Videocon Insolvency: Resolution Professional Moves NCLT To Set Aside Preferential, Undervalued Transactions

The resolution professional of Videocon Group subsidiaries has moved the National Company Law Tribunal to set aside and cancel certain preferential and undervalued transactions made by the conglomerate’s entities.

This comes after transactional and forensic audits revealed undervalued transactions and preferential payments in the 13 Videocon entities undergoing group insolvency. A separate application on similar grounds has been moved by Century Appliances Ltd., a Videocon group entity.

Counsel for the resolution professional informed the tribunal that the resolution professional became aware about such transactions after a transactional audit by PwC India and a forensic audit report which was generated on Jan. 20.

Similarly, entity-wise audits by independent audit firms before the consolidation of insolvency proceedings pointed to such transactions. Around 33 individuals and entities have been identified to have received such payments.

Preferential Transactions Under Insolvency Code

Section 43 of the Insolvency and Bankruptcy Code deals with preferential transactions by a company undergoing insolvency. A company may have to transfer any property or interest to its creditors or guarantors as security against financial or operational debt.

Such transfer becomes a “preferential transaction” if it puts the creditor or guarantor in a position which is better than what it could have been if the company was liquidated. A transfer to a related party of a company is considered preferential if they are done two years before start of insolvency, while for third parties, the duration is one year.

The law allows the resolution professional to approach the tribunal for setting aside preferential transactions. The tribunal can pass an order to grant back the ownership of the transferred property to a corporate debtor in such circumstances. Similarly, it can also direct the beneficiary of a preferential transaction to pay money to the resolution professional or liquidator of the corporate debtor.

The Story So Far

The Mumbai bench of the NCLT had allowed consolidation of insolvency resolution process against 13 Videocon Group companies in August last year. Earlier this year, it approved the appointment of Abhijit Guhathakurta as the resolution professional for the group insolvency process.

Earlier this month, the NCLT allowed Venugopal Dhoot’s plea to declare assets of the group’s overseas petroleum subsidiaries as properties of Videocon Industries Ltd. Around 40 financial creditors have lodged claims worth nearly Rs 34, 370 crore with the resolution professional.

The tribunal has directed Videocon’s resolution professional to issue court notices to the parties and will hear the matter next on March 20.