-By Research Team of IBC Law Reporter
INTRODUCTION
From the First Indian company to acquire a license to manufacture Color TV’s to the first case where the Hon’ble NCLT recognized and applied the “Doctrine of Substantial Consolidation” consolidating the Corporate Insolvency and Resolution Process (CIRP) of 13 group companies out of the 15 group companies.
Before we proceed with the summary of the Resolution Plan, let’s have a brief look at Videocon downfall:
1) Till the year 2008, Videocon was running as the best brand in the electronic market in India. Earlier Videocon group was in the business of manufacturing television but later on diversified the business in the field of telecom, oil, and gas.
2) For the purpose of the above diversification the group took several financial facilities from various banks during the years 2007-2012. A consortium of bankers granted loan facilities where SBI was the lead bank.
3) It was in the year 2012 where the Indian telecom received a huge setback and loss from the Hon’ble Supreme Court which canceled 156 2-G licenses of various telecom operators, 21 of which belonged to Videocon Group and this decision badly affected the Videocon Business and its ability to repay the loans.
4) In 2016, Videocon Industries Limited (VIL) being the only profit-earning company suffered losses due to demonetization suppliers were unable to supply raw materials which lead to the closing of business and serious cash crunch.
5) Various defaults were made till 2017, when SBI after receiving direction from RBI filed an Insolvency petition in the year 2018 against VIL which was admitted vide order dated 11.06.2018.
6) Subsequently petition was filled by SBI and promoter of Videocon Group Mr. Dhoot for consolidating all the insolvency matter pertaining to 15 different companies under the “Videocon” Umbrella and the same matter was approved by Delhi NCLT Bench in October 2018. In August 2019, the Hon’ble NCLT consolidated Insolvency process of 13 companies out of the 15 companies leaving KAIL Ltd. and Trend Electronics Ltd as they did not have operational dependency on other group companies.
7) First meeting of the Committee of Creditors (CoC) was called on 16.09.2019, where Mr. Abhijit Guhathakurta was appointed as the Resolution Professional (RP) replacing Mr. Mahendar Khandelwal .
8) Advertisement was published on 11.10.2019 inviting the prospective resolution applicants to submit Expression of Interest (EoI) before 11.11.2019 which was further extended first to 26.12.2019 then to 15.01.2020.
9) Corrigendum advertisements were published to attract a variety of prospective resolution applicants so as to ensure the insolvency resolution and rehabilitation of the Corporate Debtors and due dates were further extended to 31.01.2020.
10) In the 8th CoC meeting held on 31.01.2020, the RFRP was revised and amended on 05.02.2020 to incorporate provisions for submission of resolution plans for either: (i) specific assets/business verticals of one or more Corporate Debtors as per the 4 (four) business segments of the Corporate Debtors being or (ii) consolidated resolution plan for all or a collection of the Corporate Debtors. The RFRP also stated the pre-requisite wherein in the event any resolution applicant submits a resolution plan only for a specific asset(s)/business of one or more Corporate Debtors, such a resolution applicant is required to provide for the treatment of the remaining asset(s)/business vertical(s) of the Corporate Debtors, in the resolution plan. Non-provision of the said treatment for the remaining asset(s)/business by such a resolution applicant was considered a ground for declaring that particular resolution plan as non-responsive and also the plan may be accepted/rejected by the CoC in its sole and absolute discretion.
11) In the 15th CoC meeting held on 02.09.2020, the RP informed the members of the CoC of the proposal of Mr. V.N. Dhoot of restructuring of domestic assets and was asked to share the proposal to all the CoC members.
12) In the 19th CoC meeting held on 11.11.2020, the RP concluded that 2 of the resolution plans of V-Shape Investment Management Limited; and Twin Star Technologies Limited were compliant with the mandatory requirements & plan of Twin Star Technologies Limited (Vedanta Group) was approved by COC with a vote of 95.09%.
SALIENT FEATURES OF RESOLUTION PLAN
1) Resolution Applicant (RA) is offering Rs. 2962.02 Crores as against the admitted claim of Rs. 64,938.63 Crore (i.e. only 4.15% of the Total Claim).
(Page 12 of order)
2) Financial Creditors who assented the resolution plan will get Rs. 200 crores + Rs. 2700 crores worth of NCD’s (carrying a coupon of 6.65%)+ Cash Balances available + 8% Equity Shares.
(Page 26 of order)
3) Delisting of shares of VIL (Videocon Industries Limited) and VAIL (Value Industries Limited) from BSE and NSE.
