Tag: nclt

Venugopal Dhoot moves NCLAT to set aside NCLT order on Videocon, BFSI News, ET BFSI

Banking & Finance

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Venugopal Dhoot, has moved the National Company Law Appellate Tribunal (NCLAT) against the June 8, 2021 order of the National Company Law Tribunal (NCLT) Mumbai approving the bid of Vedanta Group company Twinstar Technologies Limited to acquire the bankrupt Videocon Industries Limited for ₹2,962 crores.

Dhoot has petitioned NCLAT to set aside the ‘Resolution Plan’ approved by the NCLT and allow seeking of fresh resolution plans for all assets of the group, including all foreign oil and gas assets.

In his petition, he listed three respondents filed at the National Company Law Appellate Tribunal (NCLAT) on Saturday—Videocon Group resolution professional Abhijit Guhathakurta, the committee of creditors (CoC), and Twin Star Technologies

The petition also requested NCLAT to direct the Committee of Creditors to consider the ‘Resolution Plan’ submitted by him under Section 12A of the Insolvency and Bankruptcy Code (IBC) that entails a “zero haircut” (involving no loss to the banks/ creditors).

Dhoot stated in his petition that the resolution professional had violated Sections 30(2) and 61(3)(ii) of the IBC. He accused the resolution professional of withholding information in the tender form and eroding the value of the company by closing it down.

Commercial wisdom exercised by lenders is “arbitrary and irrational and does not reflect any applicability of mind by rejecting a proposal which was 10 times higher and submitted at an early stage of the process”, he said.

Dhoot further added, “The liquidation value of these oil assets is not less than ₹15,000 crore. As such RP (resolution professional)/ COC (committee of creditors) has no authority to sell oil assets and consumer durables separately. If the RP had sold oil and consumer durables together, he would have got minimum of ₹25,000 crores against a loan of ₹49,000 crores (₹29,000 crores of consumer durables business and ₹20,000 crores of oil assets)”

“Thus recovery would have been around 50% and not 5% as seen today,” he added.

There are 35 financial creditors of Videocon, of which 19 major creditors include SBI, Union Bank, IDBI, Central Bank, BOB, and ICICI Bank who approved the resolution at a December vote. This implied a 95.85% haircut. But three minority shareholders, Bank of Maharashtra, SIDBI, and IFCI rejected the resolution on the ground of low resolution and filed an appeal in NCLAT.



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MSME bankruptcies involving less than Rs 1 crore put on fast-track with pre-pack law, BFSI News, ET BFSI

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The government has introduced a bill in the Lok Sabha to amend the insolvency law and provide for a pre-packaged resolution process for stressed MSMEs.

The proposed amendments would enable the government to notify the threshold of a default not exceeding Rs 1 crore for initiation of pre-packaged resolution process. The government has already prescribed the threshold of Rs 10 lakh for this purpose.

The Insolvency and Bankruptcy Code (Amendment) Bill, 2021 will replace the ordinance that was promulgated on April 4 as part of efforts to provide relief for MSMEs adversely impacted by the pandemic.

The bill seeks to have a new chapter in the Code to facilitate pre-packaged insolvency resolution process for corporate persons that are Micro, Small and Medium Enterprises (MSMEs).

The process

Generally, under a pre-packaged process, main stakeholders such as creditors and shareholders come together to identify a prospective buyer and negotiate a resolution plan before approaching the National Company Law Tribunal (NCLT). All resolution plans under IBC need to be approved by NCLT.

The bill seeks to specify a minimum threshold of not more than Rs 1 crore for initiating pre-packaged insolvency resolution process as well as provisions for disposal of simultaneous applications for initiation of insolvency resolution process and pre-packaged insolvency resolution process, pending against the same corporate debtor.

There would be a penalty for fraudulent or malicious initiation of pre-packaged insolvency resolution process or with intent to defraud persons, and for fraudulent management of the corporate debtor during the process.

Further, punishment would be meted out for offences related to pre-packaged insolvency resolution process.

