NCLT Mumbai Approves Demerger of Financial Services Unit of Reliance

NCLT Mumbai Approves Demerger of Financial Services Unit of Reliance

The Mumbai bench of the National Company Law Tribunal (NCLT) has approved the demerger of the financial services business of Reliance Industries, a Mukesh Ambani-led conglomerate.

The division member bench of H.V. Subba Rao (Judicial Member) and Madhu Sinha (Technical Member) were adjudicating the petition filed in the matter of Reliance Industries Limited (First Applicant Company/Demerged Company) and its shareholders and creditors & Reliance Strategic Investments Limited (Second Applicant Company/Resulting Company) and its shareholders and creditors had entered into a scheme of arrangement (Scheme).

The Learned Counsel for the Petitioner Companies submitted that the rationale mentioned in the Scheme were as under:

(i) The Demerged Company is India’s biggest conglomerate with interests in multiple businesses. One amongst the multiple businesses carried on by the Demerged Company is the Financial Services Business (as defined hereinafter) which is carried on by the Demerged Company directly and through its subsidiaries and joint ventures.

(ii) Further growth and expansion of the Financial Services Business would require differentiated strategy aligned to its industry specific risks, market dynamics and growth trajectory.

(iii) The nature and competition involved in the financial services business is distinct from the other businesses and it is capable of attracting a different set of investors, strategic partners, lenders and other stakeholders.

(iv) The following benefits shall accrue on demerger of the Financial Services Business:

(a) creation of an independent company focusing exclusively on financial services and exploring opportunities in the said sector;

(b) the independent company can attract different sets of investors, strategic partners, lenders and other stakeholders having a specific interest in the financial services business;

(c) a financial services company can have a higher leverage (as compared to the Demerged Company) for its growth; and

(d) unlocking the value of the Demerged Undertaking for the shareholders of the Demerged Company.

The Scheme was in the interests of all stakeholders of the Demerged Company and the Resulting Company.

While noting the submissions of the companies the bench of NCLT was of the view that Company Scheme Petition appeared to be fair and reasonable and was not violative of any provisions of law and was not contrary to public policy.

The NCLT ordered, “The Scheme is hereby sanctioned, with the Appointed Date fixed as closing business hours of 31 March, 2023 or such other date as may be approved by the Board of the First Petitioner Company and the Second Petitioner Company.”

The company added that, along with Reliance Strategic Investments Ltd, it will take necessary steps including fixing the record date for allotment and listing of equity shares of Reliance Strategic Investments.

In May, shareholders and creditors approved the spinoff of Reliance Strategic Investments Ltd, which is set to be renamed as ‘Jio Financial Services’.