BS: SC reserves order on Ericsson’s contempt plea against RCom Chairman, two others

13 February 2019: Reliance Communication (RCom) Chairman Anil Ambani on Wednesday told the Supreme Court the Rs 550 crore dues could not be paid to Ericsson in pursuance to the undertaking as its Rs. 18,100 crore deal with the Reliance Jio did not fructify.

Asserting that he was not in the contempt of court for not clearing the dues, the RCom Chairman said the undertakings were conditional and the payment was subject to the deal with Jio going through.

He said this to the Division Bench of the top court, comprising Justice Rohinton Fali Nariman and Justice Vineet Saran, which reserved its order on the Ericsson’s contempt plea against Ambani, RCom Chairman, Satish Shah, Chairman of Reliance Telecom, and Chhaya Virani, Chairman of Reliance Infratel.

Appearing for Ambani, senior counsel Mukul Rohatgi told the court he could not be saddled with any liability to pay Ericsson Rs 550 crore with interest as the liability of RCom did not transcend to him and he had no vicarious liability to pay. 

“The dues of a listed company can’t be paid by an individual” he said rejecting the argument that Ambani was liable to pay. The company in question (Rcom) will pay, not the directors personally. It is directed to corporate entity, which is the subject matter of case”, the court was told. 

Telling the court that RCom has “fallen in an unfortunate times”, Rohatgi said there was an experiment during NCLT proceedings to get over the crisis but it failed. “You don’t send a person to jail” for not being able to carry out an undertaking to pay Ericsson.

Senior counsel told the court every effort was made to save the company and there was an “experiment” but all fell though as deal of Rs. 18,100 crore with Jio did not succeed.

“The entire basis of the exercise was an agreement for the sale of assets to Jio and finally Jio raised its hands,” Rohatgi told the court.

The court was told that the company received just Rs 780 crore through the deal with Jio, which was paid to DoT to save the spectrum possessed by the RCom.

The RCom put on affidavit its assertion that they received only Rs 780 crore from Jio on pursuance to Rs 18,100 crore deal. The affidavit also stated the share-holding pattern of RCom, Reliance Telecommunication and Reliance Infratel.

The court had sought the affidavit in the course of the hearing on Wednesday.

The court was also told Rs 5,000 crore (Rs 2,000 crore and Rs 3,000 crore), which is claimed by Ericsson that RCom received from Jio did not come through. 

Appearing for Shah and Virani, senior counsel Kapil Sibal as to why Ericsson, as an operational creditor, was being favoured as there were other operational creditors. “We tried hard to persuade lenders to pay Ericsson to facilitate the undertaking,” Sibal said, adding the attempts to trade in spectrum, to raise the funds, as is permitted under the government policy did not succeed as DoT did not issue the no-objection certificate.

Describing the case as “extraordinary”, senior counsel Dushyant Dave, appearing for Ericsson, said he was not getting preferential treatment and claimed it was they who had agreed to pay. 

Alleging that the non-payment of dues was nothing but a virtual disobedience of the court order, Dave said, the financial institutions were interested in saving the RCom.

Dave said the order of NCLT is superimposed by the top court order saying they “shall pay.” 

Referring to the argument by Rohatgi that the undertakings were conditional, Dave said “Am I so fool or naive that I will agree to an undertaking that I will get money subject to the agreement with Jio.” 

Appearing for the SBI Chairman, who too was made a contemnor, the court was told the financial institutions have not assisted RCom in the violation of undertaking. 

Wondering how could the SBI Chairman be made a contemnor, senior counsel Neeraj Kishan Kaul described as “irresponsible” the allegation that “I colluded with RCom.”

The Business Standard reported

TOI: Ruchi Soya Q3 net profit at Rs 6.29 cr

13 February 2019: Crisis-hit Ruchi Soya, which is facing insolvency proceedings, Wednesday reported a net profit of Rs 6.29 crore for the third quarter of the 2018-19 fiscal. The company had posted a net loss of Rs 1,956.59 crore in the same quarter of the previous fiscal, according to a regulatory filing. Total income rose marginally to Rs 3,500.07 crore during October-December 2018 from Rs 3,049.94 crore in the year-ago period.