“Unlike the CIR Process where the control is transferred to the Interim Resolution Professional, in this process, the control remains with the existing management and only in case of fraud, the NCLT may shift control to Resolution Professional. The process is intended to be swift and efficient.

The timeline for completion of the pre-packaged insolvency resolution process is shorter than the normal Corporate Insolvency Resolution (CIR) period.

What experts say

Rajiv Chandak, Partner at Deloitte India, said the bill covers provisions pertaining to pre-packaged insolvency process for MSME units.

“Lenders are awaiting similar provisions for larger corporates. Pre-packaged insolvency can help in resolving stress early and cut resolution time for corporates staring at default,” he added.

Anoop Rawat, Partner, Insolvency & Bankruptcy at Shardul Amarchand Mangaldas & Co said the amendments are in line with the IBC ordinance that was promulgated on April 4, 2021.

“It gives better visibility of resolution as compared to a normal CIR process since a base resolution process need to be in place prior to initiation of the process at NCLT,” Rawat noted.

Government measures

In the wake of the pandemic, the government has taken various steps including increasing the minimum amount of default to Rs 1 crore for initiating a corporate insolvency resolution process.

Besides, the government had suspended fresh filing of corporate insolvency resolution applications in respect of defaults arising during the period between March 25, 2020, and March 24, 2021.

To deal with emerging market realities, the Code has been amended on earlier occasions also.

The Code, which came into force in 2016, was enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals.



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NCLAT declines to stay Piramal Capital’s approved resolution plan for DHFL, BFSI News, ET BFSI

Personal Finance

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“The matter is now settled. Nothing can upset it as the authorities demonstrated exemplary action in resolving this case,” said a senior banker, whose institution lent to DHFL.

New Delhi, July 23 () The National Company Law Appellate Tribunal (NCLAT) on Friday declined to stay the resolution plan of Dewan Housing Finance Corporation Ltd (DHFL) and its subsequent takeover by the successful bidder Piramal Capital & Housing Finance over the plea filed by 63 Moons Technologies. A two-member bench comprising its Officiating Chairperson Justice A I S Cheema and Member Alok Srivastava rejected 63 Moons Technologies’ plea to pass an interim order staying the resolution plan approved by the Mumbai bench of National Company Law Tribunal (NCLT).

Earlier on June 7, the NCLT had approved the resolution plan of Piramal Capital & Housing Finance Ltd for the debt-ridden DHFL and 63 Moons, which is a debenture holder of DHFL, filed a petition challenging it before NCLAT.

It had requested to stay the operations of the NCLT order, till the two appeals filed by it before the appellate tribunal is decided.

However, the NCLAT said: “We do not find that these are Appeals where interim order should be passed for grounds being raised by the Appellant.”

“If the averments made by Appellant (63 Moons) are juxtaposed with averments made by Respondents, we do not find it a fit case to pass interim orders as sought. We do not think that any interim order as sought with regard to Resolution Plan approved needs to be passed,” said the NCLAT.

63 Moons Technologies holds non-convertible debentures (NCDs) worth over Rs 200 crore issued by DHFL.

According to it, the resolution plan approved by NCLT is against the interests of the company’s NCD holders.

“The Learned Counsel for the Appellant argued that the execution of the Resolution Plan should be subject to the outcome of these Appeals. On July 6, 2021 itself, we have observed that it is a matter of law and we need not pass any specific orders. Both the Applications in both the Appeals stand disposed of accordingly,” the NCLAT said.

Earlier, on July 6, the NCLAT had issued notices to the lenders of DHFL and its successful bidder Piramal Capital & Housing Finance Ltd. KRH MKJ



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Banks move to invoke personal guarantees, promoters of 17 defaulting firms may lose their wealth, BFSI News, ET BFSI

Banking & Finance

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Banks have approached the National Company Law Tribunal for invoking personal guarantees of promoters of 17 defaulting companies.

The defaulting promoters include those of Punj Lloyd, Amtek Auto, ABG Shipyard, Videocon, Varun Shipping, and Lanco, according to reports.

