RBI has given its go-ahead for Asset Reconstruction Companies (ARCs) to bid for companies going through insolvency process. But only ARCs with Rs1,000 crore in net owned funds (NOF) will be able to act as resolution applicants. UV ARC that is the winning bidder in the case of the resolution processes of Reliance Communications and Aircel has NOF of Rs 200 crore. However, this new order of RBI is prospectively applicable. It is not retrospectively applicable.
In June 2020, a bankruptcy court authorized UV ARC's resolution plan for Aircel, Dishnet Wireless, and Aircel Cellular. In March 2020, lenders unanimously approved UV ARC's offer for Reliance Communications, which is promoted by Anil Ambani.
Reliance Communications' claims totalled Rs50,623 crore, while Aircel's claim of Rs19,788 crore had been validated by financial creditors. In both instances, UV ARC's proposal included buying a sizable portion of the company's shares and making a series of payments by selling off its assets.
In light of the new RBI requirements, a combined lenders' meeting for both telcos would shortly be organized, the report continued.
The banking regulator previously objected to ARCs functioning as resolution applicants because it maintained the opinion that the statute governing the ARCs does not provide a provision for such, even though the RBI's Tuesday recommendations are prospectively applicable.
Due to UV ARC's potential insolvency bid, the RBI had sought to revoke UV ARC's license; however, in November 2020, the Delhi High Court issued a stay of the RBI's ruling. The settlement of the telecoms had also been delayed as a result of this. The resolutions of both telcos were further postponed by a separate government ruling that telcos cannot sell spectrum without paying government dues.
According to the RBI, ARCs are not permitted to participate as resolution applicants under the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act. In this situation, it turned down UV ARC's request to represent itself as a bidder for Aircel, which prompted the ARC to seek judicial redress.
Furthermore, the central bank has stated that after five years, ARCs should not maintain any control over the insolvent company, implying that it will need to find a buyer and exit the business in the near future.
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