IIFL Finance sues ACRE over asset recovery

Synopsis

In its petition, IIFL said ACRE arbitrarily suspended and eventually terminated recovery operations, disrupting momentum and continuing to levy fees in violation of RBI guidelines. The finance firm also said ACRE misused trust funds to cover its legal expenses in arbitration proceedings-costs that were explicitly disallowed under the transaction documents.

Mumbai: Mumbai-based non-banking finance company IIFL Finance has filed a lawsuit in the Bombay High Court against Assets Care and Reconstruction Enterprise (ACRE) over a ₹1,000 crore asset recovery dispute, accusing the Ares Management-backed firm of mismanaging bad loans and obstructing recovery efforts.

In its petition, IIFL said ACRE arbitrarily suspended and eventually terminated recovery operations, disrupting momentum and continuing to levy fees in violation of RBI guidelines. The finance firm also said ACRE misused trust funds to cover its legal expenses in arbitration proceedings-costs that were explicitly disallowed under the transaction documents.

Between June 2021 and June 2022, IIFL and ACRE entered into a 'servicer agreement', under which the ARC was tasked with recovering dues totalling approximately ₹1,085 crore from seven stressed developers and over 22,000 retail borrowers. In return, ACRE was to be paid an annual fee of 4% of the asset value-around ₹40 crore-along with additional incentives.

IIFL was paying management fees until October 2022, when the RBI issued a circular stating that management fees could only be paid out of actual recoveries. Following this directive, IIFL demanded that ACRE recover fees from recoveries and refund excess management fees paid after the RBI circular.

"ACRE has acted in a partisan manner, undermining the trust structure, and compromising recovery efforts once it had secured its capital," said Mahesh Mimani, senior president-recovery at IIFL Finance. "Their actions violate the very fiduciary principles under which ARCs are expected to operate."

In response, ACRE said the matter is sub judice before the Bombay High Court. "As such, ACRE would refrain from commenting on such remarks and allegations. Suffice to state that all such allegations are baseless and misconceived. ACRE reiterates that it is committed to work within the contours of the applicable laws and the RBI guidelines to maximise recoveries for all its stakeholders," the company said.

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