Armed with a Supreme Court order, banks are looking to invoke personal guarantees of tycoons from Venugopal Dhoot to Kapil Wadhawan to recover unpaid loans from their delinquent firms

The guaranteed debt

According to an estimate, the top 10 personal guarantors have guaranteed debt of over Rs 1.6 lakh crore. Among the big names, former promoters of Bhushan Steel and Power Sanjay Singhal and his wife Aarti Singhal had furnished personal guarantees worth up to Rs 24,550 crore to take loans from a consortium of bank led by State Bank of India (SBI).

The former promoter of Reliance Communications, Anil Ambani, has also given a personal guarantee against the loan taken. Erstwhile promoter Wadhawan stands guarantee to loans taken by DHFL, which is sitting on debt of about Rs 90,000 crore, while Dhoot has also given a personal guarantee to a portion of Rs 22,000 crore loan to Videocon.

The SC order

The Supreme Court in May had held that the November 15, 2019 government notification allowing creditors, usually financial institutions and banks, to move against personal guarantors under the Insolvency and Bankruptcy Code (IBC) was ‘legal and valid’.

Post the judgement, a senior official of a public sector bank said banks are assessing the level of involvement of those directors who pledged their personal guarantee against the loan.

Banks have started receiving calls from some of the promoters for the exclusion of their personal guarantee from the non-performing assets. Some of them are coming forward to resolve bad loans to save their personal wealth.

Most of the promoters thought that once their case is admitted under IBC, their past obligations cease.

However, the order has generated fear among the promoters and directors who pledged their personal guarantee of losing their personal wealth as part of the resolution process.

The personal guarantees are likely to expedite the resolution process as the guarantor stands the risk of losing personal property.


The hurdle

Many of these promoters are being investigated for fraud and their assets are already attached by the investigative agencies. Getting these assets released from the law agencies will take time.

SBI action

SBI was one of the respondents to the 74 petitions and challenges by promoters on invocation of personal guarantees. It has been in the forefront of invoking guarantees of promoters of defaulting companies. It had invoked Rs 1200 crore of guarantees given by Ambani for defaulting companies Reliance Communications and Reliance Infratel.

SBI had also approached the Mumbai bench of the NCLT to initiate guarantees by the Videocon Indsutries‘ Dhoot brothers totalling Rs 11,500 crore.

It had also taken Bhushan Power & Steel promoter Sanjay Singal to court to recover Rs 12,276 crore dues to the bank for which he was a guarantor. All these promoters had challenged these actions in court.



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Jet Airways lenders face 95% haircut, but get 9.5% stake, BFSI News, ET BFSI

Banking & Finance

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Financial creditors to Jet Airways will take around 95 per cent haircut with the bidder Jalan-Kalrock consortium pay Rs 385 crore against the total claim of Rs 7,807.74 crore.

The new owner will pay Rs 185 crore within 180 days after the start of operations of the company and the rest Rs 195 crore through issuance of zero-coupon bonds of Rs 1,000 face value after two years, according to a report.

The consortium would also give 9.5 per cent stake to the lenders in Jet Airways and 7.5 per cent in the loyalty program Jet Privilege Private Limited.

The claims

The total creditor claims of Jet Airways in NCLT are Rs 40,259.12 crore.

The total admitted claims are Rs 22,167.23 crore including Rs 7,807 crore from financial creditors. The domestic lenders owe Rs 5,776.71 crore to the airline. State Bank of India has claims of Rs 1,636.22 crore, YES Bank with Rs 1,084.44 crore, Punjab National Bank Rs 754.11 crore, IDBI Bank Rs 594.42 crore, Canara Bank Rs 543.61 crore, ICICI Bank Rs 519.08 crore, Bank of India Rs 263.57 crore, Indian Overseas Bank Rs 158.24 crore, Syndicate Bank Rs 169.73 crore, PNB Hong Kong Rs 42.98 crore, ICICI Bank ECB Loan Rs 9.86 crore.

