Supreme court restores SBI-led lenders as financial creditors in Reliance Infratel Case

The Supreme Court has ruled in favour of a State Bank of India (SBI) led consortium of lenders, restoring their status as financial creditors of debt-ridden Reliance Infratel and directing their inclusion for claims amounting to Rs 36.28 billion.

Setting aside earlier orders of the National Company Law Tribunal (NCLT) and its appellate tribunal (NCLAT), which had removed the lenders’ status as financial creditors, the apex court instructed the resolution professional to reconstitute the committee of creditors (CoC). The revised CoC will include six banks namely SBI, Bank of India, UCO Bank, Canara Bank, Punjab National Bank and Indian Overseas Bank, and proceed with the insolvency resolution process.

A bench of Justices held that the corporate guarantees executed by Reliance Infratel in favour of these banks qualify as financial debt under the Insolvency and Bankruptcy Code, 2016. The court stated that the rejection of the lenders’ claims by the NCLT and NCLAT was legally unsustainable and suffered from perversity, warranting intervention.

The lenders had argued that their claims were based on corporate guarantees and a deed of hypothecation. They also cited an RBI circular from July 2015 on asset classification, which states that in cases of restructuring, classification is determined from the date the account first turned non-performing.

In 2016, the accounts of Reliance Communications, Reliance Telecom and Reliance Infratel were classified as non-performing assets, indicating defaults in repayment.

The SBI-led consortium, which included Bank of India, UCO Bank, Syndicate Bank, Oriental Bank of Commerce and Indian Overseas Bank, had claimed over Rs 36.28 billion based on guarantees provided by Reliance Infratel for loans taken by group companies Reliance Communications and Reliance Telecom.

The claim was challenged by Doha Bank Q.P.S.C, an external commercial borrowings (ECB) lender, which argued that the guarantees were suspicious, inadequately stamped and not properly disclosed in financial records.

Rejecting these arguments, the supreme court held that the absence of stamp duty payment under the Maharashtra Stamp Duty Act, 1958, or the non-submission of documents along with Form C during the insolvency process, could not be grounds to invalidate the lenders’ claims.