SC Approves Auction of Samrudhhi Realty Assets to Recover Rs 5,000 Crore Debt.

The Supreme Court has given the green light to auction Samrudhhi Realty’s assets, aiming to recover a debt of approximately Rs 5,000 crore. The decision, handed down on Tuesday, authorizes the liquidator to proceed with the auction process.

However, a bench led by Justice Abhay S Oka clarified that if any of the assets belonging to Essel Finance Advisors and Managers LLP are auctioned, the sale will be subject to the final ruling of a pending appeal.

Essel Finance has been contesting a decision made by the National Company Law Appellate Tribunal (NCLAT), which dismissed their appeal and upheld an earlier order from the National Company Law Tribunal (NCLT) in May 2024.

The NCLT’s order required Essel Finance to cover its portion of the costs associated with the liquidation process. Essel Finance, an investment manager handling fund management activities, had invested in redeemable secured non-convertible debentures issued by Samrudhhi Realty.

The real estate firm, burdened with debt, entered into insolvency proceedings in April 2019 and was later placed into liquidation in May 2020.

The dispute between Essel Finance and the liquidator reportedly arose when the liquidator demanded that Essel Finance contribute to the costs of the liquidation process and relinquish the security interests it held in the assets of Samrudhhi Realty.

Essel Finance had filed a claim for Rs 123.57 crore at the commencement of the liquidation process, opting to remain outside the liquidation estate to independently realize its security interests. In its appeal, the company argued that the liquidator had not been transparent regarding the details of the asset sales and their valuations.

Furthermore, Essel Finance alleged that the liquidator had made “exorbitant” demands, including a demand for Rs 5.71 crore from Essel as its share of the liquidation costs, according to senior counsel Amar Dave, who represented the firm.

During the court proceedings, Essel Finance contended that it has struggled to recover its dues through the liquidation process.

The company pointed out that one of its secured assets was sold for Rs 14.05 crore, an amount significantly higher than the Rs 5.71 crore demanded by the liquidator, yet the liquidator continues to sell additional secured assets.

Essel Finance further informed the Supreme Court that, under Regulation 2A of the IBBI (Liquidation Process) Regulation 2016, only financial creditors can be asked to bear the liquidation process costs beyond the available liquid assets of the corporate debtor.

The company also argued that it should not be classified as a ‘non-banking institution’ under Section 45-I of the Reserve Bank of India Act, as it is not engaged in financing activities but serves merely as a facility agent for debenture holders.

Following a public announcement in 2019, a total of 364 claims amounting to Rs 5,115.22 crore were received. Of these, 348 claims worth Rs 414 crore were admitted, while others are still under verification.

The case continues to be closely watched as the outcome of the appeal will have significant implications for both Essel Finance and the overall liquidation process of Samrudhhi Realty.