The Mumbai bench of the National Company Law Tribunal (NCLT) has directed Reliance Home Finance Ltd (RHFL) to refund to 18,959 debenture holders money they had invested along with interest within the next five months.
The NCLT order, which comes as a relief for hapless bondholders, says “The respondent no. 1 (RHFL) is directed to pay the interest on the debentures at the contractual rate, calculated till realisation, within a period of two months hence and redeem the debentures on payment of the principal within three months thereafter”.
IDBI Trusteeship Services, the debenture trustee for RHFL non-convertible debentures (NCDs), had approached the NCLT to recover Rs3,500 crore of investment after the company defaulted on repayment obligations. The order from NCLT establishes their claims as valid and the claims will now be part of the resolution process. Reliance Home Finance is a subsidiary of Anil Ambani controlled Reliance Capital and its Rs11,200 crore debt resolution is expected to help Reliance Capital.
Interestingly, the bondholders had also made RHFL’s holding company, Reliance Capital, a party in this case. The debenture trustee is representing all NCD investors, who are not part of the inter creditor agreement (ICA). Bondholders of RHFL had subscribed to the NCDs between November 2016 and January 2017 in various tranches via public issue.
In two separate petitions, investors sought the NCLT’s intervention to recover Rs2850 crore and Rs476 crore invested in the NCDs as principal and additional interest, respectively.
It may be recalled that the inter-creditor lenders with Bank of Baroda as the lead bank, had received initial expression of interest from over 15 bidders of which four binding bids were shortlisted and the final successful bidder was selected.
The ICA lenders selected Authum Investment and Infrastructure Ltd as the successful bidder to acquire all assets of RHF through a competitive bidding process after several rounds of negotiations between the bidders and lenders.
Authum Investment and Infrastructure had reportedly submitted a bid of Rs2,911 crore (which includes Rs24 crore as deferred interest) to financial creditors. But with a debt of Rs11,200 crore, lenders would still face a haircut of almost 60%.
“The debenture holders who are substantial in number are also members of the public. Therefore, their prerogative in timely receipt of interest against their investment (debentures) cannot be sacrificed at the altar of public interest,” says the NCLT bench of judicial member Janab Mohammed Ajmal and technical member V Nallasenapathy in its order.
The current resolution process now has to come to the trustee, which will likely put up the matter for voting among non-ICA members.
The order now could pave the way for retail investors, who will most likely receive their share of repayments out of the resolution plan.
On 3 January 2020, Reliance Capital had informed the exchanges that as directed by the lead bank to the ICA, the amounts due and payable by the Reliance Home Finance on 3 January 2020 in respect of unsecured NCDs are delayed and this is how the trouble started.
RHFL’s total financial indebtedness stands at Rs13,312.96 crore, according to a recent regulatory filing. The total amount of outstanding borrowings from banks and financial institutions amounts to Rs4,435.08 crore.
RHFL argued that an order in favour of the petitioner (IDBI Trusteeship) would not be in the interest of the R1 (RHFL) or its body of creditors and even in the interest of the debenture holders, whom the petitioner represents.
“The principal outstanding against the secured NCDs represents only 23% of the total principal debt burden of the R1. …Therefore, an order in terms of the relief sought would cause serious prejudice to the R1 and the ICA lenders who so far have refrained from enforcing their security,” argued RHFL.
However, setting aside these arguments, the tribunal noted in its order that “the amount of debentures is substantial and the R1 (RHFL) having taken the deposit, there is no reason why any indulgence should be shown to the respondents on the ground that any resolution process is underway.”
In this case, counsel Prateek Seksaria and Ameya Gokhale of Shardul Amarchand Mangaldas & Co represented IDBI Trusteeship while senior counsel Venkatesh Dhond senior counsel with Sarosh Bharucha,Tushad Kakalia, Raghavi Sharma and DJ Kakalia from law firm Mulla & Mulla CBC appeared for RHFL and Reliance Capital.