The Mumbai bench of the National Company Law Tribunal (NLCT) on Monday admitted the petition moved by the Reserve Bank of India (RBI) to initiate insolvency proceedings against Reliance Capital under Section 227 of the Insolvency and Bankruptcy Code (IBC).
The bankruptcy tribunal has also confirmed the appointment of Y Nageswar Rao as the administrator of the company. Earlier in the day, the bench presided over by Pradeep Narhari Deshmukh and Kapal Kumar Vohra had reserved their order in the matter after hearing the case.
The RBI had moved the Mumbai bench of NCLT last week to initiate insolvency proceedings against Reliance Capital, after it superseded the company’s board last month, citing defaults and governance issues.
Senior counsel Ravi Kadam, appearing on behalf of RBI, said only the regulator has the power to initiate insolvency proceedings against a financial services provider under Section 227 of IBC.
Kadam argued that private sector lender YES Bank had subscribed to Rs 987 crore worth of non-convertible debentures issued by Reliance Capital on October 30, 2017. The company then defaulted on its obligations to the bank during the same time in 2019; after which the accelerated redemption clause got triggered. It basically allows a lender to require a borrower to repay all of an outstanding loan if certain requirements are not met.
Darius Jehangir Kakalia, appearing for the promoter of Reliance Capital, informed the bench that they support the petition filed by the banking regulator. In a statement, the company said, Reliance Capital supports RBI application of referring RCAP to NCLT under Section 227, for the fast-track resolution.
“The company looks forward to expeditious resolution of its debt and continuation as a well-capitalised going concern through the IBC process, in the overall interests of all its stakeholders, including lenders, customers, employees and shareholders,” the statement added.
This is the third time in recent years that the central bank has superseded boards and initiated insolvency proceedings of what once were considered systemically important NBFCs. The central bank superseded the board of DHFL in November 2019, and then two NBFCs of SREI Group in October this year.
The central bank is bringing in a much stricter set of regulations for NBFCs, making the rules for them on a par with those for banks. The action on Reliance Capital, though, may not have any significant impact on the sector because the group to which it belongs has been in trouble for long, and had repeatedly failed in repaying its debt to lenders or bondholders, the latest being on November 27.
The RBI has also appointed an advisory committee, tasked with assisting the administrator appointed to the company in discharging his duties. The three-member advisory committee includes Sanjeev Nautiyal, ex-deputy managing director (DMD), State Bank of India (SBI), Srinivasan Varadarajan, ex-DMD, Axis Bank, and Praveen P Kadle, ex-MD & CEO, Tata Capital Limited.
Source: Business-Standard