Introduction

National Company Law Appellate Tribunal (NCLAT), New Delhi on 5th January 2022, set aside NCLT order approving Vedanta Group Co.- Twin Star Technologies Ltd’s Resolution Plan for 13 Videocon Group companies, upon appeal by 3 Dissenting Financial Creditors, namely Bank of Maharashtra, IFCI Ltd. and SIDBI, and held that Sec. 30(2)(b) of IBC has not been complied with, and therefore, the approval of the Resolution Plan is not in accordance with Sec. 31 of the Code.

The judgment came on an appeal filed by Bank of Maharashtra, IFCI, previously known as Industrial Finance Corporation of India and Small Industries Development Bank of India (SIDBI). The NCLAT decision overturns the decision dated 08.06.2021 passed by the NCLT Mumbai Bench which had approved Rs.2,568 crore resolution plan submitted by Twin Star. The decision had come under scrutiny as lenders were taking more than 95 per cent haircut, on which even the NCLT had also noted that the resolution applicant was paying “almost nothing” to the stakeholders.

In its judgment, though the NCLT had approved the plan, it had also expressed doubts about the confidentiality of the resolution plan clause, as said the plan was very close to the liquidation amount. “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. Therefore, we request IBBI to examine this issue in depth so as to ensure the confidentiality clause is followed unscrupulously, without any compromise in letter and spirit by all the concerned parties, entities connected in the CIRP,” the NCLT had said.

As such, the Appellate Authority has remanded the case(s) back to the Committee of Creditor’s (CoC) of Corporate Debtor for purposes of carrying forward the Corporate Insolvency Resolution Process (CIRP) in terms of the Insolvency and Bankruptcy Code (IBC). Court was also of the opinion that Section 30(2)(b) of the IBC has not been complied with and further held that the resolution plan is not in accordance with Section 31.

“Accordingly, the approval of the resolution plan by the CoC as well as adjudicating authority is set aside and the matter is remitted back to CoC for completion of the process relating to CIRP in accordance with the provisions of the Code.”

As per the Twin Star’s resolution plan then approved by the lenders, assenting secured financial creditors would get only 4.89 per cent, dissenting secured financial creditors would get only 4.56 per cent, assenting unsecured financial creditors would get only very meagre amount of 0.62 per cent, dissenting unsecured financial creditors would get “nil” amount and operational creditors would also get a very meagre amount of only 0.72 per cent.

Twin Star Technologies Ltd.’s resolution plan was approved by the CoC saying that it has certain defects. Thus, the NCLAT has set aside the same, pointing out that it has certain defects such as the payout which was made to the financial creditors not being in compliance with IBC, approval of the resolution plan inspite of the concerns raised around the bid value being close to the liquidation value. Further to this, the court has found that the if the CoC wants to reconsider its approval, it should be allowed to do so.

In terms of section 30(2)(b) of the IBC dissenting financial creditors are required to get an amount which should not be less than the amount paid under waterfall mechanisms in case there is liquidation. However, the dissenting creditors, i.e. Bank of Maharashtra and IDBI and Small Industries Development Bank of India stated that they are being paid less than the liquidation value.

All the assets owned by Videocon group, particularly, foreign oil and gas assets are 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.23,120.90 Crore being considered as claims without considering the corresponding assets-foreign oil and gas assets for which the borrowings were used. This has resulted into lower valuation and the secured creditors are getting less than 5% of their claimed amount and there is a haircut of 95.85% to all its creditors.

It may be noted that a vast majority of lenders experienced beforehand acknowledged Twin Star Technologies Rs. 2,962.02 crore supply, Bank of Maharashtra (BoM) and IFCI Ltd dissented, declaring the total available was close to the liquidation value of the bankrupt company and that they are unable to be paid out considerably less than the liquidation benefit. Subsequent the nod of the Committee of Lenders of Videocon, the Mumbai bench of the National Company Law Tribunal (personal bankruptcy court docket) had on June 9 very last year consented to Twin Star Technologies’ takeover provide (called Resolution Plan beneath the individual bankruptcy regulation). That order was challenged by BoM and IFCI right before NCLAT, which on 5th January, 2022 set aside the NCLT order notify that the provisions of the Insolvency and Bankruptcy Code (IBC) have not been complied with.

Broadly, the Appellants inter alia submitted that;

• The Resolution Plan was contrary to the provisions of IBC and CIRP Regulations, w.r.t. the treatment provided to them (being Dissenting Financial Creditors),
• The NCLT was supposed to see whether the Appellants have been paid not less than the amount to be paid to them in accordance with Sec. 53(1), i.e. amount not less than the liquidation value, and
• The present resolution plan under consideration, will put the Appellants in a position even worse than in a liquidation scenario; Noting that the Resolution Plan has provided a haircut of almost 95%, i.e. a meager amount of Rs. 2,900 Cr. for an admitted liability of Rs. 65,000 Cr. against the amount claimed, i.e. of Rs. 71,433 Cr.