Tag: videocon

Overseas assets of defaulters, guarantors may soon be within lenders’ reach, BFSI News, ET BFSI

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FILE PHOTO: An India Rupee note is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration/File Photo

Lenders may soon be able to lay their hands on overseas assets of defaulting firms and personal guarantors.

The government has proposed adopting a global model law that will enable lenders to apply the Insolvency and Bankruptcy Code to defaulters’ assets lying overseas. These will include the offshore personal assets of the promoter if they have issued a personal guarantee. The changes would also allow the execution of orders against defaulters by overseas courts that have adopted the model law.

The model law is provided by the UNCITRAL — a subsidiary body of the United Nations.

The government has invited public comments on the proposed modifications by December 15.

The model law lays down the basic framework for cooperation between domestic and foreign courts and domestic and foreign insolvency professionals.

Personal guarantors

In the case of a personal guarantor, their ‘habitual’ place of residence will be taken into account to decide the jurisdiction where the main bankruptcy proceedings will happen. Debt recovery tribunals and the National Company Law Tribunal (NCLT) benches and their appellate tribunals are platforms where overseas creditors could initiate or participate in proceedings against personal guarantors in India.

The introduction of a cross-border insolvency law in the IBC, that is in line with international best practices and suitable for the Indian context, may be beneficial to all stakeholders. Draft part Z, as recommended by the insolvency law committee, is under consideration for enactment,” the ministry said, while proposing the additional measures regarding personal guarantors.

The changes were proposed after the ILC, constituted under the corporate affairs ministry to review the implementation of the IBC, noted the lack of a framework for cross-border insolvency. The government has decided to put in place a comprehensive framework for this purpose based on UNCITRAL model law on cross-border insolvency, which could be made a part of the IBC by inserting a separate chapter for this purpose.

In January 2020, the government had constituted a crossborder insolvency rules/regulations committee to recommend subordinate legislation.

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.

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.



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NARCL may get first bad loans tranche of Rs 90,000 crore by January, BFSI News, ET BFSI

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The National Asset Reconstruction Company (NARCL), or bad bank, is likely to get the first tranche of bad assets worth about Rs 90,000 crore by January 2022, according to a report. In the first phase, fully-provisioned toxic assets will be transferred.

Finance Minister Nirmala Sitharaman in the budget for 2021-22 had announced that an asset reconstruction company or a bad bank would be set up to consolidate and take over existing stressed assets of lenders and undertake their resolution. A bad bank refers to a financial institution that takes over bad assets of lenders and undertakes resolution.

Last month, the Cabinet had approved a proposal to offer sovereign guarantee on the security receipts (SRs) issued by the NARCL, It is estimated to cost the govenrment Rs 30,600 crore over five years.

Recovery hopes

The bad bank hopes to recover between Rs 50,000 crore and Rs 64,000 crore through the resolution of bad loans amounting to Rs 2 lakh crore.

NARCL may get first bad loans tranche of Rs 90,000 crore by January

The lowest recovery is seen at 25 per cent or Rs 50,000 crore, while the highest recovery rate is pegged at 32 per cent, or Rs 64,000 crore. The most likely recovery has been pegged at 28 per cent or Rs 56,000 crore.

The NARCL will buy the assets around Rs 36,000 crore or, about 18 per cent of the book value of Rs 2 lakh crore assets. About 15 per cent of Rs 36,000 crore would be paid by NARCL to banks in cash and the remaining 85 per cent via security receipts guaranteed by the Centre.

Close to liquidation

Though banks have made 100% provision for these assets, Rajkiran Rai, MD & CEO of Union Bank of India, does not expect more than 20-25 per cent recovery from these legacy accounts, he told a television channel.

The State Bank of India has identified NPAs with Rs 17,000-18,000 crore outstanding to be transferred to the NARCL, while Punjab National Bank has identified Rs 8,000 crore worth of NPAs, Union Bank of India Rs 7,800 crore of NPAs to be transferred to the National ARC. The Bank of India has identified about Rs 5,500 crores of assets for transfer while Indian Bank about Rs 1,900 crore.