Finance cost remained lower at Rs 1.77 crore as against Rs 323.31 crore earlier. The company has not recognised interest payable worth Rs 345.61 crore for the 2017-18 fiscal and Rs 1,165.89 crore for nine months of the 2018-19 fiscal after commencement of the insolvency proceedings in December 2017, it said.

Adani Wilmar, which sells cooking oil under the Fortune brand, and Baba Ramdev-led Patanjali are in the fray to acquire debt-ridden Ruchi Soya.

Ruchi Soya has a total debt of about Rs 12,000 crore. The company has many manufacturing plants and its leading brands include Nutrela, Mahakosh, Sunrich, Ruchi Star and Ruchi Gold.

In December 2017, Ruchi Soya Industries entered into the Corporate Insolvency Resolution Process (CIRP) and Shailendra Ajmera was appointed as the resolution professional (RP). The appointment was made by the National Company Law Tribunal (NCLT) on the application of the creditors Standard Chartered Bank and DBS Bank, under the Insolvency and Bankruptcy Code (IBC).

The Times of India reported

BQ: IBC – Creditor Vs Liquidator: What Went Wrong In Abhijeet MADC Energy’s Liquidation

13 February 2019: A lender has sought the liquidator’s removal in the first such instance under India’s bankruptcy law where the majority of cases end with piecemeal sale of stressed assets.

Edelweiss Asset Reconstruction Company Ltd. has moved the insolvency court against the liquidator appointed for Abhijeet MADC Nagpur Energy Pvt. Ltd., according to the petition—BloombergQuint has reviewed a copy. It alleges that the liquidator, Vinod Kumar Kothari, didn’t conduct the process in a fair and transparent manner by settling an Rs 30-crore claim with Reliance Infrastructure Ltd. for a third of that amount. Edelweiss said Kothari put a 271-MW power plant on auction at a reserve price of Rs 55 crore, a low amount for the unit.

“The future with the present liquidator does not inspire confidence,” the petition said. “The applicant humbly prays that the liquidator may be replaced and necessary orders in this regard be passed.”

The Mumbai bench of the National Company Law Tribunal on Wednesday sought Kothari’s response and scheduled the matter for March 7.

Liquidation, or selling assets in parts, is a growing concern among financial creditors since, under the Insolvency and Bankruptcy Code, 2016, it’s entirely conducted by the liquidator without the involvement of lenders. What amplifies their fears is that of the 381 bankruptcy cases settled through the new law so far, more than three-fourths ended in liquidation.

What Happened

In this case, Edelweiss ARC alleged that Kothari settled a dispute with Reliance Infrastructure for Rs 9.65 crore compared with the original claim of Rs 30 crore without informing the lenders.

According to the petition, Abhijeet MADC Energy in 2007 agreed to build a 271-megawatt power plant in Nagpur for the Maharashtra Airport Development Company Ltd. Against the total cost of Rs 1,500 crore, it borrowed Rs 1,200 crore. It also struck an agreement with Reliance Infrastructure, an Anil Ambani group company, in 2010 to sell 55MW power.

In the years that followed, Reliance Infrastructure failed to release claims worth over Rs 30 crore raised by Abhijeet MADC Energy, which moved the Maharashtra Electricity Regulation Commission in 2016. The regulator first asked the company to pay the undisputed Rs 9.66 crore, and then in April 2018 ordered it to pay a total of Rs 17.57 crore but Reliance Infrastructure failed to comply.

Abhijeet MADC Energy, already facing insolvency proceedings by then, filed a petition with the Appellate Tribunal for Electricity in August 2018. In the meantime, the NCLT ordered liquidation of Abhijeet MADC Energy, ensuring that Kothari, the resolution professional, was appointed the official liquidator. To be clear, Kothari was appointed resolution professional by the Committee of Creditors which consists of nine financial creditors, with total claims of over Rs 2,000 crore. Edelweiss ARC’s claim is at Rs 154 crore.

