RCap Deal: Hinduja Group's Trickery After Default

After defaulting on the deal to acquire Reliance Capital (RCAP) as per the July 23 order of the NCLT (National Company Law Tribunal) Mumbai bench, the Hinduja Group has resorted to pure trickery. The NCLT had asked Indusind International Holdings (IIHL), a 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, so that the deal can move forward. Instead, the Hinduja group entities claim to have deposited the money in their own bank accounts and filed an application with the NCLT seeking several modifications to its July 23 order. 

The debt resolution process of RCAP has been severely delayed as IIHL missed multiple deadlines in the past one year to bring money on the table. After missing its May 27 deadline, IIHL had sought time till July 31 to bring just Rs 2750 crore on the table for the total deal worth Rs 10,000 crores. When it could not put the money in the escrow accounts as directed by the NCLT on July 23, IIHL filed a further application seeking modification of the NCLT order, which in effect could further extend the deadline without any money to the COC, the administrator says.

After IIHL defaulted on the third deadline on May 27, the NCLT in July gave the entity time till August 10 to conclude the deal. The tribunal's only condition was that IIHL deposit the initial equity amount in the deal in the two escrow accounts by July 31 and present binding term sheets for the rest Rs 7300 crores that it had proposed to raise via debt. As per the administrator and the COC, Hinduja Group had defaulted since it did not follow the NLCT order and was now resorting to tactics.

RBI appointed administrator of RCAP has laid bare the trickery of Hinduja Group
According to a reply filed by the administrator with the NCLT on August 2, the Hinduja Group entities were seeking to cast obligations on the administrator that were never there in the NCLT July 23 directions - in effect slyly trying to modify the NCLT's order, seek further extension and amendments to the resolution plan.

The administrator has told NCLT that IIHL's modification application was not bonafide and ought to be dismissed since under the guise of review, it was seeking extension. The administrator has highlighted to the NCLT that in any case, the tribunal did not have powers to review and substantially modify its own orders except correct clerical or arithmetical mistakes, any errors arising from accidental slip or omission or errors on the face of the order. IIHL, says the administrator, was seeking none of these but a substantial modification to the NCLT order, which was impermissible in the law. 

In the July 23 order, the NCLT had warned IIHL that it would become a defaulter if it failed to deposit the initial equity amount of Rs 250 crore in a domestic escrow account and Rs 2500 crore in a offshore escrow account of the COC by July 31. On August 1, Vistra ITCL, the trusteeship acting on behalf of the COC, informed IIHL that it had defaulted on the NCLT order since it did not deposit the money in the two escrow accounts. The NCLT order also had a provision that Vistra ITCL transfer the money back from the two escrow accounts to Hinduja Group if they could not conclude the deal - hence the risk was taken care of. 

Administrator says that after receiving no response for nearly a week post the NCLT order, on July 29 IIHL claimed that the two accounts opened by Vistra were not escrow accounts. Instead, IIHL claimed that it would deposit the money in the accounts of their promoters and present a bank statement for the same. But as per the July 23 order of the NCLT, the money was to be deposited in Escrow Accounts opened by Vistra and not Hinduja Group promoters' own accounts.

"The conduct of IIHL is not only contumacious but also contradictory. While a modification application was filed (by IIHL) on the basis that the conditions laid down in July 23 order of NCLT could not be complied with, on the other hand has filed a compliance affidavit to show compliance with July 23 order. The applicant cannot blow hot and the cold at the same time," the administrator told NCLT. 

The administrator has further stated in its response to NCLT that Hinduja Group was seeking modifications that in effect could alter and modify the resolution plan itself, which was not permissible in the law. Also, the several pending tasks that IIHL has claimed in its application were not pending at all since they were procedures to be completed post the COC receiving the cash or the initial equity component (Rs 2750 crores) of the deal. For instance, Hinduja Group has sought a procedure for delisting of RCAP from the exchanges to be initiated by the COC. But how can that be done unless money was received by the COC? There is a long list of such procedures pointed out by IIHL in its modification application, which the administrator has said cannot be done unless the money was paid to the COC. 

"Applicant (IIHL) itself is responsible for the delays in implementation of the Resolution Plan and allowing applicant reliefs and directions as sought, would be without jurisdiction and akin to permitting the applicant to take advantage of its own wrong. IIHL's application was just a dilatory tactic and ought not to be condoned," the administrator told the NCLT.