Videocon Insolvency: NCLT Allows Venugopal Dhoot’s Plea To Consolidate Overseas Assets

The National Company Law Tribunal has allowed Venugopal Dhoot’s plea seeking a moratorium on the foreign petroleum assets of the debt-ridden Videocon Group and restraining its lenders from selling the conglomerate’s overseas assets

Dhoot, founder of the Videocon Group, had also sought direction from the tribunal to declare assets of the group’s overseas petroleum subsidiary as property of Videocon Industries Ltd.

A two-member bench of the tribunal comprising judicial member Suchitra Kanuparthi and technical member Chandrabhan Singh allowed Dhoot’s plea to consolidate the overseas oil and gas assets with the rest of the Videocon Group’s assets.

The tribunal observed that Videocon Group entities would be forced into liquidation if the consolidation of the oil and gas assets isn’t allowed. “Foreign oil and gas assets cannot be treated separately only for benefit of Financial creditors,” it said in its order.

That comes after State Bank of India invited bids in August 2019 for the group’s overseas assets, which were offered as collateral for loans to Videocon entities. The proposed sale was outside the insolvency process of Videocon Group entities, and lenders, including SBI, had opposed Dhoot’s plea.

Dhoot opposed the sale on the grounds that they belonged to Videocon Industries’ overseas subsidiaries, which were set up as special purpose vehicles to act as trustee and hold the assets on behalf of the Indian company. Videocon Industries had jointly applied for acquisition and extended payments for acquisition of the overseas assets in 2007.

Lenders opposed Dhoot’s application citing that the overseas subsidiaries were the owners of the oil and gas assets. They said Videocon Industries had no rights over the assets. SBI had argued that extension of moratorium to the overseas assets could delay recovery of money from sale of the assets.

Reasons For Allowing Consolidation

The tribunal examined the chronology of the loan agreements between the lenders and Videocon Group entities. As per the order, Videocon Group’s businesses were organised into three segments—consumer home appliances, telecom and overseas oil and gas business.

Thirteen Videocon Group entities, including the flagship Videocon Industries Ltd., are part of the consumer home appliances segment. They were funded through a rupee term loan agreement from lenders including SBI under an obligor/co-obligor mechanism.

Under this model, all 13 entities under the agreement were bound individually or collectively to repay the loans. Rights pertaining to the oil and gas assets in Mozambique, Brazil and Indonesia were included as security against this loan. The borrowings under the rupee term loan agreement were secured through a:

• Second pari passu, which means a side by side charge, on the participating interest of Videocon Hydrocarbon Holdings Ltd. in the identified oil and gas assets.
• Second-ranking pledge on the shares held by Videocon Hydrocarbons in Mozambique, Brazil, Indonesia and Brazilian subsidiaries.
• Charge on Videocon Hydrocarbon’s cash flows.
• Pledge on Videocon Industries’ shareholding in certain group entities.

Videocon’s oil and gas business, including its overseas petroleum subsidiaries, was funded through a line of credit agreement under which banks extended credit to the subsidiaries. Videocon Industries participated under the obligor/co-obligor model till March 2017 and became a guarantor for the credit facility next month.

The Tribunal observed that:

• Videocon Industries had taken a joint and several liability for amounts disbursed to the foreign oil and gas subsidiaries.
• Underlying facility agreements between Videocon entities and the lenders “clearly indicated” that overseas subsidiaries held participating interest on behalf of Videocon Industries.
• Rupee Term loan agreement, which formed the basis of financing the consumer appliance business, had linkages with the foreign oil and gas assets.
• Structuring of the agreements and transactions indicate that lenders treated assets of Videocon Group as common assets. Lenders created interdependent financial arrangements between the consumer appliance, telecom and the foreign oil and gas business.

The Group Consolidation Angle

The NCLT had allowed consolidation of the insolvency process for 13 Videocon group entities in August last year, based on factors like commonality of debt repayment obligations, management, assets and liabilities and interlacing of financial structure among the Videocon entities.

The tribunal also allowed consolidation of overseas assets based on the same parameters which were framed by it during the consolidation of the insolvency proceedings.

It made the following observations while allowing Dhoot’s plea to treat and include the assets of the overseas oil and gas subsidiaries in the insolvency resolution process of Videocon Industries:

Common control, directors and assets: Videocon Industries retained control over decisions of its overseas subsidiaries through board positions, which were held by the Dhoot family, thus indicating that they acted as the Indian entity’s agents. Lenders had treated the Indian and overseas companies as a single economic entity while granting loans for Videocon group’s three business segments.

Interdependence, interlacing and pooling of resources: Videocon Industries continued to hold rights and security interests in the overseas subsidiaries. The oil and gas assets were funded against the security on Videocon Industries’ assets. There was a pooling of human resources and funding among the entities.

Interlooping of debts, common financial creditors: All Videocon group entities had common lenders, which treated them as a single economic business unit for extending loans.