Mumbai:
In a significant development,the Securities Appellate Tribunal (SAT) on Thursday has set aside an earlier order of the insurance regulator IRDAI which had disapproved the 100 per cent pledging enforcement of Reliance General Insurance Company Ltd's (RGICL) shares by Credit Suisse and Nippon India MF.
Nippon India Mutual Fund and Nippon Life India Asset Management had appealed to the SAT against IRDA's order. Afterwards Credit Suisse also had joined as an appellant in the case.
IDBI Trusteeship Services had acted as a custodian of the pldged shares.
SAT in its order on Thursday said, “We direct that the observation in the impugned orders of the IRDAI that the transfer / pledge of the shares in question are null and void ab initio is incorrect and to that extent, the order is set aside.’’
In a decision, the insurance regulator IRDAI on December 27, had held that the pledge/transfer of shares of RGIC, a 100% subsidiary of Reliance Capital Limited (RCAP),was in violation of the applicable provisions of law.The insurance regulator had also said its prior approval was not taken for the transfer.
The Irdai had further said that the unauthorised transfer also violates FDI regulations.
However rejecting the IRDA’s order the SAT in its order on Thursday has asked the IDBI Trusteeship Services, that is holding the pledged shares as a custodian, to make every endevour to find a suitable buyer for the pleged shares.
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“ As and when a suitable buyer is found suitable application would be made before IRDAI for appropriate approval to enable the IRDAI to carry out due diligence and to ascertain fulfillment of Fit and Proper criteria, financial soundness,’’ said the SAT order.
The SAT has also made it clear that so long as the IDBI Trusteeship Services Ltd is holding the shares in the capacity as a trustee / custodian,it will not exercise any control over RGIC or make changes or have a say in the management or decision making process of RGIC or exercise any voting rights in respect of the said RGIC shares.
IRDA has welcomed the SAT's order. According to a senior official the SAT order has upheld its Feb 4 order .
“When the Dec 4 order of the IRDAI was made, it was based on the statement by the company in the filing before Stock Exchange that it was a "transfer". Later, it was explained that no "transfer" of shares has taken place and only custody of share has been taken. Thereafter, we have issued Feb 4 order and that stands as at present,'' said a senior official of the IRDAI.
Earlier Reliance Capital, part of Anil Ambani-led Reliance Group, had said the IRDAI had cancelled the 100 per cent pledge enforcement of RGICL shares by Credit Suisse and Nippon India MF.
IRDAI had directed IDBI Trusteeship Services not to give effect to any encumbrance or transfer or any change in the shareholding of RGICL, according to a BSE filing by Reliance Capital (RCAP).
In November 2019, the IDBI Trusteeship had transferred RCAP's 100 per cent shareholding in RGIC by invoking pledge, which was contested by the company, RCap said in a statement.
Pursuant to the Irdai direction, 100 per cent shareholding in RGICL were restored to RCAP.,
The IRDAI action was expected to benefit all lenders of Reliance Capital as sale proceeds of RGICL's shares will go to all lenders and debenture holders and not just Credit Suisse and Nippon India MF.
The sale of RGICL's shares is expected to fetch Rs 6,000 crore for RCAP lenders, which is almost 40 per cent of the total RCAP secured debt.