Videocon Insolvency: NCLAT Sets Aside Twin Star's Plan, Allows Fresh Round of Bidding
The National Company Law Appellate Tribunal on Wednesday allowed the creditors' committee of Videocon Industries Ltd. to restart the bidding process for the insolvent company.
In doing so, the NCLAT set aside Twin Star Technologies Ltd.'s resolution plan, which was approved by the committee of creditors and the National Company Law Tribunal, saying that it has certain defects.
Twin Star had offered Rs 2,962 crore for Videocon Industries, which is 4.15% of the admitted claims of Rs 64,938 crore of secured financial lenders. Twin Star is a wholly owned subsidiary of U.K.-based Volcan Investments Ltd. Volcan is the parent of India's listed commodities company Vedanta Ltd. and owns other interests of the Vedanta Resources group founded by Anil Agarwal.
Defects In Twin Star's Plan
Broadly, the NCLAT found Twin Star's plan defective on three counts:
That the payout to dissenting financial creditors was not as per the Insolvency and Bankruptcy Code.
Two, the NCLT approved the plan in spite of raising concerns around the bid value being close to the liquidation value.
And three, if the creditors' committee wants to reconsider its approval, it should be allowed to do so.
Payout To Dissenting Financial Creditors
Under Section 30(2)(b) of the IBC, dissenting financial creditors should get an amount, not lesser than the amount to be paid to them under the waterfall mechanism, in case of a liquidation.
But in the present case, the dissenting creditors—Bank of Maharashtra and IDBI and Small Industries Development Bank of India—are being paid less than the liquidation value, the NCLAT pointed out.
The NCLT was supposed to see whether this compliance under Section 30 was made so far as dissenting financial creditors are concerned. Though the tribunal had raised concerns around payout to the dissenting creditors, yet it concluded the plan was in line with IBC provisions, the NCLAT pointed out.
It should have sent the matter back to the creditors' committee for reconsideration, added the NCLAT.
NCLT's 'Valuation' Concerns
When the NCLT had approved Twin Star's plan in June last year, it had expressed surprise at the fact that Twin Star’s bid was so close to the liquidation value, which is meant to be confidential. The registered valuers had arrived at a fair value of Rs 4,069 crore for the 13 Videocon companies. And a liquidation value of Rs 2,568 crore. Twin Star's bid of Rs 2,900 crore is surprisingly close to the liquidation value, the tribunal had said.
Observing this, the NCLT had even asked if there been a leak of liquidation value in the resolution process.
This showed that the tribunal was not satisfied with the resolution plan, in which case, it should not have given green signal to proceed with the plan, the NCLAT said.
In its 213 pager order, the tribunal also noted that the committee of creditors, majority of which are public sector banks and financial institutions, are dealing with public money and therefore, is acting as the custodian of public trust and discharging a statutory role. The apex court too has ruled that the committee's decision on commercial matters is non-justiciable, highlighted the NCLAT.
On the basis on judicial precedents, the appellate insolvency court ruled that the creditors' committee is not functus–officio on the approval of the resolution plan i.e. its authority doesn't end there.
In the present case, the NCLAT noted, the level of haircut is unprecedented and involved thousands of crores of public money. In such a case, if the committee wants to review their own decisions, the same has to go through the deliberation and even, revaluation, it added.
The final conclusion on CoC's commercial wisdom that swayed the NCLAT pertains to modifications in the plan. The NCLT had directed the CoC to pay dissenting financial creditors in 'cash' instead of non convertible debentures. This can't be done, the NCLAT said, adding that the NCLT should have sent the plan back to the creditors for re-consideration.
Besides these three issues, the tribunal found the resolution plan deficient of Competition Commission of India's approval, which again is violative of section 31(4) of the code.
Videocon's Insolvency: Story So Far...
In June last year, the NCLT had approved the plan but had expressed surprise at the fact that Twin Star’s bid was so close to the liquidation value, which is meant to be confidential.
Soon after, dissenting financial creditors moved the appellate body against the approval to Twin Star's plan. They contended that the sale price was very close to the liquidation value. And that the liquidation value of assets was not calculated correctly. On July 19, the appellate tribunal granted a stay on the NCLT's order.
Two months later, the committee of creditors approached the NCLAT seeking its permission to restart the bidding process for the Videocon Group entities that have presence in oil and gas, consumer electronics, home appliances, telecom and real estate, among others.
Solicitor General of India Tushar Mehta, appearing for the committee of creditors, had told the NCLAT that maximising the value of the corporate debtor's assets is one of the key features of the IBC. And so, the committee cannot shun away from this.
Mehta had urged to allow fresh bids for Videocon in the “larger public interest” and to ensure that public money is “secured in the best possible manner”.
This was countered by senior advocates Harish Salve and Gopal Jain, representing Twin Star, on grounds that lenders cannot call for bids again. Once the committee of creditors approves a plan, there is no provision under the IBC which allows for sending the matter back to them, the counsels had argued.
On Wednesday, the NCLAT dismissed these arguments, and asked the committee of creditors to rectify the defects in a fresh round of bidding in accordance with the provisions of the Insolvency and Bankruptcy Code.