NCLAT Stays Anil Agarwal's Takeover Of Videocon Industries

The National Company Law Appellate Tribunal has stayed the resolution process of Videocon Industries Ltd.

In an order on Monday, the appellate tribunal stayed the National Company Law Tribunal's order which had allowed Twin Star Technologies to buy Videocon under the Insolvency & Bankruptcy Code on June 8. Twin Star is owned by Volcan Investments Ltd, a promoter entity of Anil Agarwal's Vedanta Group.

BloombergQuint has reviewed a copy of the order.

The resolution plan had raised eyebrows as financial creditors to Videocon Industries were set to recover only about Rs 2,900 crore compared to Rs 61,000 crore in dues. This worked out to a recovery rate of just about 5%.

Dissenting financial creditors including Bank of Maharashtra and IFCI Ltd. opposed the resolution plan in an appeal to the NCLAT in a petition on July 15. They had also voted against the plan when the Committee of Creditors had put it to vote.

Speaking with BloombergQuint, Bank of Maharashtra's Chief Executive AS Rajeev said dissenting creditors have opposed the plan because of the low value ascribed to Videocon by the resolution applicant.

"The right way to value a company like Videocon Industries is to look at the assets it owns," Rajeev said. He explained that the valuation was based more on the outstanding debt and cash flows, while not taking into account the long-term value of the assets. "Considering its multiple business lines and the consolidation of businesses which took place before the IBC process, the recovery is too low," Rajeev said.

The dissenting creditors are asking that the committee of creditors review the plan and negotiate a higher recovery rate than what is currently being promised by Twin Star Technologies, he said.

The petition filed by the dissenting creditors argues that the 96% haircut is loss of public money. It also questions the lack of upfront cash being offered to creditors as part of the deal. Twin Star is offering only Rs 262 crore in cash, with Rs 200 crore of that being paid out over 25 months. The remaining payout is in the form of NCDs, which will be used to repay creditors over a six-year period.

The petition filed by the dissenting creditors calls the approval of the resolution plan "ex-facie illegal", as well as contrary to the provisions of the IBC.

"The main objective and the spirit of the code is to maximise the assets of the corporate debtor, however the code has been used as a tool to do the exact contrary and devaluate the corporate debtor assets. Many operational creditors, shareholders and MSMEs have lost their entire claim,’’ according to the petition.

In April, dissenting creditors had filed a petition with the NCLT opposing the approval of the resolution plan by the committee of creditors. However, while approving the resolution plan in June, the Mumbai bench of the NCLAT had disposed of the petition. Dissenting creditors then filed an appeal with the NCLAT.

Chaitanya Nikte, lawyer for Bank of Maharashtra, said the NCLT, while passing the order, had asked Twin Star to consider replacing the non-convertible debentures that it planned to issue to dissenting creditors with cash. "This amounts to modification of the resolution plan without the approval of the CoC (committee of creditors), which is not allowed," said Nikte.

The dissenting creditors have also pointed to a breach of the confidentiality clause in the resolution process. According to the rules prescribed under IBC, the liquidation value of the corporate debtor must be kept confidential and revealed to the financial creditors when they are assessing a resolution plan.

According to the dissenting creditors, the resolution value by Twin Star Technologies is surprisingly close to the liquidation value of Rs 2,568 crore. The valuation and confidentiality issue was also flagged by the NCLT in its order, where the tribunal had asked the Insolvency & Bankruptcy Board of India to examine the matter.

Videocon Industries was part of a list of 40 cases referred for insolvency proceedings on directions from the Reserve Bank of India. In 2019, the Mumbai bench of the NCLT had allowed consolidation of 11 Videocon Group companies into Videocon Industries to help the resolution process.