Why did NCLAT throw out petition by Venugopal Dhoot in Videocon Industries CIRP case

While setting aside the NCLT’s order approving Twin Star Technologies Ltd’s resolution plan in the Videocon Industries Ltd corporate insolvency resolution process (CIRP), the National Company Law Appellate Tribunal (NCLAT) summarily dismissed a plea of Venugopal Dhoot, the ex-managing Director/Chairman of Videocon Industries Limited.

Venugopal Dhoot, the ex-managing Director/Chairman of Videocon Industries Limited, had filed a petition with the NCLAT requesting it to appellate tribunal to set aside the resolution plan by Twin Star Technologies citing that the resolution plan compromises the interest of the corporate debtors (Videocon Industries and its group companies) and that it does not make an no attempt to maximize the wealth of the CD.

However, the NCLAT dismissed his petition citing commercial wisdom of CoC, which the tribunal says, is non-justifiable as already laid down by multiple judgments of Supreme Court.

Venugopal Dhoot’s submission

Dhoot had submitted that all assets owned by Videocon Group, particularly, foreign oil and gas assets were not included in the ‘Information Memorandum’ as also no valuation thereof has been considered while the claim of lenders of foreign oil and gas assets of Rs. 23,121 Crore being considered as claimed upon CD.

He further argues that the reason for considering consolidated group insolvency resolution with main thrust on foreign oil and gas assets not to be treated separately so that all the creditors should get maximum value. And by not including these assets in the information Memorandum, the Resolution Professional and CoC have committed material irregularity of high magnitude.

He also raised the issue that just by paying only Rs.262 Crore (out of which cash balance available with CD is Rs. 200 Crore) & approximately Rs. 2700 Crore through NCD carrying 6.65% per annum payable annual interest rate, the Resolution Applicant will get possession of all 13 CDs to run these units against the property for which claim has been raised for over Rs.71,000 Crore.

He also alleges that the RP has not maintained confidentiality clause in its true letter and spirit and thereby violated Regulation 35 (3) of the IBBI (Insolvency Resolution Process or Corporate Persons) Regulation, 2016.

He also pointed out that as per the valuation reports, the fair value of CD was Rs.4069.65 Crore, whereas the liquidation value was Rs.2568.13 Crore. Therefore, he says that the interest of the CDs has been compromised and no attempt has been made to maximize the wealth of the CDs.

Counter arguments

The RP has summarily rejected Dhoot’s stand and has cited Section 18 of the Code specifically which excludes the assets of any Indian and foreign subsidiary of the CD from the purview of the terms Assets as mentioned in the section 18 of the Code.

The Successful Resolution Applicant – Twin Star Technologies — through its counsel argued that the Venugopal Dhoot has not opposed the committing of default when the application was filed by the Bank for initiation of CIRP, and therefore, he had no locus standi to file the appeal at this stage and challenge the haircut. The Apex Court, it argued, has repeatedly viewed that the commercial wisdom of the CoC is not amenable to judicial review. He has no authority to challenge the haircut.

The CoCs, on its part, argued that Videocon Industries limited (VIL) and Videocon telecommunication ltd (VTL) were two largest accounts that were classified as NPA by banks on account of defaults and in respect of whom RBI had provided specific instructions as per Banking Regulations Act, 1949 for initiating insolvency proceedings. The RBI has sent a letter to SBI in its capacity as lead bank to resolve their debts outside the scheme of the Code till 13 December 2017 failing with insolvency proceedings under the Code are to be initiated against the companies before 31 December 2017. As a result of non-resolving the continuing default, the CIRP petition was filed on 01 January 2018 against VIL and VTL. The CoC further argued that the poor management by Venugopal Dhoot led to such situation, and now he is obstructing to frustrate and derail the CIRP and thwart all attempts of a Successful Resolution of a consolidated CD.

They also pointed out that it is a matter of record the applicants act of commission and omission while in control of the consolidated CDs are being investigated by several investigating agencies and the proposal under Section 12A of the Code was already rejected by the CoCs.

The CoC also reiterated that their existed no legal or statutory requirements to trade the foreign oil and gas assets as part of the Consolidated CIRP process. However, in ‘finance and accounts’ there is a matching concept of liability and its corresponding assets wherever liability is considered, the corresponding assets is suppose to exist in the form of the assets or the liability/borrowings which have been used to finance the losses.

Also Read: What made NCLAT set aside Twin Star Technologies resolution plan for Videocon group of companies