Reliance Capital's Insolvency: Value Maximisation Prevails Over Process Sanctity

Supreme Court, in a number of judgments, has held that commercial wisdom of CoC has to be given paramount importance, NCLAT noted.

<div class="paragraphs"><p>Reliance Group Chairperson Anil Ambani.</p></div>
Reliance Group Chairperson Anil Ambani.

The National Company Law Appellate Tribunal has allowed another round of auction for the debt ridden Reliance Capital Ltd. thereby allowing the Committee of Creditors stance of an extended round of auctions.

The two member bench, headed by Justice Ashok Bhushan, said that the CoC is fully empowered to further negotiate with one or more resolution applicants, even after completion of Challenge Mechanism.

The CoC is not prohibited from negotiating with resolution applicants or asking resolution applicants to further increase the plan value under the provisions of the Insolvency and Bankruptcy Code, the appellate tribunal held.

Logically, the bidding process process should end after an applicant is selected as highest bidder with there being no other challenge, Mukesh Chand, Partner at ELP, opined.

But going by the huge amount of debt involved in this case, it might not have been in public interest if the option for higher recovery is not explored when one of the bidders has already offered a higher amount, Chand added.

This also shows that real price discovery has not happened so far. However, the real issue is at what stage the exercise of value maximisation should end or should it be allowed to remain open each time the process is concluded.
Mukesh Chand, Partner, ELP.

This will most likely get settled at the Supreme Court level now, he added.

Additionally, the tribunal pointed out that even if Torrent Investments' plan consequent to Challenge Mechanism held on Dec. 21, 2022 was with highest value, it has no right to insist that the plan should be put to vote by CoC. The Supreme Court in a large number of judgments has laid down that commercial wisdom of CoC has to be given paramount importance, the NCLAT said.

There is already a huge backlog issue at the tribunal level where resolution plans are getting massively delayed. Over and above that, if at the CoC level the process keeps getting extended because of bids and re-bids, then it will undermine the IBC process, Sudip Mahapatra, Partner at S&R Associates, pointed out.

That said, he added, IBC's goal is value maximisation for all the stakeholders. So, in a situation like this, where someone has come up with a higher bid, then the stakeholder must be allowed to maximise the value. Aa lot of it is public money, Mahapatra opined.

The appellate tribunal has asked the CoC to fix a date after two weeks for holding an extended round of auctions or take any other steps as part of its negotiation process.

The case reached NCLAT after the tribunal had stopped the CoC's plan for an "extended round of auctions". It had allowed Torrent Investment’s plea, holding it the highest bidder in the auction process. 

The bidding process for Reliance Capital Ltd. insolvency concluded on Dec. 21, 2022, with Torrent emerging as the highest bidder with Rs 8,640 crore.

However, a day after the e-auction, Hinduja Group, the promoter of IndusInd Bank, had revised its offer from Rs 8,110 crore to Rs 9,000 crore. This prompted Torrent to approach the NCLT for a direction to the administrator to not place Hinduja Group's non--compliant plan before the CoC.

On January 4, the court had given Torrent this relief. The CoC, however, was of the view that it was entitled to call an offer sub-optimal and had every right to negotiate or renegotiate the proposals in order to maximise value.

Reliance Capital Insolvency: NCLT Allows Torrent's Plea, Holds It The Highest Bidder