Home >Companies >News >ARCs seek clarity on why RBI nixed Aircel sale plan

NEW DELHI/MUMBAI : The Association of ARCs in India, a body representing asset reconstruction companies, has written to the Reserve Bank of India (RBI) seeking clarity on why the regulator has rejected the resolution plan for bankrupt telecom operator Aircel Group, said a person aware of the development.

The central bank has rejected the resolution plan submitted by UV Asset Reconstruction Co Ltd for acquiring the assets of Aircel, saying the plan does not conform to the guidelines of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, said the person requesting anonymity.

RBI has also rejected another insolvency resolution plan submitted by UV ARC, the person said.

“We have written to RBI. We want to know the reason for rejecting the plan of UV ARC because IBC allows asset reconstruction companies to participate in resolution processes... The Insolvency and Bankruptcy Code (IBC) was introduced much later than Sarfaesi and overrides all other previous Acts," the person said. The Sarfaesi Act has been in place since 2002, while IBC was introduced in 2016.

RBI’s primary objection is that instead of buying debt, an ARC is buying equity in a company, said a banker aware of the discussions. Lenders, he said, have been going back and forth, meeting RBI officials since June trying to point out that it is a viable resolution plan.

An email sent to UV ARC remained unanswered.

Under RBI guidelines in force since 2017, ARCs can hold more than 26% equity in a borrower after debt to equity conversion if they meet certain norms. The UV ARC resolution plan involved the ARC getting 76% stake in the company in the first five years, with the financial creditors getting the rest.

The National Company Law Tribunal had in June approved a 6,630 crore bid by UV ARC for Aircel. UV ARC has also emerged as the highest bidder for another bankrupt telco, Reliance Communications Ltd. Both resolution plans have been challenged by the department of telecommunications (DoT) as it fears it may not recover dues, including adjusted gross revenue (AGR), from the resolution of these bankrupt telcos.

Aircel has a liability of 12,289 crore in AGR dues to the government, while RCom owes 25,199 crore, including spectrum usage charges and licence fees.

RBI also does not want ARCs to participate in IBC resolutions and the lenders to Aircel and UV ARC are taking a legal opinion on the matter, said another person aware of the development. “The rejection came this month after several rounds of discussions trying to convince the RBI that IBC has a non-obstante clause, meaning it has an overriding effect on other laws contrary to it," the person said.

Legal experts believe that the inclusion of ARCs as resolution applicants under IBC needs more clarity as the regulator has not objected to plans submitted by ARCs in earlier cases. If RBI wishes to come up with specific regulations for ARCs to follow while submitting resolution plans, that step may give more clarity to the situation, said Akshay Nagpal, partner, L&L Partners.

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