RBI calls on UVARCL to explain abused norms; RCom, Aircel resolution plans in balance

Mumbai: Reserve Bank of India has warned UV Asset Reconstruction Company (UVARCL) that its registration certificate can be annulled unless it is explained next week why it did not inform the insolvency court that the regulator had immediately rejected its winding-up plan for Aircel.

The bank regulator said in a statement that UVARCL had violated the standards of the Sarfaesi (Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest) Act and intentionally violated RBIGuidelines, said people who were aware of the matter. Under the Sarfaesi Act, asset-building companies cannot inject capital into an insolvent company at the liquidation stage.

UVARCL has been asked to respond to RBI’s announcement by the end of next week. However, officials familiar with the issue said UVARCL had informed the RBI of all steps in the settlement plans.

Cancellation of UVARCL’s registration at this time would mean liquidation plans for bankruptcy telecos Reliance Communications (RCom) and Aircel would be canceled and put the State Bank of India back in plans to recover 12,000 crs lent to both telecommunications companies. While national company law (NCLT) has approved Aircel’s settlement plan, RCom’s proposal has been cleared by the creditors’ committee and is pending before the court.

“In the announcement of the reason for the listing, the RBI said it had rejected Aircel’s winding – up plan last October, and despite that, UVARCL went ahead with it and did not inform the National Company Law Tribunal of the regulatory body’s decision,” one person said.

RBI and UVARCL did not respond to ET’s requests.

While clearing UVARCL’s dissolution plan for Aircel in June 2020, NCLT asked the ARC to send its plan to the RBI for a nod, as ARCs are controlled by the central bank.

UVARCL then sent the NCLT-approved plan to the RBI, which again rejected the proposal, citing norms under the Sarfaesi Act, legislation that allows banks and other financial institutions to auction off homes or commercial properties to recover loans.

In its statement to UVARCL, the central bank said it had denied authorization as early as October 2019 before NCLT cleared the proposal, the person said.

According to another director in the industry, RBI also noted that if NCLT had not asked for the central bank’s approval, UVARCL would have gone ahead and implemented the Aircel settlement plan.

Officials tracking the Aircel and RCom settlement cases said UVARCL sent at least six letters to the central bank between July 2019 and October 2020, informing it of the progress of the settlement plans.

“They have constantly written to RBI about this case, including immediately after the creditors’ committee expressed the plan in September last year. However, despite the approval of other resolution plans, the regulator has opposed this due to the equity investment element in the proposal, ”said an official.

An industry management said that although RBI’s announcement has only gone to UVARCL, it has a far-reaching impact on the industry.

“RBI is of the opinion that Sarfaesi needs to be changed before ARCs are allowed to act as liquidation applicants, and it is completely cautious about the equity infusion in distressed asset liquidation plans,” the official said.

RBI’s rejection of the Aircel liquidation plan focused on the conflict between the Insolvency Act – which allows ARCs to bid on bankrupt companies through capital infusion – and the Sarfaesi Act, which is silent on the matter.

The Ministry of Finance is said to be open to amending the Sarfaesi law. ARCs have asked the RBI to consider this as a regulatory issue and issue new guidelines because changes take time.