By October 2018, the Edelweiss ARC petition alleged, Kothari had unilaterally decided to withdraw the petition with the appellate tribunal and agreed to settle the matter with Reliance Infrastructure for Rs 9.66 crore versus the final award of Rs 17.57 crore. The creditor questioned why Kothari suddenly felt that there was no merit in the petition given that he had filed it with the electricity appellate tribunal when he was the resolution professional.

The creditor sought:

  • Another liquidator be appointed.
  • Settlement with Reliance Infrastructure considered null and void.
  • The petition with the appellate tribunal reinstated.

Liquidator’s View

According to Kothari, the settlement saved time and ensured that lenders at least recovered some amount.

“The company had the option of pursuing a contingent claim of Rs 17 crore by way of appeal before the higher authorities,” Kothari said in his response to BloombergQuint’s emailed queries. “However, in that case, the matter would have dragged for a few years, with a chance of losing even the amount as awarded by MERC.”

The trite rule that a present, definite sum of money is more valuable than a contingent, future money, holds much more relevance in liquidation, which is a time-bound process.

Vinod Kumar Kothari, Liquidator

The decision to settle for Rs 9.66 crore as first awarded by the MERC was taken after consultation with the lawyers handling the matter as well as competent professionals of the company, he said.

Will Lenders Get More Say?

The case comes amid concerns over lenders having no say in liquidation.

Liquidators don’t involve financial creditors in any decision, according to a report by the Society of Insolvency Practitioners of India released last month. The first interaction between the liquidator and secured creditors is after the sale of assets to distribute the proceeds, it said. This distribution can be made within six months after realisation—a period they consider too long.

The report was part of a roundtable between representatives of the Insolvency and Bankruptcy Board of India, senior partners from leading law firms, officials from the State Bank of India, insolvency professionals and other stakeholders.

The SIPI recommended that financial creditors be allowed to participate in the appointment and removal of a liquidator in a bankrupt company.

Bloomberg Quint reported

NIE: SBI records improvement in financial metrics, but high costs eat into profits

13 February 2019: State Bank of India (SBI) saw steady improvement across operating metrics during the quarter ended December 31 with domestic loan growth at about 15 per cent. However, higher operational expenditures led by pension and wage revisions have eaten up a part of the bank’s profits, leaving the onus on better net interest margins and credit growth to boost revenues. 

With respect to asset quality, though slippages during the December quarter stood at Rs 65,400 crore as against Rs 1,09,00 crore in the previous quarter, the management hopes to close FY19 with slippages of less than Rs 40,000 crore and about Rs 25,000-30,000 crore in FY20.

According to the bank, ailing IL&FS’ exposure of about Rs 900 crore is currently classified as an NPA along with a provision of 50 per cent. Though the SPVs exposure is standard, SBI provided 15 per cent to be on the safe side. However, investors may sit tight with regards to DHFL, where SBI’s exposure is about Rs 11,000 crore, with the bank indicating there’s ample cash to cover for it and maintaining that there’s no asset liability mismatch. But this could cause trouble in case the account goes out of whack.

Meanwhile, in some good news, the bank indicated that the incremental stress within the bank and the industry in general, is waning with the recent quarter’s performance reflecting the improving situation of balance sheets and in particular, the asset quality of Indian banks. 

As for resolution, though there have been delays, if SBI’s expectations to recover Rs 34,000 crore from eight accounts at NCLT is anything to go by, the going likely to get better. In all, it took 378 accounts to NCLT with an aggregate exposure of Rs 1.1 lakh crore, of which 80 accounts (worth Rs 36,000 crore) aren’t even admitted, while 54 accounts worth Rs 10,000 crore will likely go for liquidation. 

New India Express reported

CNBC TV18: Mumbai-based Gangar Opticians’ eldest brother Jayantilal drags siblings to NCLT, says report

13 February 2019: Jayantilal Gangar, the eldest of the six brothers of the Gangar family that runs Mumbai’s top optician chain — Gangar Opticians accused his siblings of illegally removing him and his son from the business, Mumbai Mirrorreported.