Assets

NARCL may get first bad loans tranche of Rs 90,000 crore by January

Banks have identified Rs 82,496 crores worth of bad loans that could be transferred to the NARCL, which has names like Videocon’s VOVL (Rs 22,532 crores total exposure), Reliance Naval and Engineering Ltd (Rs 8,934 crore), Amtek Auto (Rs 9,014 crore), Jaypee Infratech (Rs 7,950 crore, Castex Technologies (Rs 6,337 crore), GTL Ltd (Rs 4,866 crore), Visa Steel (Rs 3,394 crore), Wind World India Ltd (Rs 3,161 crore), Lavasa Corporation (Rs 1,424 crore), Consolidated Construction Consortium Ltd (Rs 1,353 crores).

Several assets such as Videocon have seen realisable value close to liquidation value in NCLT proceedings. Many big-ticket resolutions at IBC have seen haircuts over 90%. With most of the NPAs proposed to be transferred to the bad bank being old legacy NPAs, there has been an erosion in value, making them more likely to head to liquidation.

Lavasa Corporation has got bids worth Rs 700 crore for loan claims of over Rs 8,000 crore at NCLT.



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Bank of Maharashtra raises issue of breach of confidentiality in Videocon insolvency process, BFSI News, ET BFSI

Banking & Finance

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Bank of Maharashtra, a dissatisfied creditor of Videocon Group, has on Thursday raised the issue of the breach of confidentiality in the corporate insolvency resolution process of the debt-ridden group before the National Company Law Appellate Tribunal (NCLAT). During the proceedings, counsel appearing for the Bank of Maharashtra wondered as to how the bid amount of the successful resolution applicant Twin Star Technologies was so close to the liquidation value.

“Here the kind of bid that has come is so close to the liquidation value clearly suggests that the confidentiality has not been maintained. More than 95 per cent proceed is being given to the secured creditors (as per the plan) because of the leak of this (liquidation) value to the bidders,” submitted senior advocate Vikas Singh appearing for Bank of Maharashtra.

Singh also said that the resolution plan provides for payment to the dissenting financial creditors by way of non-convertible debentures (NCDs) and equities which is contrary to the rules set out in the Insolvency and Bankruptcy Code (IBC).

Twin Star’s resolution plan of Rs 2,962.02 crore meant a haircut of over 95 per cent on admitted claims of Rs 64,838.63 core.

Even the Mumbai-bench of the NCLT, while approving Anil Agarwal’s Twin Star Technologies’ Rs 2,962.02 crore-bid had observed creditors of debt-ridden Videocon Industries Ltd will be taking nearly 96 per cent haircut on their loans and the bidder is “paying almost nothing”.

The NCLAT will continue hearing the matter on Friday also.

During the proceedings, Solicitor General Tushar Mehta representing the Committee of Creditors submitted that due to paucity of time, a rejoinder to the reply filed by the Twin Star could not be filed. It was assured to be filed by Friday in physical form.

“In the meanwhile, the parties, who have not filed ‘written submissions’ yet, are directed to file the same positively by tomorrow in physical form,” said a two-member bench comprising Justice Jarat Kumar Jain and Ashok Kumar Mishra.

Earlier on June 9, the Mumbai bench of the National Company Law Tribunal (NCLT) has approved a Rs 2,962 crore takeover bid by Twin Star Technologies for the 13 companies of the debt-ridden group.

However, the NCLT order was stayed by the appellate tribunal on July 19 over the petitions filed by two dissatisfied creditors of the Videocon Group – Bank of Maharashtra and IFCI Ltd and had directed to maintain “status quo ante”.

