RBI's latest decision hits Aircel, Reliance hard | Economic Times

Mumbai: The Reserve Bank of India has refused to let asset reconstruction companies act as resolution applicants in insolvency cases, a stance that could halt the proceedings involving Aircel and Reliance Communications.At a meeting between Association of ARCs in India and RBI officials, the central bank refused to budge from its position despite pleas that it would impact insolvency cases across the board and hurt banks seeking to recover loans, people aware of the matter said.“This is a big blow to ARCs but we don’t think it’s the end of the road as there is scope for a review with the central bank,” said one person. 78198389The RBI had said the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (Sarfaesi Act) doesn’t allow ARCs to become resolution applicants. However, there is no such bar on ARCs in the Insolvency and Bankruptcy Code, which came into force later.ARCs have stated that the IBC supersedes past laws, but the regulator maintains that since ARCs are governed by the Sarfaesi Act, its guidelines should be considered in the rehabilitation of distressed assets. “The RBI has stuck to its original stand that ARCs can’t become resolution applicants because it goes against the Sarfaesi Act,” said a banking executive aware of the development. He added that although the larger impact on other resolution cases was not discussed, the ARCs are expected to push the RBI for a review.RBI and the ARC association did not respond to an email query.ET has learnt that the association may approach other regulatory bodies, the Insolvency and Bankruptcy Board of India and the ministry of corporate affairs to intervene on their behalf.The immediate impact of the RBI’s decision will be felt by UV Asset Reconstruction Company, which was awaiting approval to take over telco Aircel. It was the RBI’s rejection of UVARCL’s application that revealed the dichotomy of the two laws, which ET reported first in its August 26 edition.The National Company Law Tribunal allowed UVARCL in June to take over Aircel and its two units with a 74% stake and repay ₹6,630 crore to the bankrupt telco’s financial creditors within five years.UVARCL was also the selected resolution applicant for RCom and its unit Reliance Telecom. If the resolution plans are not approved, then liquidation is a strong possibility for both Aircel and RCom.The ARC association had written to RBI governor Shaktikanta Das, emphasising their role in reviving stressed companies. ARCs are worried because they are involved in many resolution plans awaiting closure. Recently ARCs including JM Financial ARC, ARCIL, Phoenix bid for Reliance Naval and Engineering, while Suraksha ARC expressed its interest to buy debt-laden realtor HDIL.