Ares Management-Backed ACRE Issues Unqualified Apology to IIFL Finance Directors to Avoid Contempt

Mumbai: In a pivotal legal development, Assets Care & Reconstruction Enterprise Limited (ACRE), backed by global asset manager Ares Management, has issued an “unqualified and unconditional apology” to IIFL Finance before the arbitration court. The move comes in response to a contempt petition filed by IIFL Finance, alleging breach of a prior undertaking by ACRE.

The contentious matter stems from trustee fees payable by IIFL Finance to ACRE for resolving assigned accounts. Between 2021 and 2022, IIFL Finance issued postdated cheques to ACRE to settle these fees. Payments continued until October 2022, when the Reserve Bank of India (RBI) issued a circular barring such payments. Adhering to the regulatory directive, IIFL Finance stopped further payments.

ACRE Apologizes to IIFL Finance Amid Arbitration Case Over Trustee Fee Payments

Under Arbitration Act
However, ACRE challenged the RBI notification and deposited the postdated cheques despite the prohibition, sparking a legal dispute over the validity of such payments.

Matters escalated when ACRE initiated proceedings under Section 138 of the Negotiable Instruments Act, alleging cheque-bouncing against IIFL Finance, its directors, and senior management. This action directly contravened ACRE’s explicit undertaking, given on February 3, 2024, to refrain from legal action pending arbitration.

Despite the undertaking, ACRE obtained summons against IIFL Finance’s management from the Chief Metropolitan Magistrate Court on March 7, 2024, prompting IIFL Finance to file a contempt petition on March 26, 2024, under Section 27(5) of the Arbitration Act.

Contempt of Court Avoidance:
ACRE Issues Unconditional Apology Following Legal Action

Facing mounting legal pressure, ACRE submitted an affidavit and a letter of authorization on September 28, 2024, offering an “unqualified and unconditional apology.” The affidavit acknowledged its breach of the undertaking and expressed remorse for its actions.

While IIFL Finance officially declined to comment, a company director, speaking on condition of anonymity, confirmed receiving ACRE’s apology. Mahesh Mimani, President of Recovery & Resolution at IIFL Finance, refrained from discussing the arbitration proceedings but expressed concerns over ACRE’s conduct. “We have serious concerns about ACRE’s handling of its fiduciary duties related to asset recovery and proceeds distribution,” Mimani said.

Sources within IIFL Finance indicated that additional legal action against ACRE is under consideration.

This case underscores the necessity of compliance with regulatory mandates and judicial undertakings in the financial sector. ACRE’s apology, prompted by a court reprimand, highlights the legal consequences of disregarding regulatory and judicial frameworks.

As IIFL Finance weighs further legal action, this dispute may set a critical precedent for trustee-account holder relationships in India’s evolving financial regulatory landscape.