NCLT order on initiating insolvency proceedings against RCap this evening

The National Company Law Tribunal (NLCT) on Monday reserved its orders in a matter where the Reserve Bank of India (RBI) had moved the tribunal to initiate insolvency proceedings against involving Reliance Capital under Section 227 of Insolvency and Bankruptcy Code (IBC).

A bench presided over by Pradeep Narhari Deshmukh and Kapal Kumar Vohra will pronounce its order this evening. The RBI had moved NCLT last week to initiate insolvency proceedings against the company after it superseded the board and appointed an administrator, citing defaults and governance issues.

The company’s promoters have said that they support the application for insolvency. This is the third time in recent years that the central bank has superseded boards and initiated insolvency proceedings against what once were considered systemically important Non-Banking Financial Company (NBFCs). It superseded the board of DHFL in November 2019, and then two NBFCs of SREI Group in October this year.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.

Reliance Capital defaulted on its obligations to YES Bank on October 13, 2019, prompting a redemption clause. YES called upon the company to redeem the non-convertible debentures it was holding. Estimates suggest that YES Bank was holding NCDs worth Rs 987 crore of Reliance Capital.

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, former deputy managing director (DMD) at State Bank of India (SBI); Srinivasan Varadarajan, former DMD at Axis Bank; and Praveen P Kadle, former MD & CEO, Tata Capital Limited.

In a statement to the exchanges, Reliance Capital had said, it welcomes the RBI’s move to resolve the company’s debt in accordance with IBC and will cooperate fully with the administrator appointed by the RBI for the expeditious resolution of its debt in the best interests of all stakeholders.

“The complexity of litigation initiated by certain secured and unsecured lenders, resulting in the pendency of over 10 cases in various fora, including the Hon’ble Supreme Court, Mumbai High Court, Delhi High Court and DRT, has effectively stalled the resolution of the Company’s debt, despite its best efforts for the past over 2 years”, it said.

The company has no outstanding loans from banks and approximately 95 per cent of its debt is in the form of debentures, the statement read.