August 10, 2021
SBI, leading the Consortium of Bank Lenders, filed a Section 7 application under the Insolvency and Bankruptcy Code, 2016 (“the Code”) on 1 January 2018 to initiate insolvency proceedings against VIL.
VIL argued against the admission of the insolvency application by highlighting the ongoing restructuring negotiations, and business difficulties due to extraneous circumstances.
The Adjudicating Authority held that the non-payment of Videocon’s debt and its classification as NPA by the Consortium of Bank Lenders constituted a default. Consequently, the Adjudicating Authority admitted the insolvency application and imposed a moratorium, to prevent detriment to VIL’s estate for the benefit of all the stakeholders.
A dramatic turn of events led to the Adjudicating Authority noting down that the VIL management requested their counsel to not “vehemently oppose” the admission in public interest.
The Ravva Production Sharing Contract (“PSC”), enabled the Government to recover dues from VIL in the name of “Profit Petroleum”. The PSC was aimed at developing offshore fields in the Bay of Bengal for production of crude oil; however, crude oil is a natural resource held in public trust by the government.
Through this technicality, the Government claimed that it is simply asking for its own asset, and tried to unsuccessfully circumvent the moratorium.
The NCLT upheld the validity of NCLT Mumbai’s order dated 06.06.2018, which imposed a moratorium, and denied the Government its asset; thereby favouring the scheme of the Code.
The applicant financial creditor and an erstwhile promoter, through the title of Guarantor, approached the NCLT Principal Bench, New Delhi, to consolidate the multiple insolvency proceedings for logistical ease. However, not all the creditors who initiated the insolvency resolution proceedings against related corporations of VIL favoured consolidation.
Consolidation of insolvency proceedings involving related entities has not been statutorily tackled by the Indian insolvency regime. However, a tribunal can disregard separate corporate entities, if consolidation leads to logistical ease, and a better resolution.
The court relied heavily on global jurisprudence, and by balancing the competing considerations: opted for consolidation of 13 out of 15 related entities of VIL – excluding two, citing their ability to function on their own. Additionally, due to the extraordinary circumstances, the timeline prescribed under Section 12 of the Code started on the date of this order.
Special Purpose Vehicles set up only to acquire the oil and gas assets were under the direct control of VIL. The assets were also bought in the name of VIL. Therefore, VIL wanted to include the oil and gas assets acquired through the SPVs to the common pool of assets, to facilitate a successful resolution.
However, SBI contended that those assets could not be included in the common pool as the Guarantor (VIL) would unduly benefit from the same. Further, that the financial creditors are the main decision makers of the CIRP process and VIL has no locus standi to request for pooling of these assets.
SBI wanted to improve its own chances of recovery by excluding these assets from the common pool. However, the NCLT dismissed SBI’s self-serving assertions by reiterating the actual objective of CIRP, benefit of all the stakeholders involved.
Therefore, the NCLT allowed the inclusion of the oil and gas assets in the common pool by determining the nature of the SPVs as related entities, on the basis of the elaborate test laid down in the consolidation order.
The Department of Telecommunications issued a notice to VIL to clear the outstanding dues. However, the RP contended that the moratorium wouldn’t allow such a recovery, as it would be prejudicial to the interests of all stakeholders involved.
The Code excludes a bank guarantee from the purview of “security interest”, which VIL had availed to conduct business with the Department of Telecommunications. A bank guarantee is generally not intervened with, and is also not covered by Section 14 of the code.
Hence, the NCLT dismissed the RP’s contentions, and validated the notice recovering outstanding dues, as the same was backed by the bank guarantee availed by VIL in favour of the Department of Telecommunications.
11 Resolution Applicants submitted their plans before 31st August, 2020. The Committee of Creditors found two resolution plans compliant with the Requirements for Resolution Plan. The resolution applicants were V-Shape Investment Management Limited, and Twin Star Technologies Limited.
The resolution plan of Twin Star Technologies Limited prevailed with approval by a majority of 95.09% of the voting share of the Committee of Creditors. The plan was of the amount of 2962.02 crores, which caused the creditors to sustain a significant haircut of 95.85%.
Further, the NCLT was particularly distressed with the treatment accorded to the claims of operational creditors, the majority of whom were MSMEs. The resolution plan allowed this class only 0.72% of their admitted claim amount. Fearing their insolvency, the NCLT suggested and requested the CoC and the Resolution Applicant to increase the amount allocated to them. Additionally, the amount of the accepted resolution plan was suspiciously close to the liquidation value set by valuers. This is concerning, as the liquidation value and the fair market value of the debtor’s operation is confidential, to invite a higher bid. This turn of events led the NCLT to consider the operability of the confidentiality clause, and request the Insolvency and Bankruptcy Board of India for their regulatory intervention.
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Abbreviations Used Code – Insolvency and Bankruptcy Code, 2016 CrPC –The Criminal Procedure Code, 1973 CIRP – Corporate Insolvency Resolution Process AA – Adjudicating Authority (NCLT) CD – Corporate Debtor FC – Financial Creditor OC – Operational Creditor CoC – Committee of Creditors IRP – Interim Resolution Professional RP – Resolution Professional RA – Resolution […]August 29, 2021
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