Later, lenders to Videocon Industries had also approached the insolvency appellate tribunal seeking fresh bids for the 13 companies of the debt-ridden group. PTI KRH MKJ



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NARCL expects up to 32%, or Rs 64,000 crore, recovery from the first bad loan tranche, BFSI News, ET BFSI

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The National Asset Reconstruction Company (NARCL), or bad bank, hopes to between Rs 50,000 crore and Rs 64,000 crore through the resolution of bad loans amounting to Rs 2 lakh crore, according to a report.

The lowest recovery is seen at 25 per cent or Rs 50,000 crore while the highest recovery rate is pegged at 32 per cent, or Rs 64,000 crore. The most likely recovery has been pegged at 28 per cent or Rs 56,000 crore.

The NARCL will buy the assets around Rs 36,000 crore or, about 18 per cent of the book value of Rs 2 lakh crore assets. About 15 per cent of Rs 36,000 crore would be paid by NARCL to banks in cash and the remaining 85 per via security receipts guaranteed by the Centre.

Close to liquidation

Though banks have made 100% provision for these assets, even Rajkiran Rai, Chairman of Indian Banks Association, and MD & CEO of Union Bank of India does not expect more than 20-25 per cent recovery from these legacy accounts, he told a television channel.

The State Bank of India has identified NPAs with Rs 17,000-18,000 crore outstanding to be transferred to the NARCL while Punjab National Bank has identified Rs 8,000 crore worth of NPAs, Union Bank of India Rs 7,800 crore of NPAs to be transferred to the National ARC. The Bank of India has identified about Rs 5,500 crores of assets for transfer while Indian Bank about Rs 1,900 crore.

The assets

Banks have identified Rs 82,496 crores worth of bad loans that could be transferred to the NARCL, which names like Videocon’s VOVL (Rs 22,532 crores total exposure), Reliance Naval and Engineering Ltd (Rs 8,934 crore), Amtek Auto (Rs 9,014 crore), Jaypee Infratech (Rs 7,950 crore, Castex Technologies (Rs 6,337 crore), GTL Ltd (Rs 4,866 crore), Visa Steel (Rs 3,394 crore), Wind World India Ltd (Rs 3,161 crore), Lavasa Corporation (Rs 1,424 crore), Consolidated Construction Consortium Ltd (Rs 1,353 crores), among others.

Several assets such as Videocon have seen realisable value close to liquidation value in NCLT proceedings. Many big-ticket resolutions at IBC have seen haircuts over 90%. With most of the NPAs proposed to be transferred to the bad bank being old legacy NPAs, there has been an erosion in value, making them more likely to head to liquidation.

Lavasa Corporation has got bids worth Rs 700 crore for loan claims of over Rs 8,000 crore at NCLT.



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Lenders slap personal insolvency cases on promoters of defaulting firms, BFSI News, ET BFSI

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Banks are approaching the National Company Law Tribunal for invoking personal guarantees of defaulting promoters armed by the Supreme Court go-ahead for such action.

The latest data released by the Insolvency and Bankruptcy Board of India (IBBI) show that 56 new cases were filed in the first quarter ended June, almost half of the total 128 cases filed in the whole of fiscal 2021, as banks stepped up their recovery efforts from personal guarantors.

These include cases filed against promoters of Punj Lloyd, Amtek Auto, Videocon, DHFL, ABG Shipyard, Videocon, Varun Shipping, and Lanco Infratech.

Overall, a total of 201 cases have been registered against personal guarantors since the new law came into force in December 2019, 184 of which have been filed by financial creditors while 17 have been voluntarily filed by debtors.

Data from the IBBI show that creditors are chasing a total debt of Rs 36,014 crore through the personal insolvency process, which has been backed by personal guarantees of Rs 33,294 crore. Individual debtors have filed a relatively lower Rs 1,848 crore of claims backed by guarantees of Rs 791 crore.

The challenge

Anil Ambani, Kapil Wadhawan, Venugopal Dhoot had challenged proceedings against them under the Insolvency and Bankruptcy Code (IBC) to recover loans for which they had given personal guarantees.