Foreign lenders including UAE based Mashreq bank, France’s Natixis SA owe Rs 563 crore.

Operational creditors will get a maximum of Rs 15,000 each irrespective of the claim amount.

The company’s plans

The new promoters will infuse Rs 1,375 crore over the next two years into the company, of which around Rs 975 crore will be used for capital expenditure and working capital expenses.

However, National Company Law Tribunal has denied the earlier Jet Airways slots at airports saying the airline cannot claim historicity to obtain airport slots belonging to the airline as it didn’t have any operating slots on the day of the commencement of the insolvency process.

The insolvency

Jet Airways was admitted for insolvency on June 20, 2019, after all the attempts by the lenders to sell the defunct airline failed. The National Company Law Tribunal last month allowed the resolution professional for Jet Airways, to extend the corporate insolvency resolution process of the grounded airline by 90 days.

After Jet Airways went bust, the government temporarily allotted the hundreds of airport slots owned by it to other carriers to contain soaring airfares in the peak holiday season.



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Less than 4% of bankrupt realty firms see resolution at IBC, homebuyers hit hard, BFSI News, ET BFSI

Banking & Finance

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Five years after the Insolvency & Bankruptcy Code (IBC) was notified, only eight resolution plans have been approved although some 205 cases had been admitted until March 2021.

That translates into a success rate of under 4%, making it the worst-performing sector, barring computer and related activity.

The highest resolution is 10% for manufacturing where 178 of the 1784 admitted cases were resolved, followed by 7% for construction where 32 of 458 cases were resolved.

The hiccups

Unlike other sectors, there are more complexities in real estate. The rules keep evolving, which makes it difficult to comply with newer guidelines when a developer looks to take over a project.

For banks, the primary focus of the resolution exercise is to minimise the hit that they have to take on their loans and maximise the gains. In contrast, homebuyers want a more stable company to take over the company even if it means that lenders have to take a haircut.

A fall in real estate prices has complicated matters, making the project unviable for resolution applicants. In many cases, funds have been diverted and the debtor company doesn’t have sufficient money to construct the units. There are other complications when land is owned by more than one entity and needs to be combined, but in IBC there are no project or group insolvency provisions.

Less than 4% of bankrupt realty firms see resolution at IBC, homebuyers hit hard

Financial creditor status

The Supreme Court has upheld amendments to the Insolvency and Bankruptcy Code (IBC) that introduced a minimum threshold of 100 home buyers or 10% of the total allottees of a project, whichever was lower, for initiating the insolvency process against a defaulting developer. The homebuyers had not taken kindly to these amendments on the ground that in every other category even a single creditor could by itself move the insolvency court.

They had argued that this was discriminatory and placed homebuyers at a disadvantage as they would have to herd a minimum number before they could act against any errant builder. It was also time-consuming, they had claimed in court.

Before these amendments were made, even a single buyer with claims of at least ₹1 lakh could move the National Company Law Tribunal (NCLT) seeking insolvency proceedings against any builder. The amendments had been brought in after a top court ruling, which placed homebuyers on par with other financial creditors.

Some of the petitioners were money lenders, who had to also fulfil the same requirements to recover their monies lent to the builders for their real estate projects.

Defending the law, the government had said that it reduces multiplicity of cases in the NCLT and ensures quick disposal.



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Wadhawan plans to challenge NCLT nod to Piramal’s resolution plan for DHFL

Banking & Finance

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Kapil Wadhawan, former promoter of Dewan Housing Finance Corporation Ltd (DHFL), plans to challenge the approval by the National Company Law Tribunal to the resolution plan of Piramal Capital and Housing Finance Ltd.

Wadhawan’s counsel JP Sen informed the National Company Law Appellate Tribunal (NCLAT) about this on Friday.

Sen informed the tribunal that an appeal against the NCLT’s order on June 7 approving Piramal’s resolution plan will be filed in a day or two.

“Wadhawan is likely to file a petition challenging the NCLT order by Monday,” said a person familiar with the development.

