The National Companies Act Court of Appeal has allowed another round of auctions for indebted Reliance Capital Ltd., thus allowing the Creditors' Committee to take the position of an extended round of auctions.
The two-member bench, headed by Justice Ashok Bhushan, said the CoC is fully empowered to continue negotiating with one or more ruling applicants, even after completing the Challenge Mechanism.
The CoC is not prohibited from negotiating with settlement applicants or asking settlement applicants to further increase the value of the plan under the provisions of the Bankruptcy and Insolvency Code, the appeals court held.
Logically, the bidding process should end after an applicant is selected as the highest bidder without further challenge, said Mukesh Chand, a partner at ELP.
But given the huge amount of debt involved in this case, it might not have been in the public interest not to explore the option of a higher recovery when one of the bidders has already offered a higher amount, Chand added.
This will most likely be resolved at the Supreme Court level now, he added.
Furthermore, the tribunal noted that even if Torrent Investments' plan pursuant to the Challenge Mechanism entered into on December 21, 2022 had the higher value, it has no right to insist that the CoC put the plan to a vote. The Supreme Court in a large number of rulings has established that paramount importance must be given to the commercial wisdom of CoC, NCLAT said.
There is already a huge backlog problem at the court level where resolution plans are seriously delayed. Beyond that, if at the CoC level the process keeps stretching out due to bids and re-bids, then it will undermine the IBC process, said Sudip Mahapatra, a partner at S&R Associates.
That said, he added, IBC's goal is to maximize value for all stakeholders. So in a situation like this, where someone has submitted a higher offer, then the interested party should be allowed to maximize value. Much of it is public money, Mahapatra opined.
The appeals court asked the CoC to set a date after two weeks to hold an extended round of auctions or take any other action as part of its negotiation process.
The case came to NCLAT after the court had the CoC's plan for an "extended round of auctions." He had allowed Torrent Investment's statement, keeping it the highest bidder in the auction process.
The bidding process for the insolvency of Reliance Capital Ltd. concluded on December 21, 2022, with Torrent emerging as the highest bidder with Rs 8,640 crore.
However, a day after the electronic auction, Hinduja Group, the promoter of IndusInd Bank, had a bid of Rs 8,110 crore to Rs 9,000 crore. This led Torrent to approach the NCLT to ask the trustee not to submit Hinduja Group's default plan to the CoC.
On January 4, the court had given Torrent this. However, the CoC was of the opinion that it had the right to call a suboptimal offer and had every right to negotiate or renegotiate proposals to maximize value.