Jayantilal, the paper said, filed a petition before the National Company Law Tribunal (NCLT) alleging that his shares in Gangar Enterprise, which runs 75 stores and rented out Gangar Opticians to the family, were transferred to his brother, Jagdish, and Jagdish’s son, Rohit via fraudulent means.

Jayantilal, the paper said, alleged in his petition that his nephew, Divyesh Gangar, who was in possession of his electronic signature, transferred his 16.66 percent shareholding in Gangar Enterprise to Jagdish and Rohit, making Jagdish the “single largest shareholder in the company” with 99.99 percent of the stock, and the transaction was not known to Jayantilal.

The tribunal’s members ordered the brothers to maintain status quo on the fixed assets and shareholding of the company until the next hearing.

Another petition filed by Jayantilal’s lawyer to NCLT claimed the company’s board of the optician chain passed a resolution on January 21, divesting Jayantilal and his son Pragnesh the authority in the operations and until the resolution, his son was the company’s CEO. The resolution was passed without sufficient notice. Jayantilal fears he will be removed without any powers and urged the NCLT to appoint an administrator.

Mumbai Mirror, CNBC TV 18 reported

BS: NCLT grants Gail India operational creditor status in Alok Industries case

13 February 2019: The Ahmedabad bench of the National Company Law Tribunal (NCLT) on Wednesday accepted Gail India Ltd’s plea to be treated as operational creditor in the textile player Alok Industries’ insolvency matter. 

However, while passing the order on Wednesday, the two-member bench consisting of adjudicating authorities Harihar Prakash Chaturvedi and Manorama Kumari said that while Gail India would be treated as an OC on par with its status in other cases, such as Essar Steel, the tribunal did not go into the merit of its claims for dues worth Rs 506 crore.
In its plea before the NCLT Ahmedabad bench, Gail India had stated that the resolution professional (RP) appointed for Alok Industries had rejected its status as an operational creditor (OC) and ignored its claims for dues worth Rs 506 crore. 
The bench, however, said that the resolution professional (RP) appointed for Alok Industries should have have consulted the Committee of Creditors (CoC) and sought direction from the tribunal, instead of adjudicating over categorizing Gail as an operational creditor.
Gail had also thereby opposed the resolution plan proposed by Reliance Industries Ltd in partnership with JM Financial Asset Reconstruction Company for the insolvent Alok Industries. 
However, as per the resolution plan submitted by Reliance Industries in partnership with JM Financial Asset Reconstruction Company, Gail India is unlikely to gain anything out of its Rs 506 crore claim from the insolvent Alok Industries. This is because RIL’s resolution plan for Alok Industries proposes to make full payments to operational creditors with claims of only up to Rs 3 lakh.

Alok Industries is one of the first 12 loan default cases in which the corporate insolvency resolution process (CIRP) was initiated in the country under the Insolvency & Bankruptcy Code (IBC). 

The Business Standard reported

ET: Kotak Investment and Karvy put in bids for Ricoh India

  • 13 February 2019: Kotak Investment Advisors and Karvy are among multiple investors who have put in bids or Ricoh India, which is facing insolvency. Minority shareholders are also looking to buy the company, sources told ETNOW.
  • The committee of creditors (CoC) led by Deutsche Bank is likely to meet soon to decide on the bids.
  • The bank has more than Rs 130 crore gurantee to the company.
  • Ricoh India, which went into voluntary insolvency last year, manufactures printers and scanners.
  • The stock of the company remains suspended by the BSE.
  • Ricoh Japan is the largest creditor of the company and holds 74 per cent stake in the India unit.
  • The Economic Times reported

    BS: We’d surely look at more stressed assets, but we’d be choosy: Tata Power

    13 February 2019: Tata Power, which was the first to win a stressed asset, is looking at more acquistions. The company has,  however, set strict conditions regarding coal supply, power purchase agreements and quality of assets. Tata Power is also being cautious about green energy projects, where it will only bid “sustainable tariff”.

