Reliance Capital's lenders move to conduct a second round of auction is facing difficulties as the bidders are not said to be keen on another round under the insolvency resolution.
The Supreme Court has listed the matter regarding the second auction for hearing in August.
The Supreme Court on March 20 had admitted an appeal by Torrent Investments which was the highest bidder with Rs 8,640 crore against the lenders' decision to hold another round of auction. The court refused to stay the second round of the auction.
It may be pointed out that the insolvency process of RCAP has been going on for more than 450 days, which is much longer than the time limit of 330 days.
Torrent reportedly conveyed to the lenders recently that it is not willing to participate in the second round of auction. The other bidder, International Holdings Ltd (IIHL) of Hinduja Group also reportedly informed the lenders that it wants to withdraw its revised bid of Rs 9,000 crore, which it had made after the auction process, and retain the old offer of Rs 8,110 crore in the first round of auction.
These developments have put a roadblock in the plan of the Committee of Creditors (CoC) to conduct a second round of auction with a base price of Rs 9,500 crore to maximise the recovery from the RCAP resolution process.
In addition, a consortium of Cosmea Financial and Piramal, who had submitted binding bids for Reliance Capital in November has sought a refund of their earnest money deposit of Rs 75 crore each.
While the CoC can pursue the extended challenge mechanism, the outcome of the auction will be subject to the final decision of the Supreme Court.
In light of this, Reliance Capital is staring at liquidation, if the lenders and bidders fail to reach a workable solution to end the stalemate. Lenders would likely fetch Rs 13,000 crore if they go for liquidation.
Torrent has proposed conducting a Swiss Challenge auction with their earlier bid of Rs 8,640 crore as the threshold. If this is agreed upon, Torrent will have the first right to match any counteroffer from Hinduja Group.
The challenge mechanism may be considered flawed as bidders will be apprehensive of participating in open-ended processes. Since the Supreme Court will be examining the interpretation of Regulation 39 (1A) for the first time, the decision will have far-reaching implications on the future of IBC (Insolvency and Bankruptcy Code).
The Swiss Challenge or closed envelope bid process might go against the apex court direction that allowed the lenders to go ahead with an extended auction.
The dispute in the bid for Reliance Capital started when Hindujas offered to pay Rs 9,000 crore in upfront cash to the lenders, a day after the first round of auction concluded on December 21.
The lenders decided to go for one more round of auction to enhance recovery from RCAP assets. Torrent, who made a bid of Rs 8,640 crore in the first auction, termed IIHL's post-auction revised bid of Rs 9,000 crore as invalid and challenged Hindujas' revised bid and the second round of auction as well in the National Company Law Tribunal (NCLT).
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