SAT Allows Lenders To Sell Reliance General Insurance

The Securities Appellate Tribunal (SAT) has upheld the right of Reliance Home Finance’s lenders Nippon India Mutual Fund and Credit Suisse to sell the shares of Reliance General Insurance, following the invocation of a pledge.

It may be recalled that earlier the Insurance Regulatory & Development Authority (IRDAI) had declared the enforcement pledge as invalid.

However, the SAT stated that after identifying a buyer for Reliance General Insurance, the proposed owner will have to be certified fit and proper by IRDAI, which will carry out a due diligence and ascertain the prospective buyer’s financial soundness.

Nippon India MF and Credit Suisse are likely to invite bids for Reliance General Insurance, whose shares are held by IDBI Trusteeship. Current foreign direct investment norms prohibit non-residents from owning more than 49% in an insurer.

Nippon India and Credit Suisse argued before SAT that they enforced the pledge in accordance with the share pledge agreement to safeguard their interest and not to take control of the company. It was also argued by Nippon India that it cannot manage any other business apart from mutual funds, as per SEBI norms.

The case dates back to March 2018, when Reliance Home Finance issued bonds worth Rs 400 crore and Rs 1,200 crore to Nippon India and Credit Suisse respectively.

After Reliance Home Finance defaulted on its debt obligations, Nippon India and Credit Suisse invoked the pledge (of Reliance General shares) made by Reliance Home Finance’s promoter, Reliance Capital.

Later, in November 2019, the Delhi High Court prevented Reliance Capital from selling any of its assets.