They had argued that the resolution process would discharge them of all personal liabilities and guarantees and that the government was wrong to issue a notification that permitted lenders to initiate separate insolvency proceedings against them.

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 Supreme Court 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 Industries 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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Personal insolvency proceedings start against Venugopal Dhoot; more promoters in line for action, BFSI News, ET BFSI

Banking & Finance

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Videocon chairman Venugopal Dhoot is already under CBI investigation on charges of causing a wrongful loss to a consortium of Indian PSU banks led by SBI.

After ordering the freezing of assets of Videocon promoter Venugopal Dhoot and other officials, the National Company Law Tribunal (NCLT) has admitted a personal insolvency petition against Dhoot.

Earlier the Ministry of Corporate Affairs (MCA) received permission to freeze Dhoot’s assets.

Asish Narayan has been appointed as the resolution professional (RP) in the case by a division bench led by judicial member Suchitra Kanuparthi and a technical member Chandra Bhan Singh. The next date of hearing is 20 September.

Lenders to Videocon had filed the personal insolvency petition to attach Dhoot’s assets a year ago and its admission now means the recovery process will go on full steam. But it is unclear how the admission of personal insolvency proceedings will impact the NCLT’s order freezing Dhoot’s assets on the MCA plea.

State Bank of India (SBI) the lead lender in the consortium of bank creditors to has also taken Venugopal’s brothers and Videocon co-promoters Rajkumar Dhoot and Pradipkumar Dhoot under the personal bankruptcy law.

Rs 18,000 crore debt

Banks led by SBI are seeking to recover close to Rs 18,000 crore by initiating guarantees given by the Dhoot brothers at different points in time to access loans from banks. Claims from Venugopal Dhoot come to about Rs 6100 crore while two separate petitions have also been filed by SBI has to invoke Rs 6,158 crore of personal guarantee given by Pradipkumar Dhoot and Rs 5353 crore to be recovered from Rajkumar Dhoot which are yet to receive the NCLT go ahead.

These guarantees were given by them for a mix of term and working capital loans granted to the company over the years.

Cyril Amarchand Mangaldas is representing SBI in the case.

The way ahead

Now that NCLT has okayed the recovery process the RP will examine the application and submit his report stating the reasons for approval or rejection of the application within 10 days.

This process is different from the corporate insolvency process and the NCLT will determine going ahead with the personal insolvency based on the report of the RP.

In December over 94% of the creditors by value voted for Vendanta arm Twin Star Technologies as the preferred bidder to take over Videocon. Vedanta’s offer of a little over Rs 3,000 crore was a haircut of more than 95% on admitted claims of Rs 61,770 crore.

Other defaulting promoters

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 banks led by 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.



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NCLT orders freeze of Venugopal Dhoot, Videocon’s senior management’s assets, BFSI News, ET BFSI

Personal Finance

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It may not end for defaulting promoters with losing their companies. Their assets are at risk too.

The National Company Law Tribunal (NCLT) has ordered a countrywide search and freeze of the assets of Venugopal Dhoot, his wife, his company and the firm’s chief financial officer as well as company secretary.

The order was in response to a petition filed by the Ministry of Corporate Affairs (MCA) against the bankrupt group. The MCA’s move comes in the wake of banks being able to recover only 4% of their admitted claims of Rs 64,838 crore under the bankruptcy process.

The government had approached the tribunal under Section 241 and 242 of the Companies Act, which empowers the MCA to act if there is a fraud, misfeasance or persistent negligence.

Notices to be served

Responding to the petition, the tribunal has instructed the MCA to serve notices to disclose on affidavit moveable and immovable properties/assets, including bank accounts, owned by them in India or anywhere in the world. It also
directed the Central Depository Services (CDSL) and National Securities Depository (NSDL) to freeze all securities held by the respondent, which include the Dhoots, the company and senior management.

