IIFL Finance Sues ACRE Over ₹1,000 Crore Loan Recovery Dispute

IIFL Finance, a Mumbai-based NBFC, has filed a petition in the Bombay High Court against Assets Care and Reconstruction Enterprise (ACRE), backed by Ares Management. The legal battle centers around alleged mismanagement of ₹1,085 crore in distressed assets under a 2021–22 servicer agreement

Key Allegations by IIFL Finance

• Arbitrary suspension and termination of recovery efforts by ACRE, hampering progress on asset resolution
• Unjustified charging of management fees after RBI’s October 2022 circular prohibiting such payments from non-recovery funds
• Violation of RBI guidelines by not refunding excess fees already paid
• Misuse of trust funds to cover ACRE’s legal expenses in arbitration, in breach of contract terms
• ACRE allegedly prioritized its own interests after recovering capital, compromising its fiduciary responsibility

Servicer Agreement Details

• Agreement covered:
  • ₹1,085 crore in bad loans from 7 stressed developers and over 22,000 retail borrowers
• ACRE was entitled to:
  • 4% annual management fee (~₹40 crore)
  • Additional performance incentives based on recovery outcomes

Regulatory Trigger

• In October 2022, the RBI issued a circular requiring that management fees for ARCs be paid only from actual recoveries
• IIFL stopped fee payments post-circular and demanded refund of any excess payments made in violation of this directive

ACRE’s Response

• Refused to comment citing sub judice status of the case
• Rejected the accusations as baseless and misconceived
• Reiterated commitment to RBI compliance and stakeholder interest

Implications for the ARC Sector

• Case may set precedent for how servicer agreements are enforced post-RBI guidelines
• May lead to tighter fiduciary accountability standards for Asset Reconstruction Companies (ARCs)
• Could impact ARC fee structures, recovery timelines, and trust-based fund usage in future asset resolution deals

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