Reliance Home Finance Ltd’s lenders, led by Bank of Baroda, got a relief with the National Company Law Appellate Tribunal (NCLAT) overturning a May 2021 order of the National Company Law Tribunal (NCLT) on the defaults in payment of the non-convertible debentures issued by the company after the insolvency proceeding was initiated against it.
NCLAT granted the lenders’ intervention plea and directed the Mumbai bench of the tribunal to reexamine the matter on 16 May. “NCLT shall pass a reasoned order (after) considering all the contentions and arguments put forward by all parties, including ICA (inter-creditor agreement) lenders. The appeal is allowed and the matter is remanded to NCLT, Mumbai. The (16 May) order is set aside,” said a bench led by Justices Rakesh Kumar Jain and Alok Srivastava.
Inter-creditor agreements help streamline the resolution process for stressed assets valued at ₹50 crore or more, and involves multiple creditors of a single borrower. Reliance Home Finance owes approximately ₹7,109 crore to lenders, primarily consisting of public sector financial institutions, and major private banks.
Several debenture holders participated in secured non-convertible debentures issued by Reliance Home Finance. IDBI Trusteeship Services was appointed as debenture trustee. The agreement between Reliance Home the debenture trustee for the authorized issuance of secured non-convertible debentures worth ₹3,000 crore was executed in November 2017. After Reliance Home failed to repay the NCD holders IDBI Trusteeship referred the company to the NCLT. During the hearing at the NCLAT, the counsel for IDBI Trusteeship said that despite repeated requests for redemption of NCDs, Reliance Home failed to honour its commitments.
On behalf of all the lenders, Bank of Baroda filed an intervention application in NCLT after IDBI took Reliance Home to the insolvency tribunal. The NCLT, however, turned down the lenders’ request for intervention. Aggrieved by its order the lenders moved the appeals court seeking relief.
The lender’s appeal in the NCLAT was that the tribunal’s order of May 2021 did not grant Bank of Baroda an opportunity for hearing in the case. Its counsel argued that the request for intervention in the matter was because it is “a person interested in the matter” under the Companies Act. He submitted that the lenders are secured by a first ranking pari passu (on the same footing) charge on all the book debts, receivables, cash and cash equivalents of Reliance Home, but had refrained from enforcing their security interests to resolve the financial situation of the firm in the interest of stakeholders. However the debenture trustee argued that BoB cannot be termed as “aggrieved person” and it does not have the locus to file the plea as it was not a party at the NCLT. Principles of natural justice were followed as BoB was allowed to file a plea seeking intervention but NCLT rejected it, it added.