(Page 30 of order)
4) Merger of all the 11 corporate debtors (being Applicomp, CE India, Century Appliances, Electroworld Digital Solutions, Evans Fraser & Co, Millennium Appliances, PE Electronics, SKY Appliances, Techno Electronics, Techno Kart, Value Industries, (except Videocon Telecom Limited) into VIL
(Page 30 of order)
5) Capital Reduction of the equity share capital of VIL and extinguishment/ cancellation thereof to Nil Capital reduction of VTL and extinguishment/ cancellation thereof to Nil, and infusion of funds by VIL into VTL in consideration of issuance of New Equity Shares of VTL such that VIL holds 100% share capital of VTL.
(Page 31 of order)
6) Infusion of funds by the Implementing Entity, settlement of CIRP Costs, dues of Operational Creditors, Upfront Payment to Dissenting Financial Creditors and payment of Admitted Workmen Dues and Admitted Employees Dues.
(Page 31 of order)
7) Conversion of ‘Converted Debt’ of VIL held by the financial creditors (as defined under the Resolution Plan to mean the portion of the Admitted Debt of Financial Creditors converted into Equity Shares of VIL, such that the Financial Creditors hold 8% equity shares of VIL. The Equity Shares held by such Financial Creditors of VIL shall have a lock-in period of three years from the Closing Date, post which the Implementing Entity shall have a first right of refusal to acquire the same.
(Page 31 of order)
8) Assignment of Part Debt (as defined under the Resolution Plan to mean the portion debt assigned to the Implementing Entity, as computed after deducting the Converted Debt and the Balance Debt of INR 2700 crore from the Admitted Debt of Financial Creditors, in merged VIL) (including VTL Debt) to the Implementing Entity and in consideration thereof, payment of Upfront Consideration to the financial creditors. It is towards the assignment of the Part Debt (including the VTL Debt) that the Implementing Entity shall pay the Upfront Consideration to the financial creditors.
(Page 32 of order)
9) Restructuring of a portion of the Part Debt (as defined under the Resolution Plan to mean the balance portion of the Admitted Financial Debt amounting to INR 2700 crore retained by the Financial Creditors in VIL after assignment of the Part Debt (including the entire VTL Debt) to the Implementing Entity) amounting INR 2700 crores into NCDs – which NCDs shall be issued by VIL to the Implementing Entity as envisaged in Resolution Plan.
(Page 32 of order)
10) Assignment of the Balance Debt to the Implementing Entity in lieu of the Implementing Entity assigning and transferring the said NCDs issued by VIL to the Implementing Entity to the financial creditor.
(Page 32 of order)
OBSERVATIONS OF THE HON’BLE NCLT
1) Assenting Secured Financial Creditors would get only 4.89%, Dissenting Secured Financial Creditors would get only 4.56%, Assenting Unsecured Financial Creditors would get only a very meager amount of 0.62%, Dissenting Unsecured Financial Creditors would get “NIL/ ZERO” observing that creditors will get a hair-cut of 95.85%.
(Page 32 & 33 of order)
2) It was observed by the Hon’ble NCLT that just paying only Rs. 262 Cores (8.84% of total plan value) (Cash balance available with the Corporate Debtors is approx Rs. 200 Crores) the Successful Resolution Applicant will get possession of all the 13 Corporate Debtors.
(Page 33 of order)
3) It also noted that a voluminous number of Operational Creditors are also MSME and if they are 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, requesting the COC and resolution applicant to consider increasing the amount of pay to Operational Creditors.
(Page 33 of order)
4) The Hon’ble NCLT also casts doubts on the confidentiality clause and was surprised that the Resolution Applicant also valued all the assets and liabilities of all the 13 companies and arrived at almost the same value of the registered valuers, it said “Even if the confidentiality clause is in existence, in view of the facts and circumstances; a doubt arises on 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,”.
(Page 35 of order)
5) For use of Brand name “Kelvinator” is concerned, we are of the considered view that the Agreement should continue for atleast a year from the date of approval of the Plan as per the existing Terms and Conditions as a transitional arrangement and subsequently, it is upto both the parties to decide on the same as per their mutual understanding.
(Page 36 of order)
COMMENTS
1) Creditors once again will be the biggest losers in the approved resolution plan especially the creditors which are MSME’s, by paying nothing Vedanta is acquiring a group of 13 companies but Vedanta is more interested in consolidating ownership of the Ravva oil field.
2) In a Statement released, we understand that this acquisition is mainly for Videocon’s 25% Participating Interest in Ravva oil field. This acquisition shall therefore consolidate the overall PI of Volcan Group at 47.5%, the highest in the Ravva JV agreement, followed by ONGC (40%) and Ravva Oil Singapore (12.5%).
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About the Author: The summary of this Order has been composed CS Lovkesh Batra and Mr. Shikhar Pandey (Research Associate-IBC Law Reporter).
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