In A First, NCLT Allows 13 Videocon Group Firms To Be Consolidated
This is the first time when consolidation of insolvency proceedings against group companies has been allowed under bankruptcy law.
The Mumbai bench of the National Company Law Tribunal passed an order on Thursday allowing consolidation of insolvency resolution process against 13 Videocon Group companies.
This is the first time when consolidation of insolvency proceedings against group companies has been allowed under the bankruptcy law. It came after the Delhi bench of the tribunal allowed an application filed by Venugopal Dhoot in October 2018 seeking consolidation of insolvency proceedings against Videocon Group companies.
While banks and other lenders were supporting the consolidation of resolution process for 15 Videocon Group companies, operational creditors like American Tower Corporation had opposed it.
In an oral pronouncement, a single-member bench, presided over by MK Shrawat, allowed the consolidation based on following observations:
- Consolidation of insolvency process is required for 13 Videocon group entities, even if the committee on insolvency reforms had noted that it was too early to introduce a law for it.
- Consolidation will help in maximisation of returns. While there are no existing precedents on insolvency law in India, the tribunal relied on certain precedents for group consolidation in the U.K. and the U.S.
- There is a direct linkage of assets, intermixing of accounts and dove-tailing of financial positions in the 13 Videocon Group entities which necessitates the consolidation.
- Period of 180 days—time limit for completion of resolution process—will be reckoned from the day of the order by the tribunal.
The tribunal excluded two Videocon Group entities—KAIL Ltd. and Trend Electronics Ltd. from the scope of consolidation. While doing so, it observed:
- KAIL and Trend electronics have independent resources and liabilities and can survive independently. Independent process will help in proper segregation of assets and liabilities.
- An independent resolution process for these two entities will help in attracting better resolution plans.
The tribunal has appointed Mahendra Khandelwal as the resolution professional for the 13 group entities while independent resolution professionals will be appointed for KAIL and Trends Electronics.
Background
State Bank of India had filed an insolvency petition against Videocon Industries Ltd. in December 2017. This petition was admitted by the Mumbai bench of the tribunal in June 2018. Separate bankruptcy proceedings were also initiated against 14 Videocon Group companies. The lenders of these entities had moved the NCLT seeking a direction to consolidate the 15 group entities citing common businesses and group interlinkage. The Mumbai bench of the tribunal had stayed the insolvency process in October 2018 till a decision was made on the issue of consolidation.
The tribunal had noted this absence while passing an order in the IL&FS case. While doing so, the tribunal said that provisions for group insolvency were necessary, because resolution of the parent and group companies as a whole is inextricably linked to the resolution of each of the companies.
Insolvency resolution process for the following 13 Videocon Group entities that will be consolidated:
- Videocon Industries Ltd.
- Millennium Appliances India Ltd.
- PE Electronics Ltd.
- Sky Appliances Ltd.
- Techno Electronics Ltd.
- Evans Fraser & Co (India) Ltd.
- Electroworld Digital Solutions Ltd.
- Value Industries Ltd.
- Applicomp (India) Ltd.
- Techno Kart India Ltd.
- Century Appliances Ltd.
- Videocon Telecommunications Ltd.
- CE India Ltd.