RBI looks at asset reconstruction companies amid a flood of allegations
asset reconstruction companies (ARC) next week to discuss corporate governance and stressed-asset resolutions amid concerns of potential back-door entry by defaulting promoters, people with knowledge of the development told ET.
The Reserve Bank of India (RBI) has asked the chairman of the board, chairman of the audit committee, and managing director of the ARCs to attend the May 17 meeting in Mumbai. Two Reserve Bank executive directors and senior Mint Road officials will also participate in the meeting, the first by the banking regulator that will see the participation of all 27 registered ARCs.
The meeting comes amid allegations that ARCs often strike deals with defaulting promoters, effectively giving them a back-door entry at a steep discount. Under Section 29A of Insolvency and Bankruptcy Code (IBC), defaulting promoters are prohibited from giving a resolution plan to lenders.
The modus operandi here, as alleged, is that an ARC acquires the majority or entire debt of defaulting companies from banks at an auction at a steep discount. Thus, as the largest debtholder, it is in control of the resolution process of the company undergoing corporate insolvency under the supervision of the National Company Law Tribunal (NCLT).
Here, the ARC (with 66% debt) has a significant say over the sale process since a resolution can only pass with the consent of 66% of the debtholder, according to the IBC rules.
When a company is not under corporate insolvency, an ARC sometimes sells the assets of a defaulting borrower
