Hinduja Group's plea for an extension of deadline to close its buyout deal of Reliance Capital (RCap) has been strongly opposed by the company's creditors, which include large public funds like insurance funds, pension funds and employee provident funds. The administrator appointed by the Reserve Bank of India (RBI) to overseas RCAP has also opposed deadline extension in strong words. The grounds for extension provided by the Hinduja Group are misleading and baseless; and ought to be rejected, the administrator Nasasware Rao has told NCLT.
After having won an approval from the National Company Law Tribunal (NCLT) to acquire RCap in a debt resolution deal worth Rs 9850 crores in October 2023, the Hinduja Group company Indusind International Holdings (IIHL) has missed two deadlines for payment to RCap creditors. The last deadline of 90 days ended on May 27. Therefore now, the COC does not want NCLT to give any further extension unless IIHL demonstrates tie-up of funds (debt and equity) for the entire resolution amount immediately and all creditors are adequately compensated for delay in payout beyond May 27.
The creditors also want the NCLT to subject any further extension, if at all granted, to forfeiture of performance and bank guarantee (PBG) and money lying in escrow as equity component to RCap to secure the interests of the creditors, and protect them from further losses which will accrue due to delayed implementation of the Resolution Plan. The creditors have further told NCLT that they do not rule out plea for more extensions by IIHL beyond the extended time if any and hence they want to be adequately secured.
RCap creditors also include retail bond holders, army welfare funds etc. The creditors have told NCLT that they are incurring losses to the tune of Rs 40 crores per week due to the delay in the corporate insolvency and debt resolution process of RCap.
"Therefore, it is imperative that the Resolution Plan is successfully implemented in a time bound manner, one of the key objectives of resolution under IBC. The first step towards this is to ensure that the funds for implementation of the Resolution Plan, both debt and equity, have been tied up in full by the Successful Resolution Applicant,. Further, there should be no unjust enrichment of the Successful Resolution Applicant at the expense of public money," the creditors have told NCLT.
IIHL, a Mauritius entity of Hinduja Group, had won the bid by promising to pay Rs 9850 crores to lenders. In November, RBI gave six months to IIHL to make the payment but the deadline ended on May 17 without Hinduja putting money on the table. Also, the NCLT deadline will end on May 27. Now the group is seeking extension of the deadline from the RBI and NCLT, which has only two options: give some leeway and extend the deadline or ask the RCap administrator to cancel the current deal and issue a new Request For Resolution Plan (RFRP).
Two weeks ahead of the deadline, Hinduja Group has presented a revised offer for which it now requires approvals from around a dozen regulatory authorities including RBI, Sebi, Competition Commission of India, stock exchanges, NCLT etc. Hinduja Group revised the deal structure on the back of reasoning that insurance regulator IRDA had raised several concerns over its old structure.
Unnecessary Delay Tactics Say Creditors
According to the RCap creditors, IIHL's change in structure and attempts at seeking revised approvals are beyond the Resolution Plan.
The RBI administrator has told the NCLT that the consequences of IIHL’s failure and negligence to seek the required approvals cannot and ought not to be borne by the Corporate Debtor and its financial creditors. The delay in receipt of the approval is solely on account of IIHL’s conduct. The administrator says that IIHL has not even been able to satisfy the Monetary Committee (MC) of its ability to undertake its payment obligations as per the Resolution Plan.
"Any change in structure is solely on account of IIHL and cannot come in the way of implementation of the plan, as additional approvals on grounds of change in structure by itself is not a condition precedent. These changes now do not excuse their (IIHL's) default on May 27, 2024 and certainly should not lead to any extension," the creditors have told the NCLT.
As per the creditors, the to arrange the financing within the Resolution Plan structure and to implement the Resolution Plan within the prescribed time period under the Resolution Plan was the responsibility of IIHL.
"Any additional requirements should have been discussed and factored in when the Resolution Plan was at negotiation stage during the 8-month period as the PBG is given as a commitment to fulfillment of terms of the Resolution Plan including financial tie ups. The Resolution Plan is valid, effective, and binding upon IIHL irrespective of these approvals and a default in payout cannot be excused on account of IIHL' s inability to obtain financing on the terms set out in the Resolution Plan. It is to be noted that the structure and terms of the Resolution Plan has been proposed by IIHL itself. It is stated that all conditions precedent were met on May 15, 2024," the creditors have said.
Does Hinduja Group have money for the deal?
According to the administrator, IIHL had claimed that it had successfully secured term sheets/ sanction letters from reputed financial institutions confirming that they would lend to IIHL an aggregate sum of Rs 7,300 Crores but failed to annex the same. IIHL instead annexed two letters dated May 10, 2024 issued by 360 One Asset Management Limited and Barclays Bank PLC which were ex-facie non-binding in nature and are mere proposals, and explicitly state that they are subject to further terms to be agreed with IIHL as well as several conditions precedents and regulatory approvals.
Further, the letters did not set out any of the purported / proposed terms for the financing, whatsoever. "Thus, even now, no documentation has been provided or produced by IIHL to evidence its ability to undertake the payment obligations," the administrator said.
IIHL had effectively misled the CoC when it confirmed that its funding was in place and it has misrepresented the discussions of the MC in its application, the administrator said. Further the administrator says that IIHL would be liable to pay interest on an amount of INR 9861 crores at the rate of 12% per annum from May 27, 2024.
Grounds Of Opposing Extension
Creditors say IIHL is in default of terms of Resolution Plan for payout in 91 days. IIHL has said its payments were delayed as various approvals are still pending from the government authorities after they revised the plan. These include approvals from the DIPP (Department For Promotion Of Industry and Internal Trade). But creditors have a different view.
"It is submitted that the DIPP approval and the approval of RBI for (i) pledge over the shares of the Corporate Debtor and (ii) guarantee by the Corporate Debtor (it has now changed to a put option structure) are not Conditions Precedent to the implementation of the Resolution Plan. The DIPP approval is set out in a separate section, as noted above, and the RBI approvals are arising out of the financing requirements of IIHL and are not contemplated under the Resolution Plan."
The creditors also say that IIHL has delayed in seeking approvals.
"It was the responsibility of the Successful Resolution Applicant to get timely approvals. The application preferred by the Applicant itself shows that the FDI approval was sought by the Applicant only on May 14, 2024, which is just two weeks before the expiry of T+90 days i.e. May 27. There is no guarantee that the regulator will necessarily provide such approvals. In fact RBI has communicated that the guarantee by the Corporate Debtor may not be possible and therefore, a revised structure has now been proposed by the Successful Resolution Applicant. Since receipt or nonreceipt of the regulatory approvals is not a Condition Precedent to the Resolution Plan therefore, any delay or non-receipt thereof doesn't entitle the Successful Resolution Applicant to an extension. Thus, the Successful Resolution Applicant itself has delayed the process and through the means of this application, cannot seek to take advantage of its own indolence.
If any further approval were required then UHL should have taken steps to obtain such approvals. They had almost a year to apply for these approvals but they waited till May to even apply for such approvals. Therefore, they are in default of their obligation to pay, the creditors have said.
