Reliance ARC challenges Vidarbha Industries Swiss Challenge process

Reliance Asset Reconstruction Company (ARC), a subsidiary of Reliance Capital, has challenged the method of Swiss Challenge bidding being held by SBI Caps for the sale of debt of Vidarbha Industries Power Ltd (VIPL).

The company has also challenged the Reserve Bank of India's Master Circular on the Swiss Challenge Mechanism as being discriminatory and arbitrary as it gives unjust and unfair advantage to the anchor bidder, sources said.

In a writ petition filed before the Bombay High Court, the Reliance ARC has stated that clause 85 of the RBI's Master Direction (Transfer of Loan Exposure) accords unlimited rights to the anchor bidder to match any bid from the challenger bidders in the Swiss Challenge process, which discourages the competition and defeats the principle of maximization of value for the banks and lenders.

As per the clause 85 of the Master Direction, in a Swiss Challenge process once an Asset Reconstruction Company (ARC) has placed a bid for acquiring a stressed asset or NPA it is automatically accorded the status of prospective transferee or anchor bidder.

Consequently, such anchor bidder gets an unlimited Right of First Refusal (RoFR) to match the highest bid which is received during the Swiss Challenge Process, without any requirement to improve the bid.

Reliance ARC is one of the three shortlisted Asset Reconstruction Companies (ARCs) which are allowed to participate in the Swiss Challenge process being conducted by SBI Caps for the sale of Vidarbha Industries Power's debt.

The two other shortlisted ARCs are Aditya Birla ARC and Asset Reconstruction Company (India) Limited (Arcil). The lenders of VIPL have declared a Rs 1,220-crore bid submitted by the Ahmedabad-based CFM ARC as the anchor bid.

Reliance ARC apprehends that in the Swiss Challenge process being carried out for the sale of VIPL's debt, the anchor bidder, CFM Asset Reconstruction Company, with an unlimited right to match the counter bids from challenger bidders, will ultimately emerge as the winner by following a process which is both discriminatory and arbitrary, sources said.

The petition states that this unlimited right of the anchor bidder is antithetical to the competition as the other prospective bidders/challenge bidders participating in the Swiss Challenge process know in advance that any bid they may submit will be matched by the bidder.

The anchor bidder does not even have to beat the counter bid. It just has to match it, and hence, the challenger bidder practically stands no chance of emerging as the winner.

The petition further said that CFM ARC has been selected as the anchor bidder without any non refundable pre-deposit, while the other prospective bidders in the Swiss Challenge process are forced to provide a non-refundable fee of Rs 10 lakh while submitting the Expression of Interest (EOI).

Further, the prospective bidders are also required to submit a bid bond of Rs 25 lakh.