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NCLT Mumbai raises doubt over the confidentiality of liquidation value of Videocon group companies

A two-member bench of the National Company Law Tribunal, Mumbai (NCLT) comprising members H. P. Chaturvedi, Judicial Member and Ravikumar Duraisamy, Technical Member had approved the resolution plan by Twin-Star Technologies Ltd. in respect of thirteen Videocon Group Companies (Corporate Debtors) on 8 June 2021. [REED 2021 NCLT Mum 06540]

The NCLT vide its order dated 8 August 2019 in petition filed by the State Bank of India on behalf of the lenders had passed a Consolidated Order directing the initiation of Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtors and subsequently, Mr. Mahender Khandelwal was appointed as the Resolution Professional (RP) of the consolidated group entities.

The liquidation value of Videocon Industries and its 12 group companies was Rs. 2,568.13 crore and fair value of the assets was Rs. 4,069.95 crore. While the bid amount submitted by Twin Star Technologies Ltd. in the resolution plan was Rs. 2,962.02 crore.

National Company Law Tribunal (NCLT), Mumbai has raised doubts over the confidentiality of the liquidation valuation during the corporate insolvency resolution process (CIRP) of the Videocon Industries and its 12 group companies.

The NCLT has asked the Insolvency and Bankruptcy Board of India (IBBI) "to examine this issue in depth" to ensure that the confidentiality clause is followed without any compromise.

The registered valuers have valued the assets of the 13 companies of Videocon group, having varied business interests ranging from oil and gas assets, consumer electronics and home appliances, telecom services, digital solutions, real estate and electronics retail chain.

"Surprisingly the Resolution Applicant (Twin Star Technologies) also valued all the assets and liabilities of all the 13 companies and arrived at almost the same value of the registered valuers," the National Company Law Tribunal (NCLT) observed.

As per the CIRP Regulations (Corporate Insolvency Resolution Process), the liquidation value is ascertained through two registered valuers and is kept as confidential along with fair market value. It is informed to the Committee of Creditors (CoC) members only at the time of finalising the bids.

"Therefore, even if the confidentiality clause is in existence, in view of the facts and circumstances as discussed above a doubt arises upon the confidentiality clause being in real-time use therefore, we request IBBI to examine this issue in depth so as to ensure the confidentiality clause is followed unscrupulously, without any compromise in letter and spirit by all the concerned parties, entities connected in the CIRP," the Mumbai bench of NCLT said in its order passed on June 8.

The NCLT also suggested IBBI to frame "appropriate regulations, safeguards" for maximisation of value of the assets of the Corporate Debtors', which in turn will benefit all stakeholders.

"Since IBC is a nascent code we feel "this type of input may be useful to the IBBI as well as to the government to frame appropriate Regulations, Rules, etc," said NCLT.

In its 47-page-long order, NCLT while approving Anil Agarwal's Twin Star Technologies Ltd.' Rs.2,962.02 crore-bid had observed that creditors of debt-ridden Videocon Industries Ltd. will be taking nearly 96% haircut on their loans and the bidder is "paying almost nothing".

According to the Resolution Plan, out of total claim amount of Rs.71,433.75 Crores, claims admitted are for Rs.64,838.63 Crores and the plan is approved for an amount of Rs. 2962.02 Crores, which is 4.15% of the total outstanding claim amount and the total hair cut to all the creditors is 95.85%.

Since a voluminous number of Operational Creditors in the present matter were MSME, the NCLT noted that if they were paid only 0.72 % of their admitted claim amount, in the near future many of these Operational Creditors may have to face Insolvency Proceedings which may be inevitable, and therefore it suggested/requested both CoC and the Resolution Applicant to increase the pay-out amount to these Operational Creditors especially MSMEs as this was the First Group Consolidation Resolution Plan of 13 companies having large number of MSMEs.

The NCLT then adverted to section 31 of the IBC that deals with the approval of the Resolution Plan by the NCLT, if it is satisfied that the Resolution Plan as approved by the CoC under section 30(4) meets the requirements provided under section 30(2) of the IBC. The NCLT noted that on perusal of the Resolution Plan submitted by the Resolution Applicant, all the conditions enumerated in the aforesaid section were fulfilled.

Finally, placing reliance on a catena of rulings, including K. Sashidhar v. Indian Overseas Bank & Others, REED 2019 SC 02502, and CoC of Essar Steel India Ltd v. Satish Kumar Gupta and Ors, REED 2019 SC 11505, the NCLT observed that it has supervisory jurisdiction over the CoC and it cannot sit in appeal over the Commercial Wisdom exercised by the CoC while approving the Resolution Plan with 95.09% voting. Therefore, the NCLT concluded that it was duty bound and legally expected to approve the Resolution Plan since it was law compliant and did not violate requirements under, inter-alia, sections 29A, 30 and 31 of the IBC read with Rules and the Regulations. Further, the NCLT gave direction to the CoC to make payments as per liquidation value to all the dissenting Financial Creditors in cash upfront before any payment to assenting Financial Creditors as per the judgment of the Hon’ble Supreme Court in the matter of J.P. Kensington Boulevard Apartments Welfare Association & Ors. v. NBCC (India) Ltd. & Ors., REED 2021 SC 03527.

Accordingly, with the aforesaid observations and directions, the NCLT allowed the present Application.

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