Petitions filed by DHFL’s Committee of Creditors (CoC), Administrator and PCHFL came up for hearing before the NCLAT on Friday.

The NCLAT had on May 25 stayed an order by the NCLT, which had directed the lenders to consider the offer made by Wadhawan within a period of 10 days. The stay, which was an interim order, was based on a plea by the Committee of Creditors of DHFL challenging the NCLT order.

Appearing for DHFL administrator, the senior counsel said that since Piramal’s resolution plan has already been approved, the direction by the NCLT to the CoC can not survive.

Delay likely

The NCLAT has adjourned the matter for further hearing to August 2. But with Wadhawan planning to file a petition, the full resolution of DHFL could turn to be further delayed.

Wadhawan has also filed a plea in the Supreme Court challenging the NCLAT stay order.

Small depositors of DHFL, including fixed deposit holders and NCD holder 63 Moons Technologies, are also filing separate appeals for full repayment of their claims.

DHFL’s CoC had earlier this week rejected a plan for higher redistribution of funds to small deposit holders.

The NCLT had on June 7 approved the Piramal Group’s ₹37,250 crore resolution plan for DHFL. This includes an upfront cash component of ₹12,500 crore and a deferred component of ₹19,550 crore.

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DHFL creditors vote against higher distribution of funds to small investors

Banking & Finance

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The Committee of Creditors of Dewan Housing Finance Corporation Ltd (DHFL) has voted against the proposal for redistribution of funds to small deposit holders.

Sources said 89.19 per cent of the votes by financial creditors, including fixed deposit holders, were cast against the proposal. Only 2.96 per cent of votes were in favour of the proposal while 7.85 per cent abstained from voting.

This will mean that the current distribution pattern for DHFL will continue. Fixed deposit holders will get about ₹1,241 crore, that is 23 per cent of their admitted claims of about ₹5,400 crore.

The National Company Law Tribunal (NCLT), in its order on June 7, had suggested 40 per cent recovery to small deposit holders on the lines of that of financial creditors.

The Committee of Creditors had accordingly proposed higher distribution of funds to small investors, including fixed deposit and NCD holders and pension funds.

Admitted claims

According to the proposal put for voting, the entire admitted claims of Army Group Insurance Fund, Air Force Group Insurance Society and Navy Children School would be paid fully in cash.

Further, it was proposed that all fixed deposit holders will be paid additional amounts in cash in order to ensure that the entire amount paid to them is about 40 per cent of the admitted claims, similar to the recovery to secured financial creditors.

Unsecured NCD holders with investments up to ₹10 lakh were proposed to be repaid 40 per cent of the admitted claims like in the case of fixed deposit holders.

Outgo for lenders

The total outgo for lenders of DHFL on these proposals would have been ₹1,853.21 crore. Voting on the proposals took place between June 20 and June 22.

Both FD and NCD holders had previously expressed unhappiness with the revised proposals.

“Almost all NCD holders will be happy that the proposal got rejected. There are two other issues that NCD holders are mainly concerned about. No one can understand the slabs designed for repayment of NCD holders,” said a person familiar with the development.

Fixed deposit holders as well as NCD holder 63 Moons Technologies plan to challenge the NCLT order in the National Company Law Appellate Tribunal. Provident and pension funds are also likely to challenge the order.

“We are filing a petition challenging the order and to get 100 per cent of our funds back,” said Vinay Kumar Mittal, a lead petitioner in the court on behalf of FD holders of DHFL.

Meanwhile, the CoC approved another proposal to authorise State Bank of India, Union Bank of India and Catalyst Trusteeship to act on its behalf for the implementation of the resolution plan.

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CoC of DHFL vote against redistribution proposal

Banking & Finance

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The Committee of Creditors (CoC) of Dewan Housing Finance Corporation Ltd (DHFL) are understood to have voted against the proposal for redistribution of funds to small deposit holders.

Sources said a majority of financial creditors including fixed deposit holders have voted against the proposal.