The Central Board of Direct Taxes has also been asked to disclose the information it has in its possession of all the respondents.

Bank accounts, lockers to be frozen

The Indian Banks Association has been directed to facilitate disclosures of the details of the bank accounts, lockers owned by the respondents and such bank accounts and lockers also be frozen with immediate effect.

Finally, the MCA has been instructed to write to state governments and Union Territories to identify and disclose all details of immovable properties held by the respondents.

Despite receiving a bid for only 4% of the admitted debt, which was close to the liquidation value, lenders had agreed to sell Videocon to Twin Star, a Vedanta company.

Unlike enforcement authorities that have sweeping powers, banks under insolvency can only pursue assets of the company that has gone bankrupt. The sale was, however, stalled as the appellate tribunal granted a stay following an appeal from Bank of Maharashtra — a dissenting creditor. In its order on Wednesday, the NCLT said, “This bench is

surprised with the manner in which the financial institution has come forward to grant loans to a sinking ship and again come forward to file petition under Section 7 of IBC and again supports this petition. This certainly rises the eyebrows of the common man in the public.”

Personal guarantees

In July, banks had 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



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SC directs DoT not to invoke Airtel bank guarantees for non-payment of Videocon’s AGR dues, BFSI News, ET BFSI

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The Supreme Court on Tuesday directed the telecom department not to invoke bank guarantees of Bharti Airtel for three weeks over non-payment of adjusted gross revenue (AGR) dues of defunct telco Videocon Telecommunications (VTL).

A three-judge bench led by Justice L Nageswara Rao allowed Bharti Airtel to go to the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) for relief over the issue.

“We’ve made it clear we will not review the (main AGR) judgement. He (Airtel) wants to file an application. We will allow. He (Airtel) says after dues are added now, so you hold your hands for some time till he goes before TDSAT,” the bench also comprising Justice SA Nazeer and Justice MR Shah told Solicitor General Tushar Mehta.

Mehta was arguing that the recovery notice served by the Department of Telecommunications (DoT) on Airtel was as per the court’s AGR dues order. He added that he would contest the jurisdiction of the TDSAT to decide the issue.

The DoT had issued a demand notice on August 17, 2020, asking Bharti Airtel to pay AGR dues assessed at Rs 1376 crore within a week or have the bank guarantees invoked. The dues were of Videocon Telecommunications, whose spectrum was acquired by the Sunil Mittal-led carrier in 2016. Videocon had sold rights to use spectrum in the 1,800 MHz band in six circles to Airtel in 2016 for Rs 4,428 crore.

The Sunil Mittal-led telco said that it had so far paid the government Rs 18004 crore by way of AGR dues, which was more than 10 percent of dues to have been paid by March 31, 2021, as per the top court’s order. DoT has demanded Rs43,980 crore from Airtel towards AGR dues.

Senior advocate Shyam Divan, representing Airtel, said that Airtel was not responsible for Videocon’s dues on account of the spectrum trading deal as the law states that the ‘seller shall clear all dues prior to concluding any agreement for spectrum trading’.

“Our agreement date is 16th March 2016. I am the buyer and the effective date is 18th May 2016. If there was a liability not known to parties at the time, the government has discretion to recover jointly or severely. In our case, it’s common ground between us that it was known liability, so we are not in the realm of unknown liability,” argued Diwan. “The liability is of Videocon, full liability is of the seller.”

The bench intervened, saying “We know where you are heading, but we are not going to review this judgement.”

To this, Divan responded: “We don’t want to review the judgement.”

He added that Rs1376 crore were Videocon’s dues and must be paid by that company. “In fact, DoT has claimed this from Videocon in insolvency proceedings,” said Divan.

Divan said that DoT’s “precipitate action,” “totally affects our working” and sought a stay on the government’s demand notice.

The DoT had filed an affidavit in the SC in April, 2021, saying that Airtel had refused to pay the AGR-related dues of Videocon, despite its demand.

