. 2500 crores in an offshore escrow account designated by the Committee of Creditors as contribution towards the equity to be invested in the Corporate Debtor
• Submitting copies of the binding executed Term Sheets for the loan amount of Rs. 7300 crore to the Monitoring Committee.
• Placing all the above on record under an affidavit on or before 31st July, 2024.

The Resolution Applicant must pay an additional amount equivalent to the incremental cash recovery, net of CoC entitlement amount, in the Corporate Debtor during the extended period. In the event the applicant fails to implement the resolution plan within the extended period, the amount deposited in the escrow account will be forfeited. The Hon'ble Tribunal also ruled that the Committee of Creditors shall be entitled to take all steps for the resolution of the Corporate Debtor in terms of RFRP by inviting all the Resolution Applicants who had participated in the first challenge mechanism to participate in the fresh challenge mechanism.