Reliance Capital Insolvency: Is there a conflict of interest in Hinduja Group’s bid? Here’s what experts say

Experts are divided on whether Hinduja Group, one of the bidders to the bankrupt Reliance Capital, may face charges of conflict of interest as IndusInd Bank, promoted by the same group, is among the lenders to the company. In the bidding process, the Hinduja Group emerged as one of the top bidders for crisis-ridden Reliance Capital.

IndusInd Bank has lent Rs 1,600 crore to Reliance Capital out of a total debt of Rs 52,490 crore and is one of the lenders in the consortium that has filed for bankruptcy. Among the 29 banks which lent money to Reliance Capital are YES Bank (Rs 3,340 crore), Bank of Baroda (Rs 2,290 crore), and IndusInd bank. According to Morgan Stanley, the total amount Reliance Capital owes to creditors is Rs 52,490 crore, of which, Rs 21,070 crore is to the banks alone.

Vineeta Maheshwari, a member of the Insolvency Practitioners Association (IPA), said that if a party is a member of a committee of creditors (CoC), it would have direct information about some of the sensitive details of the case. This could lead to a conflict of interest, Maheshwari said.

“Under Section 29 (A) clause J of the Insolvency and Bankruptcy Code, any party involved in the case must disclose its inherent interest. Since IndusInd Bank is a member of the CoC, it has direct access to key information,” said Maheshwari.

Hence, it is suggested that the Hinduja Group must disclose its interest to the resolution professional, and the CoC, Maheshwari explained. Hindujas holds a 16.51 percent stake in IndusInd Bank through IndusInd International Holdings Ltd (12.58 percent) and IndusInd Ltd (3.93 percent) respectively.

However, Ashish Chhawchharia, Partner and Head, of Restructuring Services, Grant Thornton Bharat, said conflict of interest would have arisen if and only if IndusInd Bank would have had a major share in the lending.

How did RCap face insolvency?

Reliance Capital is the third major non-banking financial company (NBFC) facing bankruptcy proceedings, along with Srei Group and Dewan Housing Finance Corp Ltd (DHFL). The company plunged into a crisis following huge debts and liquidity crises. In March 2019, its financial auditor,

PricewaterhouseCoopers (PwC) resigned, and Care Ratings downgraded Reliance Capital’s mounting debt to default status.

In December 2021, Reliance Capital, in a regulatory filing, said that the National Company Law Tribunal (NCLT) had admitted the case of the company for the corporate insolvency resolution procedure (CIRP) under the Insolvency and Bankruptcy Code (IBC).

In November 2021, RBI referred Reliance Capital for bankruptcy resolution process after it defaulted on bonds worth Rs 24,000 crore.

Nageswara Rao Y, former executive director of the Bank of Maharashtra, was appointed the administrator for the process.

Bidders in the race

In February 2022, 55 companies submitted their expression of interest (EOS) for the sale of Reliance Capital, and 14 submitted non-binding bids by August end. By December 2022, only four investors - Hindujas, Torrent, Cosmea-Piramal consortium, and Oaktree Capital, submitted the final bids.

But since the submitted bids were below the liquidation value, the CoC held an e-auction where bidders were asked to revise their bid prices.
Reliance Capital’s insolvency process, now majorly involves two parties, Hindujas and Torrent Group, and is in the final stages. The timeline for the completion of Reliance Capital's resolution process has also been extended thrice by the lenders. Now, the final deadline to complete the process is January 31, 2023.

The email sent to IndusInd Bank remained unanswered till the time of filing this story.