A bankruptcy appellate court on Wednesday scrapped billionaire Anil Agarwal-led Twin Star Technologies’ winning bid to take over Videocon Industries Ltd after a request from some creditors that the money offered impose on the banks a haircut of 62,000 million. Rs.
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The National Company Law Appellate Tribunal (NCLAT) asked creditors to start a new sale of Videocon, a long-standing consumer company that manufactures products ranging from air conditioners to washing machines, to get their unpaid Rs 64,637.6 crore back.
While a majority of lenders had previously accepted Twin Star Technologies’ offer of Rs 2,962.02 crore, Bank of Maharashtra (BoM) and IFCI Ltd disagreed, saying the amount offered was close to the liquidation value of the bankrupt company, and that they can not be paid less than the liquidation value.
Following a nod from the Creditors Committee of Videocon, the Mumbai bench of the National Company Law Tribunal (bankruptcy court) had on June 9 last year given consent to Twin Star Technologies’ takeover bid (called the Resolution Plan under the Bankruptcy Act).
That order was challenged by BoM and IFCI against NCLAT, which on Wednesday overturned the NCLT ruling, saying the provisions of the Insolvency and Bankruptcy Code (IBC) had not been complied with.
Videocon promoter Venugopal Dhoot had also challenged the NCLT order and questioned lenders’ behavior.
A two-member NCLAT bench of Jarat Kumar Jain and Ashok Kumar Mishra said the approval of the takeover plan was “not in accordance with Article 31 of the Code” and “overruled” the approval of the resolution
Plan of the Creditors’ Committee (CoC) as well as the Judicial Authority (NCLT) “.
NCLAT also stated in accordance with Section 31 (4) of the IBC that the prior approval of the Competition Commission of India (CCI) was required to submit the settlement plan, which was not obtained by Anil Agarwal’s firm.
It has sent the case back to the CoC for completion of the process in accordance with the provisions of the Code.
This basically means that CoC will now seek new bids for Videocon unless the NCLAT ruling is challenged in the higher court and overturned.
“We learned about the order and it will further delay Videocon’s solution,” Gopal Jain, a lawyer for Twin Star, said in a comment on behalf of the company on the order. “We are awaiting the written order and will then take appropriate action.”
BoM, which has 1.97 per cent voting rights in CoC, and IFCI Ltd with 1.03 per cent voting rights, had also objected to the fact that the majority of the payment from Agarwal’s company was made through non-convertible debentures (NCDs) in instead of cash.
Twin Star had to pay Rs 500 crore within 90 days and the rest as non-convertible debentures over a period of time. Videocon’s shares were to be delisted as part of the plan.
Videocon was among the first 12 companies to be forced into bankruptcy following a 2017 directive from the Reserve Bank of India (RBI) to auction off companies that had unpaid membership fees.
The NCLAT order said that creditors made total claims of Rs 72,078.5 crore on Videocon, of which Rs 64,637.6 crore claims were confirmed and accepted for insolvency.
“It was stated that the plan provides a modest amount of Rs 2962.02 crore against an granted liability of approximately Rs 65,000 crore. The said waiver is almost Rs 62,000 crore of granted claims and Rs 69,000 crore of total claims, whereby these public money is lost., the haircut is about over 95 per cent.
“Even the claims of the financial creditors have been settled below 5%, while the OC’s (Operational Creditor) is hardly 0.72%,” it states.
The Court of Appeals did not agree with the NCLT, which during the approval of the bid had cited a Supreme Court ruling, saying that the commercial wisdom of the CoC could not be questioned.
“The CoCs are the best judge to analyze, pick up and make a prudent commercial decision for the company, but they are also subject to prudential testing to ensure fairness and transparency,” NCLAT said in its 213-page order.
The Court of Appeals said that both NCLT and NCLAT have the power to send a settlement plan back to the lenders for reconsideration.
In this case, the lenders had approached NCLAT to seek new bids for the 13 group companies in Videocon.
NCLAT agreed with the banks and said that if the settlement plan involves a major haircut, which will be borne by the Treasury, then it is in the suitability of the case that the proposal be referred back to CoC.
In addition, it said the settlement plan “allows for payment to the disputing financial creditors in the form of NCDs and shares, which is impermissible under the Code.”
At the 19th CoC meeting held on 11 November 2020, lenders were informed of the confirmation copy of applications submitted to CCI, which sought its approval for the resolution plan.
“We could not even at the 20th and 21st CoC meeting find out whether such approval from CCI has been obtained or not, while the resolution plan was approved by CoC at the 19th CoC meeting. Therefore, it is very clear that prior approval of CCI has not been achieved under Section 31 (4) of the Code, “NCLAT said.
On 8 August 2019, NCLT had consolidated insolvency proceedings for the 13 group companies – Videocon Industries, Value Industries, Applicomp, CE India, Century Appliances, Electroworld Digital Solutions,
Evans Fraser & Co, Millennium Appliances, PE Electronics, SKY Appliances, Techno Electronics, Techno Kart, Value Industries and Videocon Telecom
The insolvency proceedings of two other Videocon companies – KAIL Ltd and Trend Electronics – were conducted independently.