This will mean that the current distribution pattern for DHFL will continue. The Committee of Creditors is expected to move the National Company Law Tribunal on June 24 to apprise it of the voting results.

NCLT recommendation

Based on the NCLT recommendation, the CoC had proposed higher distribution of funds to small investors including fixed deposit and NCD holders and pension funds.

According to the proposal, the entire admitted claim of ₹39 crore of Army Group Insurance Fund, ₹72.93 crore of Air Force Group Insurance Society and Navy Children School of ₹2.54 crore would be paid fully in cash.

Also read: DHFL lenders begin voting on proposals to redistribute funds

Further, it was proposed that all fixed deposit holders will be paid additional amounts in cash in order to ensure that the entire amount paid to them is about 40 per cent of the admitted claims, similar to the recovery to secured financial creditors.

Unsecured NCD holders with investments up to ₹10 lakh were proposed to be repaid 40 per cent of the admitted claims like in the case of fixed deposit holders.

The total outgo for lenders of DHFL on these proposals would have been ₹1,853.21 crore.

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Lenders say they will get 26% of their dues, BFSI News, ET BFSI

Banking & Finance

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The lenders to Siva Industries have told the National Company Law Tribunal that they will get 26% of their dues after taking into account third-party guarantors. Operational creditors will get part of their dues under the settlement plan, according to a report.

The deal has raised eyebrows as such offers by promoters were rejected in the past.

The NCLT, Chennai, has to explain the rationale behind the one-time settlement (OTS) offer made by Siva Industries under Section 12A of the Insolvency and Bankruptcy Code (IBC), 2016. The lenders have also been asked to give the timeline of cash flow to all the creditors.

Until the last payment is made to the lenders within the deadline of 180 days set in the OTS application, the liabilities of the company will not be extinguished, according to the report.

On the reason why they approved the 12A petition of promoters banks told the court that if a company is liquidated or in a resolution plan involving a third party, all operational creditors, including tax authorities, are wiped out

Also, the IDBI Bank‘s claim of Rs 644 crore will be paid while Blackstone-backed International ARC will get an additional amount of Rs 510 crore via land sale, according to the report.

The settlement

Lenders of Siva Industries and Holdings have approved a one-time settlement proposal from the promoter under which they will take a 93.% haircut and just Rs 5 crore upfront cash.

Of the company’s total dues of Rs 4,863 crore, the IDBI Bank-led lenders will get Rs 313 crore, excluding upfront payment, within 180 day of receiving NCLT nod.

They will recover Rs 318 crore, with Rs 5 crore as upfront cash, out of the company’s total dues of Rs 4,863 crore. This amounts to a haircut of 93.5 per cent.

The holding company owes financial and other creditors about Rs 5,000 crore. Tata Sons had filed a claim of Rs 863 crore against the Sivasankaran group company but that was rejected by the latter’s interim resolution professional.

The creditors received an offer from Mauritius-based Royal Partner for the company but that was rejected on the grounds that the investor had been unable to demonstrate its seriousness in completing the deal.

Unusual deal

Bankruptcy experts have termed the development unusual, citing the rejection of such offers by promoters in the past.

The acceptance of Sivasankaran’s offer differs from the usual pattern of rejection by creditors of such deals proposed by promoters seeking to withdraw their companies from bankruptcy proceedings.

Atul Punj of Punj Lloyd, Videocon’s Venugopal Dhoot, Sanjay Singal of Bhushan Power and Steel, and the Ruias of Essar Steel had all made offers to creditors to persuade them to drop bankruptcy proceedings. All were rejected.

In DHFL’s case, the promoter Kapil Wadhawan had offered to repay the debt in full, but the lenders ruled in favour of Piramal.

Experts say while banks may be getting the most out of such settlement in absence of any serious bid, but such a move weakens the IBC, especially Section 29A that bars promoters from bidding for their assets in a bankruptcy court. The Siva deal, if it goes through, could set a precedent of promoters striking settlement deals with banks when there are no bidders.



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