NCLT order in Videocon case underscores imperative to maintain sanctity of IBC process
On June 8, the NCLT had approved the resolution plan for the distressed Videocon group of companies.
On Monday, the National Company Law Appellate Tribunal (NCLAT) stayed the approval given to the resolution plan submitted by Twin Star Technologies, an arm of the Vedanta Group, for the Videocon group of companies under the insolvency and bankruptcy proceedings. The appellate tribunal’s order was in response to an appeal by Bank of Maharashtra over the manner in which payments to dissenting financial creditors were going to be carried out as per the resolution plan. This latest twist comes after the National Company Law Tribunal (NCLT) had earlier made troubling observations in this case over the sanctity of the resolution process itself.
On June 8, the NCLT had approved the resolution plan for the distressed Videocon group of companies. Under this, as against admitted claims of creditors amounting to Rs 64,838 crore, only Rs 2,962 crore would be paid, implying a haircut of over 95 per cent. This, as the NCLT also observed, meant that Twin Star was “paying almost nothing” for the companies. High haircuts may not necessarily mean that all isn’t kosher in a transaction. It is possible that bids are depressed because there aren’t enough buyers in an economy due to an economic slowdown or poor future prospects of the company. But what was intriguing in this case was that the winning bid of Rs 2,962 crore was remarkably close to the companies’ liquidation value of Rs 2,568 crore which is required to be kept confidential. The remarkable closeness between the two led even the NLCT to voice its concern. “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,” it noted. The tribunal even asked the Insolvency and Bankruptcy Board of India (IBBI) to “ensure the confidentiality clause is followed”.
It is possible that financial creditors in a minority in the committee of creditors will get overtaken by those with greater say. But considering that the law says that the distribution shall be “fair and equitable”, resolution plans can be challenged. The sanctity of the IBC process, however, should be maintained. Critical and confidential information should not find its way into the hands of interested parties. Care should be taken to ensure that unprincipled promoters aren’t allowed to game the system. The spirit of the IBC should be adhered to.