In the intricate web of corporate dynamics, recent developments within the Reliance Group have drawn attention to a contentious issue between Reliance Capital (RCap) and its subsidiary, Reliance General Insurance Company (RGIC).
The matter revolves around a significant provision of Rs 118.41 crore noted in RGIC’s financial statements for the quarter ending December 31, 2023. This provision is earmarked to fulfill one-time special payments to RGIC’s management team, a decision met with resistance from RCap’s administrator, Y Nageswar Rao.
Contradiction
In a letter addressed to RGIC, RCap’s administrator highlighted the discrepancy between the provision made by RGIC and the representations made regarding its solvency ratio post the infusion of additional funds.
Rao emphasized that such provisioning directly contravenes the directives communicated by RCap to RGIC, explicitly prohibiting actions such as the proposed one-time payments without prior approval. Notably, no approval has been granted under Section 197 of the Companies Act 2013 for such remuneration to key managerial personnel.
RCap’s Stand
RCap, with the backing of the committee of creditors (CoC), recently injected Rs 200 crore into RGIC to fortify its solvency ratio as mandated by the Insurance Regulatory and Development Authority of India (IRDAI). It’s imperative to note that the one-time special payment to directors had received approval from the RGIC board before RCap commenced its insolvency proceedings.
Moreover, RCap had pledged its entire equity holding in RGIC to IDBI Trusteeship Services against guaranteed dues. Although the trustee holds the shares of RGIC, IRDAI clarifies that the shares remain under the trustee’s custody and control.
RCap, through its administrator, has pursued legal recourse seeking the return of RGIC shares from the trustee’s custody, a matter currently before the National Companies Law Tribunal, Mumbai.
Challenges
The regulatory landscape surrounding the control and governance of RGIC shares has been subject to scrutiny and legal interpretation. Despite the invocation of the pledge by the trustee, RGIC remains a subsidiary of RCap. The appointment of Rao as the administrator followed the Reserve Bank of India’s intervention due to RCap’s defaults in meeting payment obligations.
Conclusion
The tussle between RCap and RGIC underscores the complexities inherent in corporate governance and regulatory compliance. As stakeholders navigate through legal avenues and regulatory frameworks, clarity and adherence to prescribed norms become paramount for ensuring transparency and accountability within the corporate ecosystem.
