RBI begins insolvency proceedings against Reliance Capital

The Reserve Bank has today (December 02, 2021) begins insolvency proceedings against Reliance Capital.

The Reserve Bank has today (December 02, 2021) filed an application for initiation of CIRP against Reliance Capital Ltd. of the Insolvency and Bankruptcy Code (IBC), 2016 at the Mumbai Bench of the Hon’ble National Company Law Tribunal.

On November 29, the RBI deposed RCL’s board of directors and named Y Nageswar Rao, a former executive director of the Bank of Maharashtra, as the company’s administrator.

The RBI took the decision “in light of RCL’s difficulties in meeting various payment obligations to its creditors and substantial governance concerns that the board has not been able to address effectively,” according to a press release from the central bank.

RCL is a holding company for insurance companies with majority ownership.

An interim moratorium shall begin on and from the date of filing of the application until its admission or rejection, according to Rule 5 (b) I of the FSP Insolvency Rules. The provisions of sub-sections (1), (2), and (3) of Section 14 shall have the effect of “interim moratorium,” according to the explanation to Rule 5 (b). Section 14 of the IBC’s sub-sections (1), (2), and (3) are reproduced below:

“(1) On the insolvency commencement date, the Adjudicating Authority shall, subject to the provisions of subsections (2) and (3), issue an order declaring a moratorium forbidding all of the following:

(a) the commencement of or continuation of pending actions or processes against the corporate debtor, including the enforcement of any judgement, decree, or order in any court of law, tribunal, arbitration panel, or other authority;

(b) the corporate debtor transferring, encumbering, alienating, or disposing of any of its assets or any legal right or beneficial interest therein;

c) any action to foreclose, recover, or enforce any security interest created by the corporate debtor in respect of its property, including any action brought under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002(54 of 2002);

(d) the recovery of any property by an owner or lessor if the corporate debtor is occupying or in possession of the property.

(2) During the moratorium period, the provision of necessary goods or services to the corporate debtor, as stated, shall not be terminated, suspended, or interrupted.

(3) The provisions of paragraph (1) do not apply to:

(a) any transaction that the Central Government may notify in consultation with any financial authority;

(b) a surety in a corporate debtor’s guarantee contract.”