RCap Deal: Hinduja Group Entity's Delay Tactics Irks Lenders

Lenders of Reliance Capital led by insurance companies and pension funds have accused accused the Hinduja Group of using delaying tactics. As per the lenders the plan by the Hinduja group entity Indusind International Holdings (IIHL) to seek an approval from the Department of Industrial Policy and Promotion (DIPP), MInistry of Commerce for the deal is an after thought and was never part of conditions precedent set out by the National Company Law Tribunal (NCLT) while approving the resolution plan on February 27, 2024. As per the sources, 90 days have passed since IIHL submitted the application with DIPP, but the approval is still pending.

From the filing of the resolution plan for approval until just before its implementation, IIHL was of the view that it did not require DIPP approval. But as the resolution plan implementation date of May 27 approached, IIHL unexpectedly filed for DIPP approval on May 14. According to the lenders such delay tactics are just to bargain for more time to arrange for the money without paying interest for the delay to the lenders. IIHL is still to bring Rs 7300 crores as debt money for the deal.

The DIPP approval process has stalled for 90 days, primarily because some IIHL shareholders are residents of Hong Kong, a region under China's control. According to Press Note 3, investments from entities associated with countries sharing a land border with India require government approval. The NCLT has urged the RBI and DIPP to expedite the approval, as IIHL has pledged full payment pending regulatory clearances and a resolution of the GST component. The next NCLT hearing is set for September 19, 2024.

IIHL has about 600 shareholders, who are residents of the UAE, Singapore, Hong Kong, the Republic of Mauritius, etc. IIHlL has 39 shareholders as Hong Kong residents including Abiraami Arunachalam, Anil Harjani, Dayal Harjani, Arjun Hotwani, Bina Rupani, Deepak Chhugani, Gaba Hariram, Ghanshyam Khiani, Gul Tolaram Mirpuri, Haresh Ramchandani etc. With 90 days having passed since the application and no approval in sight, the lenders of RCAP believe that IIHL is delibrately using the delaying tactics.

Mauritius-based IIHL emerged as the successful bidder for the acquisition of Reliance Capital, with the NCLT Mumbai approving its Rs 9,861-crore resolution plan on February 27, 2024.

Although IIHL and related entities have deposited Rs 2750 crores in escrow account as initial equity money for RCAP's buyout deal but it was only after much ado. Earlier RBI appointed Administrator Y Nageswara Rao had laid bare Hinduja Group's devious tactics to dilute the NCLT order, seek further extension for deal without bringing the initial money on the table and substantially modify the Resolution Plan. Earlier when the NCLT had asked Hinduja group entity to deposit Rs 2750 crores in two escrow accounts opened and controlled by RCap's committee of creditors (COC) and submit binding term sheets for the rest Rs 7300 crores of debt money to the COC, the entities deposited money in their own bank accounts and sought modifications to NCLT order.