Anil Ambani mounts last-ditch challenge to wrest back control of Reliance Naval

In the latest twist to the long-drawn resolution saga of Reliance Naval and Engineering Ltd, industrialist Anil Ambani has launched a twin-pronged effort to try and wrest back control of what was the largest private defence shipyard in India.

As part of this last-ditch effort, Ambani’s Reliance Infrastructure Ltd has moved to torpedo Mumbai-based industrialist Nikhil V. Merchant’s bid by questioning his eligibility to participate in the bidding for Reliance Naval.

Separately, Reliance Infrastructure has also submitted an offer to the lenders to pay up a part of the outstanding dues and wrest back control of the bankrupt entity that was formerly known as Pipavav Shipyard. The company has proposed total payment of Rs 2525 crore starting with an upfront payment of Rs 25 crore.

This offer, made on Friday, comes at a time when voting on the bid by Merchant’s company has been underway since February 24 and is likely to conclude tomorrow.

Meanwhile, Reliance Infra’s plea to declare the Hazel Mercantile consortium as ineligible to bid was heard by the Ahmedabad bench of the National Company Law Tribunal (NCLT) earlier today.

After hearing all the parties concerned, the bench directed the resolution professional of Reliance Naval and Hazel Mercantile to file a response on the issue of maintainability within a week and did not grant any stay. The court will hear the matter next on March 30.

Commenting on the matter, Padmaja Kaul, Disputes Partner at IndusLaw said, “the present situation is an apt example where promoters, with the intent to delay or scuttle the insolvency process, come forth with a proposal at the very end. Hence, it is imperative to put a hard stop date for the promoters to submit an offer under section 12A, as there is currently a lacuna in the IBC framework”.

The resolution process of Reliance Naval began over 26 months ago to recover over Rs 12,429 crore owed to financial creditors including the State Bank of India and the Union Bank of India among others.

A consortium of two companies - Hazel Mercantile Ltd and Swan Energy Ltd – has bid around Rs 2,700 crore for the bankrupt shipyard. This bid was accepted by the resolution professional of Reliance Naval after a legal process three months ago. Under the resolution law a bid for a bankrupt asset can only be accepted once the eligibility is verified. The Hazel Mercantile bid had been accepted on December 13 last year.

The fresh challenge posed by Reliance Infrastructure comes weeks after Citi Securities & Financial Services Pvt Ltd (not related to the American multinational investment bank and financial services corporation Citigroup) had lost its plea at the same bench seeking to be recognised as a financial creditor of Reliance Naval with a claim of Rs 2,538 crore of assigned debt due from the shipyard.

In its order, the NCLT had said the “assignment of debt was not in good faith as portrayed and rather shows that the arrangement was made with a view to get backdoor entry into the CoC (Committee of Creditors) through the applicant” and “to have control over the resolution process as Reliance Infrastructure Ltd is a related party of Reliance Naval and cannot be a member of the CoC”.

The NCLT further held that the act of assignment of debt with a “malafide intention cannot give an equivalent right with that of the unrelated financial creditors”.

Citi Securities has filed an appeal against this order before the National Company Law Appellate Tribunal (NCLAT), which had adjourned the matter for hearing next month.