Rebid plan for RCom assets likely to face legal hurdles

A proposal by lenders to Reliance Communications Ltd (RCom) to seek fresh bids despite selecting UV Asset Reconstruction Co. Ltd’s (UVARCL) resolution plan could lead to prolonged litigation, said three legal experts.

A decision based on the outcome of another insolvency case involving UVARCL would only cause delay as RCom’s resolution plan has already been approved by the lenders and is awaiting a final nod from the National Company Law Tribunal (NLCT), said the experts.

The Economic Times reported on 7 July that the lenders are discussing whether they could call for fresh bids over concerns that UVARCL’s plan for another telco Aircel was not approved by the Reserve Bank of India (RBI). Last year, a resolution plan by UVARCL was selected for RCom’s spectrum and other assets, while Reliance Jio’s plan was selected for RCom’s tower assets. The latter was approved by NCLT in December.

“Under the Insolvency and Bankruptcy Code (IBC) and regulations, there is no scope for calling for a rebid if the plan is approved by the lenders and pending approval by the authority. The code mandates that once the plan is approved, it has to be submitted to the adjudicating authority for approval and there is no vacuum,” said Ashish Pyasi, associate partner at law firm Dhir and Dhir Associates.

There have been cases wherein due to the failure or withdrawal of a resolution plan, the committee of creditors (CoC) has sought fresh bids, Pyasi said. In some cases, even the NCLT has allowed rebidding so that value maximization happens, he added.

“If a rebidding happens at such a juncture, it will be unprecedented. There have to be crucial reasons for such a drastic step as it will definitely lead to challenge and protracted litigation,” Pyasi said.

Last year, RBI had rejected UVARCL’s resolution plan to acquire the assets of Aircel, saying the plan did not fulfil guidelines of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act.

The regulator’s key objection was with asset reconstruction companies or ARCs buying equity instead of debt through the resolution process. There have been multiple representations to the central bank since then, including by the association of ARCs as well as banks. RBI has set up a committee to study the role of ARCs in stressed debt resolution and review their business models.

“If the time period mentioned under section 12 of the IBC for corporate insolvency resolution process has been completed, NCLT cannot trespass the commercial wisdom of CoC which approved its plan with the requisite voting shares,” said Raj Bhalla, a partner at law firm MV Kini.

Lenders have not got in touch with UVARCL on the matter, said a person aware of the development. Anish Nanavaty, the resolution professional in Rcom, did not comment.

Meanwhile, other experts pointed out that if lenders want to call for new bids, they will have to seek permission from NCLT, giving reasons for the decision.

“Leave to conduct a fresh round of voting and to call for other resolution plans, may still be possible. If the resolution plan as approved is incapable of being implemented, the CoC may be required to seek further directions from the NCLT in this regard,” said Faisal Sherwani, partner, L&L Partners.

Good reasons would have to be demonstrated to the NCLT, but impossibility on account of lack of statutory approvals from regulators such as the central bank may be a reason that passes muster, he said. Livemint