Credit Suisse AG has approached the insolvency court seeking recognition as a financial creditor of Reliance Capital Ltd. The administrator had rejected its claim.
According to Credit Suisse, the put option agreement guaranteed by Reliance Capital, later assigned to Credit Suisse as part of a lending agreement between Reliance Big Entertainment (U.S.) Inc. and its lenders, makes it a financial creditor of the insolvent company.
The Anil Ambani-owned Reliance Capital was admitted to insolvency in December last year, after the Reserve Bank of India superseded the board of directors of the company.
The regulator had appointed Nageshwara Rao as the administrator, who in February this year rejected Credit Suisse’s claim as a financial creditor.
March 2016: Reliance Big Entertainment, a U.S. company procures a loan amounting to Rs 660 crore from its lenders—Credit Suisse AG Singapore, Far Eastern International Bank, and Federal Bank Ltd. through a facility agreement.
Credit Suisse Mumbai was made trustee for the above agreement.
Several instruments, including a pledge of shares of Reliance Big Entertainment (India) Pvt., held by Reliance Interactive Advisors Pvt., along with a put option agreement between Reliance Interactive Advisors and Reliance Venture Asset Management Pvt. were provided as a guarantee for the said borrowing.
As per the put option agreement, Reliance Capital will acquire 51% shares of Reliance Big Entertainment from Reliance Interactive Advisors for Rs 750 crore, if Reliance Ventures Asset Management fails to do so.
March 2019: On failure of Reliance Big to pay back its lenders, a letter of undertaking securing the put option guarantee was executed by the insolvent company.
This was later converted into a pledge agreement, where the insolvent companies’ stake in Reliance General Insurance Co. was brought in as security for the put option agreement.
June 2019: This pledge agreement was assigned to Credit Suisse through a hypothecation agreement.
August 2019: On further default, Credit Suisse—trustee for the lenders—invoked the guarantee and asked Reliance Ventures to purchase the agreed shares and send a notice to the insolvent company to meet its guarantee obligations.
The insolvent company, Reliance Capital, acknowledged its obligation in a response letter to the lenders and undertook to pay the outstanding debt
December 2021: Reliance Capital goes into insolvency, a claim was submitted by Credit Suisse as the financial creditor for Rs 660 crore.
February 2022: Administrator rejects the claim, citing a clause of the pledge agreement that dissolves the insolvent company from any other obligation arising out of such agreement, except the guarantee in question.
According to advocate Janak Dwarakdas, counsel for Credit Suisse, there is a direct obligation on the insolvent company to the trustee company, as the rights accruing to Reliance Advisors was assigned to it through the pledge agreement.
The clause in the pledge agreement that “Put Option guarantee cannot be taken as a guarantee for any other obligations arising from the agreement” cannot be taken as a defence for rejecting the claim, as form cannot supersede substance.
The court will next hear the matter on Dec. 16.