In its response, Airtel, through letters dated 16.10.2020 and 4.3.2021, said that DoT’s demand has “no basis in law” and that Airtel cannot be held responsible for Videocon’s past dues given that the buyer of spectrum is not responsible for dues which were ‘known’ at the time of trade.

As per the DoT affidavit, Airtel added that contrary to its current stance, DoT had never raised such demand from Airtel in the past and maintained its position that these dues were solely recoverable from Videocon.

“…given the clear and categorical findings of the Hon’ble Supreme Court, the trading guidelines issued by DoT and DoT’s own understanding, along with the fact that such demand was never raised on Airtel, is ample testimony to the fact that Airtel is not liable for any outstanding dues of Videocon pertaining to the outstanding AGR dues. i.e. License Fees and Spectrum Usage Charges of M/S Videocon,” Airtel said, as per the DoT affidavit.



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Parliamentary panel suggests capping ‘haircuts’ after furore over Videocon, Siva settlements, BFSI News, ET BFSI

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A parliamentary panel has suggested having a benchmark for the “quantum of haircut” in an insolvency process amid instances of financial creditors taking steep haircuts on their exposure to stressed companies.

Besides, the committee has pitched for measures to prevent protracted litigations with respect to an insolvency resolution process.

The Insolvency and Bankruptcy Code (IBC), which came into effect in 2016, provides for a market-linked and time-bound resolution of stressed assets.

Emphasising that the fundamental aim of the Code is to secure creditor rights which would lower borrowing costs as the risks decline, the panel said there is a need for greater clarity in purpose with regard to strengthening creditor rights through the mechanism devised in the Code.

On haircuts

The committee flagged that “the low recovery rates with haircuts as much as 95 per cent and the delay in resolution process with more than 71 per cent cases pending for more than 180 days clearly point towards a deviation from the original objectives of the Code intended by Parliament”.

The committee particularly mentioned about the “disproportionately large and unsustainable ‘haircuts’ taken by the financial creditors over the years”.

In some insolvency resolution processes, the haircuts taken by creditors were more than 90 per cent.

“As the insolvency process has fairly matured now, there may be an imperative to have a benchmark for the quantum of ‘haircut’ comparable to global standards,” it noted.

A haircut refers to losses incurred by creditors on resolution of a stressed asset.

The suggestions have been made by the Standing Committee on Finance in its report on the ‘Implementation of Insolvency and Bankruptcy Code – Pitfalls and Solutions’. The report was tabled in Parliament on Tuesday.

On delays

It is a matter of grave concern for the committee that the insolvency process has been stymied by long delays far beyond the statutory limits. It is disconcerting that even admission of cases in NCLT has been taking an unduly long time, which thus defeats the very purpose of the Code, the panel noted.

After about half a dozen amendments in five years, the IBC seems to have deviated from its original objectives, thanks to inordinate delay in resolution and the low recovery rate with haircuts running up to 95% in few cases, the Parliamentary Standing Committee on Finance said in a report.

As many as 13,170 insolvency cases involving claims of Rs 9 lakh crore are awaiting resolution before the National Company Law Tribunal (NCLT), the report tabled in the Lok Sabha on Tuesday said.

The committee also pointed out that there have been instances of frivolous appeals, which further drags the resolution/ recovery process leading to severe erosion of asset value.

Abuse of provisions

The panel said it would therefore recommend that misuse/ abuse of well-intended provisions and processes should be prevented by ensuring an element of finality within the statutory stipulated period without protracted litigation.

There have been six amendments to the Code so far.

According to the committee, any legislative enactment and implementation need to constantly evolve to meet the challenges in the ever-changing ecosystem.

However, the panel said it is of the opinion that “the actual operationalisation of amendments made so far may have altered and even digressed from the basic design of the statute and given a different orientation to the Code not originally envisioned”.



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

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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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