No doubt, delays in the insolvency process under the IBC are quite common. It takes an average of 679 days to achieve a resolution, compared to the 330 days provided for in the code.
mint takes a closer look at the reasons for the delay in this case.
How has the insolvency resolution process progressed so far?
In November 2021, the RBI replaced the board of directors of Reliance Capital and appointed Nageswara Rao Y as administrator. A month later the company was admitted to the corporate insolvency resolution process under the Insolvency and Bankruptcy Code (IBC).
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Initially, a large number of resolution applicants showed interest in the bankrupt company, only to later back out. Then in 2023, Torrent Investments and Hinduja Group began a battle to take over Reliance Capital, delaying resolution. Finally, a $Hinduja Group's IndusInd International Holdings Ltd (IIHL)'s Rs 9,650-crore plan to turn around the company was backed by lenders and the court in June 2023 and February 2024, respectively.
How have the delays affected lenders?
Concerned about delays in implementing the resolution plan, lenders have been pressuring the IIHR to act. As per the NCLT order of February 2024, the plan was to be implemented within 90 days (by May 27). But the IIHL recently filed an application with the NCLT seeking another 90-day extension to implement the scheme, adding to the lenders' woes.
Also read: Lenders refuse to extend RCap resolution deadline as Hindujas delays payment
On May 18, mint reported that while the IIHL had informed the lenders about the delay in receiving regulatory clearances, the committee of creditors (CoC) and the administrator opposed its application. Then on May 23 mint reported, citing two people aware of the matter, that the NCLT had given the IIHL more time to secure the remaining regulatory approvals.
What is the status of regulatory approvals?
The Hindujas received approval from the RBI in November 2023. This approval was only valid for six months - i.e. until May 2024 - and the administrator was reported to have requested an extension from the regulator. The Insurance Regulatory Development Authority (IRDAI) also recently gave its approval to the Hinduja Group, although it is still awaiting approval from the Securities and Exchange Board of India.
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In April, Hinduja Group again wrote to the RBI seeking approval for incorporation of new entities into the corporate structure through which it planned to acquire RCap.
What do legal experts say?
Independent lawyer and IBC expert Nirav Shah said it was risky to first make a plan and then look for investors. โThat is a problem because you cannot continue going to the RBI and Sebi every time a new investor is added. You should apply to the RBI once everything is in place,โ he said.
Shah said the insolvency process has virtually come to a "complete halt" and at this stage, the resolution professional or the lenders cannot do anything until the Hindujas come up with the funds. The 90-day extension period could potentially be increased further. , he added.
Also read: The Slow Burn of Bankruptcy Filings May Be About to End
More importantly, Shah said, the issue likely needs to be addressed at the legislative level, amending the IBC to avoid such delays. "Once the plan is approved, there must be a prescribed time frame within which the resolution plan must be implemented," he said.
Vidhan Vyas, founder of Vyas Legal, said actions by the Hinduja entity were common in IBC cases.
It is important to note that if the IIHL fails to meet its obligations under the plan, it will forfeit its security deposit and the resolution professional may request cancellation of the plan in favor of a new one. This would undoubtedly delay the process. Of course, if no one comes forward with a plan, liquidation is always an option, Vyas said.
What other IBC cases have faced similar obstacles?
Vyas said the latest example of this is Suraksha Group's plan for the insolvent Jaypee Group, which has been awaiting regulatory approval from Noida authorities. Recently, the National Company Law Appellate Tribunal (NCLAT) gave its approval to begin construction work after the Noida authorities were made party to the matter.
Also read: Let's reform India's bankruptcy code but without hindering trade
Tata Steel faced similar issues in its acquisition of Bhushan Steel, as did Fourth Dimension Solutions Ltd in its acquisition of Educomp Solutions Ltd. These cases were prolonged due to delays in approvals from various regulatory bodies, including the Income Tax Department. , GST claims and name changes. in various licenses.
