Judgment Summaries (NCLAT) Videocon Industries

  January 31, 2022

CASE SUMMARY 

In the matter of Bank of Maharashtra v. Videocon Industries Ltd and Others 

{NCLAT, Principal Bench, New Delhi; January 5, 2022}

FACTS: Appeals were filed before the National Company Law Appellate Tribunal (“NCLAT”) challenging the approval of the Resolution Plan for Videocon Group by the Successful Resolution Applicant, Twin Stars Technology Limited. The original application to initiate Corporate Insolvency Resolution Process (“CIRP”) against the entities under the Videocon Group was initiated by SBI under Section 7 of the Code.

The Resolution Plan, after being approved by the Committee of Creditors (“CoC”) by 95.09% voting share,  was challenged based on the following grounds —

  • The Dissenting Financial Creditor (Appellant Bank) challenged the approval of the Resolution Plan because it provided a value for the creditors which is less than the liquidation value and this violates Section 30 of the Code.
  • Further, the Resolution Plan stated that payment shall be made through Non-Convertible Debentures. However, the Adjudicating Authority directed the CoC to make payments to the Dissenting Financial Creditors in cash up-front. It was contended that such modification was impermissible without the CoC’s consideration.

In one of the appeals, a Trademark License Agreement (“TLA”) was executed between Electrolux Home Products INC and Electrolux Kelvinator Limited (“EKL”). EKL later merged into the Videocon Group under a scheme of merger and amalgamation.  The TLA stated that the agreement shall stand terminated if the Dhoot family lost control over the Videocon Group.

Once the CIRP began, the control shifted from the Dhoot family to the Resolution Professional. Electrolux Home Products INC contended that the TLA stood terminated because of the said clause. However, the Adjudicating Authority observed that the agreement should continue for at least a year from the date of approval of the Resolution Plan.  Hence, Electrolux Home Products INC filed an appeal challenging the order of the Adjudicating Authority.

 

HELD:

For the termination of the TLA — The NCLAT observed that as per the ruling in Tata Consultancy Services Limited v. Vishal Ghisulal Jain, the Supreme Court has held that the NCLT has no jurisdiction to entertain any contractual dispute. Thus, the NCLAT held that the CoC must reconsider the termination of the TLA, and the order passed by the Adjudicating Authority was set aside for being erroneous.

For Approval of the Resolution Plan — The Creditors submitted that either the Resolution Plan should be reconsidered by the CoC, or else it should conduct a fresh process of inviting expressions of interest to protect the interest of the public at large. The NCLAT observed that CoC has the power to reconsider its own decision and commercial wisdom being non-justifiable, falls outside the ambit of judicial wisdom. After approval of the Resolution Plan, the CoC is not functus-officio and can reconsider the Resolution Plan after approval.

The NCLAT held that the Adjudicating Authority had no jurisdiction to modify the payment method, and it should have been remanded to the CoC for reconsideration. Violating Section 30(2)(b) of the Code, the approval of the Resolution Plan and the order of the Adjudicating Authority was set aside, and the matter was sent back to the CoC for a reconsideration.

Full text of the order accessible here.

 

 

 

 

 

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