A contentious issue has emerged surrounding Reliance General Insurance Company Ltd (RGIC), a subsidiary of Reliance Capital (RCap), regarding a proposed special payment of Rs 118.41 crore to key managerial staff and directors. This move has been met with opposition from RCap’s central bank-appointed administrator, adding complexity to the ongoing insolvency process. Let’s delve into the details of this dispute and its implications.
Opposition To Special Payout
The administrator appointed by the central bank has objected to RGIC’s decision to provisionally allocate Rs 118.41 crore for special payments to its management team. This opposition stems from concerns regarding the solvency ratio post-infusion of additional funds, as well as explicit directives issued to refrain from such actions without prior approval.
Violation of Directives
The administrator emphasized the discrepancy regarding the provision for special payments, pointing out that it directly contradicts previous communications that explicitly instructed RGIC to obtain approval for any such remuneration in accordance with section 197 of the Companies Act 2013.
This breach of directives has significantly intensified the dispute, exacerbating the administrator’s dissatisfaction with the evident lack of compliance. This failure to adhere to established protocols has not only heightened tensions but also raised concerns regarding regulatory adherence and governance within RGIC.
Legal Proceedings
RCap, amidst its insolvency process, injected Rs 200 crore into RGIC with the approval of the committee of creditors (CoC) to bolster its solvency ratio as per IRDAI regulations. However, the approval for the special payment to directors was granted prior to the commencement of the insolvency process, leading to a clash of interests.
Trustee’s Role
IDBI Trusteeship Services presently maintains possession of the shares of RGIC that have been pledged by RCap to settle outstanding dues. Despite ongoing legal disputes aimed at reclaiming custody and authority over these shares, the trustee persists in retaining them, albeit with minimal sway over RGIC’s operational affairs.
Despite concerted efforts to regain control, the trustee remains steadfast in its custodial role, lacking significant leverage in influencing RGIC’s strategic decisions and day-to-day operations.
Decision
The dispute over the proposed special payment to Reliance General Insurance officials underscores the complexities surrounding RCap’s insolvency process. With conflicting interests between stakeholders, including the administrator, RGIC board, and creditors, the resolution of this issue remains uncertain, highlighting the challenges inherent in corporate insolvency proceedings.
