Amtek Auto Insolvency: To Be Continued...
Two rounds of bidding. Multiple litigations in four different courts. Two bidders with cold feet. An angry Supreme Court.
This sums up the insolvency journey of Amtek Auto Ltd. which was one of the Reserve Bank of India’s dirty dozen. The company went into insolvency resolution in July 2017 — it’s been almost four years and an end is nowhere in sight.
Meanwhile, the share price which was at Rs 31.15 apiece on the day of admission under the Insolvency and Bankruptcy Code dwindled to Rs 2.82 by April 2019, when the trading was suspended due to penal reasons. The auto component manufacturer’s revenue has fallen by 62% between 2017 and 2020.
It’s a case of sheer bad luck, said Nirav Shah, partner at DSK Legal.
The first round did not reach fruition and the second round got hit with the pandemic. If at all anything could have helped the company, it would have been by saving the time which the multiple rounds of litigation in this case has consumed.Nirav Shah, Partner, DSK Legal
Bad luck and perhaps a mismatch of expectation, added Kumar Saurabh, partner at Khaitan & Co.
I don’t think there is any delay which is deliberately caused. It is unfortunate that both the bidders — one has pulled out and the second is now seeking renegotiation. Possibly on value there is a mismatch of expectation between the buyers and the seller. And that’s what has ailed this case.Kumar Saurabh, Partner at Khaitan &Co.
Bidding Round 1
Post admission under the IBC, Amtek Auto’s committee of creditors considered bids by Liberty House Group Pte Ltd. and Deccan Value Investors LP. In April 2018, 94.2% of the committee voted to approve Liberty’s bid. DVI withdrew its bid in March. The resolution plan by Liberty also received the National Company Law Tribunal’s blessing three months later.
But Liberty never implemented the plan, prompting the committee of creditors to approach the NCLT against it.
Liberty claimed it discovered discrepancies in the information on which its bid was based. The creditors accused Liberty of fraud and failure to fulfill its commitments under the resolution plan. They also sought the tribunal’s nod to restart the IBC process.
This request was denied by the NCLT. It only permitted the committee to consider the other bid, by DVI, which was submitted when the process had first started. The committee appealed this decision before the National Company Law Appellate Tribunal, which decided that liquidation will have to ensure and directed the NCLT to pass a liquidation order against Amtek Auto in August 2019.
The matter reached the Supreme Court, where the committee of creditors stated that around eight other parties were interested in Amtek Auto. The apex court stayed the liquidation and allowed for fresh bids to be invited.
This time, DVI emerged as the victor. In June last year, the apex court directed the NCLT to pass appropriate orders on the winning bid within 15 days.
Bidding Round 2
The day the apex court referred the case back to the NCLT, the resolution professional for Amtek Auto asked DVI to submit part of the performance bank guarantee as part of the implementation process.
DVI did not do so.
Rather, it approached the Supreme Court seeking two months for re-evaluating the resolution plan in light of the Covid-19 pandemic. Its request was rejected. The apex court warned DVI of contempt consequences if it didn’t implement the plan.
In July 2020, the NCLT approved DVI’s plan, which was challenged by DVI at the NCLAT. In the interim, the committee of creditors argued, DVI neither submitted any bank guarantees nor nominated its representative on the implementation and monitoring committee.
The committee of creditors approached the Supreme Court once again arguing that DVI was in contempt of the top court’s order as it sought the withdrawal of the resolution plan.
An Angry Supreme Court
DVI countered this contempt plea saying it had never sought to withdraw its bid. The company argued that it only sought to highlight the financial impact of the Covid-19 pandemic on the economy, the auto industry and the viability of Amtek Auto and sought time to reassess its bid.
The top court did not agree.
It noted that the conduct of DVI post the approval of the plan thwarted the entire process and brought things to a standstill. When the NCLT was directed to consider the CoC-approved plan in June, the apex court did not intend to allow a fresh evaluation by DVI, the bench said.
To suggest that the purpose of the order dated June 8, 2020 was to enable DVI to re-negotiate the resolution plan after assessing the impact of the pandemic is thus fundamentally flawed.Supreme Court
Any suggestion that there can be a scope for negotiations and discussions after the plan has been approved by the CoC will also go against the terms of the insolvency code, added the court.
The court concluded that DVI did intend to renege on its application. The bench however held that it would not be expedient in the interest of justice to initiate a contempt proceeding and therefore dismissed the CoC’s petition.
It directed that:
- DVI cannot plead force majeure before NCLAT where it has appealed against the NCLT nod to the resolution plan.
- The NCLAT to hear the appeal pre-emptorily and dispose it of in a month.
Four Years And Counting...
The NCLAT began hearing the appeal challenging the NCLT approval of the resolution plan for Amtek Auto last week.
The apex court has made it clear that the resolution process can’t be thwarted once it is set in motion on a plea of force majeure, said Sandeep Bajaj, managing partner at PSL Advocates & Solicitors.
Now the ball is in court of the NCLAT. But the question remains as to whether judicial intervention can force the unwilling resolution applicant to implement the resolution plan?Sandeep Bajaj, Managing Partner, PSL Advocates & Solicitors
Implementation of a plan is also about the ability to pay, said Saurabh.
From the NCLAT’s perspective, one can expect there will be an insistence that the plan is implemented. But if Deccan throws in the towel and says it is not able to make good on the implementation, then they may face consequences.Kumar Saurabh, Partner at Khaitan & Co.
Courts haven’t taken kindly to requests of withdrawal of resolution plans on grounds of delays.
Case in point — Astonfield Solar (Gujarat) Pvt. Ltd. The NCLAT disallowed Kundan Care’s withdrawal plea saying by permitting so, it would be interfering with the commercial wisdom of the CoC.
If DVI doesn’t make good on its bid, Amtek Auto will go into liquidation. That could take another two years to culminate, experts said.