NCLAT’s stay on the Videocon Resolution plan turns the clock back, say legal experts

The recent order of the National Company Law Appellate Tribunal (NCLAT) to stay the operation of the tribunal’s ruling in Videocon Industries Ltd (VIL) insolvency resolution process may turn the clock back for the revival of not only the Venugopal Dhoot promoted company but future group insolvency cases as well, legal experts said.

On July 17, the NCLAT temporarily stayed the Mumbai bench of the National Company Law Tribunal’s order that allowed Twin Star Technologies to buy Videocon under the Insolvency & Bankruptcy Code on June 8. Twin Star is owned by Volcan Investments, a company owned by Anil Agarwal of Vedanta Group.

The appellate tribunal stayed the NCLT’s order while hearing petitions filed by two dissenting financial creditors Bank of Maharashtra and IFCI.

“Right from the Essar Steel Judgment, the Supreme Court has clarified that the commercial wisdom of the CoC will prevail. In my view, it is now the duty of the assenting financial creditors to approach the Supreme Court to nip this in the bud before challenges by dissenting financial creditors become common,” said Senior Advocate Gopal Jain.

“When the resolution plan is approved with an overwhelming majority and is approved by adjudicating authority, it should be given effect to in a time-bound manner especially since it is not a recovery mechanism like DRT and the emphasis is on the revival of the company and saving jobs and assets,” adds Jain.

The consortium of 35 financial lenders approved Twin Star Technologies’ resolution plan with over 95% voting. While dissenting financial creditors have about a 3% voting share in the Committee of Creditors (CoC).

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According to Vijayendra Pratap Singh, a senior partner and head of the litigation practice at law firm AZB & Partners, uncertainty is anathema to a time-bound resolution process. Group based insolvencies are difficult to resolve.

“Therefore, if courts too frequently interfere with a view to obtaining a still higher price, it may prove a self-defeating exercise for bidders, who may lose faith in the actual resolution taking place,” said Singh. “They may not bother to engage given the uncertainty that the resolution will go through, especially in covid times where economic fundamentals are stressed, and bids are time-sensitive.”

In 2019, the tribunal allowed the consolidation of 11 Videocon Group companies with Videocon Industries to attract more bids.

“IBC is very different than the DRT since the focus is more on resolution or revival of the company rather than just recovery of the debt, but the appellate tribunal, while staying the NCLT order, is asking the right questions,” said Poornima Hatti, partner at law firm Samvad Partners. “When the admitted debt is about Rs 61000 crore, and if the assenting financial creditors are getting mere 2% and a large part of MSME is not getting anything, then this is the time when we need to look at the whole process in a very holistic manner to see if this can be more viable for all.”



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