Earlier this month, the Supreme Court approved the auction of Samrudhhi Realty's assets to recover around INR 5,000 crore in debt, but any auction of Essel Finance Advisors and Managers LLP's assets will be contingent upon the outcome of an ongoing appeal. Essel Finance disputed the NCLAT's decision, which upheld an order requiring it to cover a portion of liquidation costs. Essel, which invested in Samrudhhi Realty's debentures, argued that the liquidator's demands were excessive and the firm's role as a facility agent did not equate to being a financial creditor responsible for extra liquidation costs. Of 364 claims filed, 348 worth INR 414 crore were accepted.
Earlier this month, the Supreme Court authorised the liquidator to proceed with the auction of Samrudhhi Realty's assets to recover approximately INR 5,000 crore in debt. However, a bench led by Justice Abhay S Oka stated that if any assets of Essel Finance Advisors and Managers LLP are auctioned, such auctions will be contingent upon the final outcome of the ongoing appeal.
Essel Finance contested the NCLAT's decision, which it claimed was "erroneous," as it had upheld the NCLT's order from May 2024. This earlier order had directed Essel Finance to cover its share of the costs associated with the liquidation process. Essel Finance, operating as an investment manager engaged in fund management activities, had invested in redeemable secured non-convertible debentures issued by Samrudhhi Realty. Samrudhhi Realty, burdened with significant debt, was admitted to the insolvency resolution process in April 2019 and subsequently entered liquidation in May 2020.
The dispute reportedly emerged from the liquidator's demands that Essel Finance cover a portion of the liquidation costs and surrender the security interest it had in the assets of the corporate debtor. During the liquidation process, Essel Finance had submitted a claim amounting to INR 123.57 crore as of the liquidation commencement date. Instead of participating in the liquidation estate, Essel chose to pursue its own security interest in Samrudhhi Realty's assets independently, according to the appeal.
Senior counsel Amar Dave, representing Essel Finance, alleged that the liquidator had not provided adequate details regarding the sale and valuation of the assets. Furthermore, the liquidator had imposed what were described as "exorbitant" demands, amounting to INR 5.71 crore, for Essel's share of the liquidation costs. The senior counsel argued that the finance firm is unable to recover its dues through the value of the secured assets. He pointed out that the liquidator had sold one of these secured assets for INR 14.05 crore, which exceeded the demand of INR 5.70 crore, and is continuing with the sale of the remaining secured assets.
Essel Finance further informed the Supreme Court that, according to Regulation 2A of the IBBI (Liquidation Process) Regulations, 2016, only financial creditors are responsible for covering liquidation process costs that exceed the available liquid assets of the corporate debtor. The appeal stressed that Essel Finance should not be classified as a non-banking institution under Section 45-I of the Reserve Bank of India Act. It clarified that Essel Finance is not engaged in financing activities but rather serves as a facility agent for debenture holders.
Following the public announcement in 2019, a total of 364 claims amounting to INR 5,115.22 crore were submitted. Of these, approximately 348 claims, valued at ?414 crore, were accepted, while some are still under verification
The Supreme Court's decision to allow the auction of Samrudhhi Realty's assets marks a significant step in addressing the company's debt recovery. The dispute involving Essel Finance highlights complexities in the liquidation process, particularly regarding the responsibilities and classifications of creditors. The outcome of the appeal will determine the impact on Essel Finance's assets and its financial obligations. The liquidation process continues, with a substantial number of claims still being processed, reflecting the intricate nature of insolvency resolutions and asset recovery.
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