2019 (8) TMI 1654 - Tri - Insolvency and Bankruptcy

Tribunal Consolidates CIRP for Videocon Group Companies to Maximize Assets & Benefit Stakeholders

State Bank Of India And Mr. Venugopal Dhoot Versus Videocon Industries Limited, Videocon Telecommunications Limited, KAIL Ltd., Evans Fraser & Co. (India) Ltd., Millennium Appliances (India) Ltd., Applicomp India Ltd., Electroworld Digital Solutions Ltd., Techno Kart India Ltd., Trend Electronics Ltd., Century appliances Ltd., Techno Electronics Ltd., Value Industries Ltd., PE Electronics Ltd., CE India Ltd. And Ors.

The Tribunal ordered the consolidation of Corporate Insolvency Resolution Processes (CIRP) for 13 Videocon Group Companies, excluding two entities. The ... Seeking ‘Consolidation’ of insolvency process of 15 Corporate Debtors - It is submitted by the Applicant is that the business activities of each of the Corporate Debtors are inextricably interlinked and intertwined - Section 60(5) of the IBC. HELD THAT:- A preliminary question arises that under what circumstances an order of ‘Consolidation’ can be demanded or suo-moto be passed by a court / tribunal. Answer is that when the promoters/ directors of a company diversify the business in various field by creating several independent entities , call it subsidiaries, having cross share-holding with the constitution of common directors and at some point of time the Group gets financially stressed due to default in repayment of debt , at that juncture a right recourse is required to be adopted. That is why, in my humble opinion, the right recourse shall be to examine the necessity of ‘Consolidation’. The UK / USA courts have dealt with the process of consolidation along with the jurisdiction of the Authority by pronouncing that equity and fairness ought to be a yardstick by lifting the corporate veil. Consolidation is to be utilized as a mechanism to maximise the value of financially stressed group of companies. Economic benefit ought to be the purpose and for that a preliminary searching enquiry is suggested which would yield benefit to stakeholders by off-setting any harm, if inflicted, if not consolidated. On due reading of all these judgements, one proposition of law emerges that the motion of ‘consolidation’ depends upon the facts and circumstances of each debtor/debtors. It is appropriate and suitable to give a ruling at this occasion that there is no single yardstick or measurement on the basis of which a motion of consolidation can or cannot be approved. With humility, this Bench herein below sets-out a list of examples, based upon reading the history of ‘group insolvency’, so that the presence of them can lead to a decisive conclusion of triggering of ‘consolidation’ of Insolvency process. Undisputedly, and also laid down by the courts, before ordering consolidation, a preliminary searching inquiry be ensured that whether consolidation yields benefits to stakeholders by offsetting the harm if not consolidated. While discussing bankruptcy law in US, we have noticed that under certain circumstances, consolidation request can be denied. A view was expressed that determination for consolidation hinges on a balancing of the equities favouring consolidation against the equities favouring continued debtor separateness. If the consolidation is not equitable or more disadvantageous to stakeholders, the request for consolidation denied. Therefore, the burden is on the party objecting consolidation to demonstrate that prejudice be posed if consolidation be granted. Although in all 15 cases, the accounts are inter-mingled and due to the existence of agreements, there is a relationship of obligor and/or co-obligors among all these entities. This application is filed by an operational creditor with a sole concern that the share of the operational creditor would be reduced if the CIRP of VTL is consolidated with that of other companies. It is hereby held that this is not a reason enough to keep this company out of consolidation keeping in view the financial position of this company. Out of the 15 entities, CIRPs of 13 entities are directed to be ‘Consolidated’ - Application allowed in part. Issues Involved:1. Consolidation of Corporate Insolvency Resolution Processes (CIRP) for Videocon Group Companies.2. Objections to the consolidation from various stakeholders including financial and operational creditors.3. Appointment of Interim Resolution Professionals (IRPs) for the consolidated and non-consolidated entities.4. Computation of the CIRP period post-consolidation order.Analysis of the Judgment:1. Consolidation of CIRP for Videocon Group Companies:The primary issue addressed was whether the CIRP of 15 Videocon Group Companies should be consolidated. The Tribunal examined the interconnectedness of the companies, including common control, directors, liabilities, and financial interdependence. The Tribunal concluded that the business activities of the Corporate Debtors are inextricably linked, and consolidation would benefit all stakeholders by maximizing asset value and ensuring a comprehensive resolution plan. The Tribunal cited precedents from the US and UK courts, emphasizing the equitable treatment of creditors and the practical benefits of consolidation.2. Objections to the Consolidation:Several stakeholders, including Infotel Business Solution Ltd., ATC Telecom Infrastructure Pvt. Ltd., and various labor unions, opposed the consolidation on various grounds:- Infotel Business Solution Ltd. argued that the consolidation would reduce its voting share in the CoC of KAIL Ltd. The Tribunal rejected this argument, stating that the consolidation was necessary for a fair resolution.- ATC Telecom Infrastructure Pvt. Ltd. contended that the consolidation would adversely impact its rights as an operational creditor of VTL. The Tribunal dismissed this objection, noting that the financial position of VTL warranted inclusion in the consolidation.- Labor Unions of Trend Electronics and KAIL Ltd. opposed the consolidation, arguing that their respective companies were independently viable and should not be burdened with the liabilities of other group companies. The Tribunal agreed with these objections and excluded Trend Electronics and KAIL Ltd. from the consolidation.3. Appointment of IRPs:The Tribunal appointed Mr. Mahendra Khandelwal as the common Resolution Professional for the consolidated entities. For the non-consolidated entities, Mr. Avil Menezes was appointed as the IRP for KAIL Ltd., and Mr. Divyesh Desai for Trend Electronics Ltd. The appointed IRPs were directed to prepare updated balance sheets and information memoranda for their respective entities to facilitate the CIRP.4. Computation of CIRP Period:The Tribunal acknowledged the complexity and delays in the consolidation process and directed that the period from the date of admission of the respective petitions until the date of the consolidation order be excluded from the 180-day CIRP timeline. The IRPs were instructed to complete the CIRP within 180 days from the date of the order.Conclusion:The Tribunal ordered the consolidation of CIRP for 13 Videocon Group Companies, excluding KAIL Ltd. and Trend Electronics Ltd. The consolidation was deemed necessary to maximize the value of assets and ensure a comprehensive resolution plan. The objections from various stakeholders were considered, but the Tribunal prioritized the overall benefit to creditors and the equitable treatment of all parties involved. The appointed IRPs were directed to expedite the CIRP process within the revised timeline.