CoC clears plan to distribute funds equally to Reliance Capital lenders

Reliance Capital (RCap) lenders on Monday approved a plan to distribute the money to be received from Hinduja’s resolution plan, which will be based on their recognized claims and regardless of their position during the vote on the plan next month.

Distribution of funds for RCap will be different from previous practices as the new plan gives equal treatment to all lenders and avoids litigation, a banking source told. In previous settlement plans for a bankrupt company, defaulting lenders were paid based on liquidation value, which often led to litigation.

The company, previously owned by Anil Ambani, was sent to settle debts in November 2021 after it defaulted on loans worth Rs 24,000 crore. Several companies have shown interest in expressing interest stage, but the majority have shied away from making binding offers.

The one-resolution plan submitted by IndusInd International Holdings (IIHL), a Hinduja group company, will be voted on in June.

IIHL’s dissolution scheme offered nearly Rs 9,650 crore to lenders in the second round of auction held last month. Hinduja’s bid is still well below its liquidation value of Rs 13,000 crore.

However, the fate of Hinduja’s bid will be decided by the Supreme Court in August, which is hearing a petition from the Torrent Group (Torrent), which has objected to the second auction being conducted by the banks.

Torrent was the highest bidder for RCap, bidding Rs 8,640 crore in the first auction held in December last year. This decision is expected to mitigate disputes between creditors, thus ensuring a smoother resolution process.

One banker said he expects to complete the whole process by submitting the settlement plan to the National Corporations Law Tribunal by mid-July. A source at Torrent said it stayed away from the second auction because there was no clarity about the process and its concerns were not addressed as well.

In a letter to the Committee of Creditors (CoC) informing its decision not to bid in the second auction, Torrent reiterated his position on the “illegality” of the second auction, saying it was a flagrant violation of existing bankruptcy laws.

Torrent said the auction process remains arbitrary and opaque as the CoC decided not to freeze settlement plans (except for a financial proposal) prior to an expanded appeal mechanism.