The ongoing debt resolution process of Reliance Capital presents an opportunity for lenders to evaluate whether they should hold multiple rounds of auctions to maximise revenue or if they should stick to the timelines announced at the beginning of the bidding process.

This issue arises because there are contradicting judgements by two separate Benches of the National Company Law Tribunal in two different cases.

Justices PN Deshpande and Shyam Babu Gautam of NCLT Mumbai recently rejected a request from the Committee of Creditors to hold a second auction for the resolution of Reliance Capital and stated that this would violate the norms of the Corporate Insolvency Resolution Process (CIRP).

The NCLT passed the order in favour of the ₹8,640-crore debt resolution of Torrent Investment, which had emerged as the top bidder after the first round of auction outbidding the Hindujas-owned IndusInd International Holdings.

In November 2021, the RBI had dragged RCap to the NCLT for commencing insolvency proceedings against the company.

The Mumbai NCLT order said the proposed second round of the challenge mechanism (in Reliance Communications case) is nothing but an act to indirectly achieve what could not have been achieved by adhering to the challenge mechanism in terms of the challenge process note.

The respondents, administrator and the Committee of Creditors, shall not allow any deviation in the highest net present value of ₹8,110 crore of IIHL and ₹8,640 crore of Torrent, they said. IIHL has already moved NCLAT over this.

In the case of Meenakshi Energy, which had defaulted on a loan availed from SBI and others, it was dragged to CIRP in 2019. Jindal Power, Vedanta and consortium of Prudent ARC and Vizag Minerals and Logistics had submitted their bids after the Covid pandemic slowed down the entire process. After several rounds of discussions, Vedanta revised its application last December.

Vizag Minerals and Logistics consortium had contended that Vedanta should not be allowed to revise its application. However, the two-member Bench of NCLT Hyderabad contended that the clause not allowing revision of bid is not a mandatory under any circumstances.

Babu Sivaprakasam, Managing Partner, LEx Aeterna Practices, said that it remains to be seen how the appellate tribunal and the Apex court is going to view a situation where the difference in the offer values are significant and the timeline deviation is infinitesimal.

It will be a question of weighing and holding between the process (timeliness) and the outcome (value maximisation) which have to be treated as sacrosanct and achieve a delicate balance of both.

Vasanth Rajasekaran, founder and head, Trinity Chambers, said the issue of whether further bidding should be permitted by CoC after the bidding mechanism is a contentious subject and is very likely that the Supreme Court will consider this issue in the near future.

While value maximisation is an important goal, it should not be taken as the only one. The CoC must be careful in not being overzealous in its attempts to discover greater value by conducting multiple bidding rounds, especially in contravention of the agreed bidding mechanism, he added.

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