IIFL Finance has filed a lawsuit in the Bombay High Court against Assets Care & Reconstruction Enterprise (ACRE) over a ₹1,000 crore asset recovery dispute. The complaint alleges that ACRE, backed by Ares Management, mismanaged bad loans and obstructed recovery efforts.

• Suspension and Termination of Recovery Operations: IIFL claims that ACRE arbitrarily suspended and eventually terminated recovery operations, disrupting momentum.
• Violation of RBI Guidelines: The finance firm alleges that ACRE continued to levy fees in violation of Reserve Bank of India (RBI) guidelines.
• Misuse of Trust Funds: IIFL contends that ACRE misused trust funds to cover 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 ACRE was tasked with recovering dues totaling 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.

In response, ACRE stated that the matter is sub judice before the Bombay High Court and refrained from commenting on the allegations.

The outcome of this case could lead to increased scrutiny of asset reconstruction company (ARC) practices in India.

Sources