    “If there are good assets that have long term PPAs, fuel supply agreement, coal linkages, good equipment, good tariff, we would definitely look at them. We want to bring our operational capability, but we will be choosy. It would be through Resurgent,” Praveer Sinha, CEO, Tata Power told Business Standard.
    Tata Power through Resurgent Power, its joint venture company with ICICI Ventures, bought Jaiprakash Associates’ 1,980 Mw Bara (Prayagraj) power project recently.
    Prayagraj was part of the list of half a dozen stressed power projects where the resolution had commenced outside the National Company Law Tribunal (NCLT). Following a February 12 circular, the deadline for resolution ended on August 27, 2018.
    Tata Power won close to 500 Mw of renewable power projects last year. “We won projects in the tariff range of Rs 2.72-2.85. We don’t want to just go and bid and then not able to sustain it. We look at certain returns,” said Sinha. Tata Power acquired Welspun Energy’s complete renewable 1,140 Mw portfolio in 2016.
    Sinha, who took over as the company’s CEO last year, said the Tata Power is not looking at putting up any new coal-based unit. “You have such large number of stressed assets and they are coming at such low cost. There is no reason for anyone to set up greenfield or brownfield projects. Might as well make best of what is available in the market before exploring other options,” he said.

    At its own end, Tata Power’s 4,000-Mw Mundra ultra mega power project (UMPP) in Gujarat continues to face issues. The project has been caught in regulatory tussle for seven years now over pass through of escalated cost of imported coal.

    In a judgement in April 2017, the Supreme Court denied any compensation to Tata Power for increased coal cost and directed the Central Electricity Regulatory Commission (CERC) to provide relief as is possible under the PPAs between Tata Power and power procuring states. Mundra has PPAs with Gujarat, Rajasthan, Haryana and Punjab.

    The Gujarat government formed a committee which formulated a revised tariff and haircut for the company and the lenders to help the project stay afloat. Sinha said they are in talks with the states to accept the recommendations of the committee. 

    The Business Standard reported

    BQ: NCLT Allows Amtek Auto’s Resolution Process To Start Once Again

    13 February 2019: The Chandigarh bench of the National Company Law Tribunal (NCLT), on Wednesday, allowed the financial creditors of Amtek Auto Ltd. to start the resolution process from scratch, more than 18 months after it was first initiated.

    According to three people in the know, the tribunal ordered that the process be restarted and completed within a short time frame of approximately 140 days. The Chandigarh bench decided to give additional time based on the period between the date of submission of the first set of resolution plans in March 2018 and the date on which the bench approved Liberty House UK as the winning bidder for Amtek Auto.

    The people quoted above requested anonymity as they are not allowed to speak to the press.

    According to the people quoted above, the committee of creditors to the auto parts manufacturer and the resolution professional Dinkar V had approached the NCLT after Liberty House refused to honor its payments despite receiving the tribunal’s approval.

    Liberty House had alleged that the process followed during resolution was flawed and that the resolution professional did not share adequate information about the company at the beginning.

    Amtek Auto owes nearly Rs 12,312 crore to its financial creditors. In its plan, Liberty House had agreed to pay around Rs 4,100 crore, implying a 75 percent haircut to lenders. The creditors approved the plan in April last year, while the NCLT gave its final nod in July.

    Moving Against Liberty House

    The Chandigarh bench also allowed the creditors and the resolution professional to move against Liberty House, under Section 74(3) of the Insolvency and Bankruptcy Code (IBC), for defaulting on repayments. Under this section, a person who does not honor the covenants of the resolution plan can be subjected to a fine of up to Rs 1 crore, imprisonment between one to five years, or both.

    Under the procedure laid down by the Insolvency & Bankruptcy Board of India (IBBI), the committee of creditors will now approach the board with the facts of the case. Once IBBI is convinced of the contravention, it will refer the matter to the NCLT for punitive action.

    A spokesperson for Liberty House did not immediately reply to an email sent regarding the NCLT proceedings.

    Amtek Auto was one of the 12 large corporate accounts identified by the Reserve Bank of India (RBI) in June 2017 for immediate insolvency proceedings. While most of the process had run on time, delays crept in later when Amtek Auto lenders found out that Liberty House had defaulted on some repayments to EXIM Bank. The UK-based investor subsequently cleared the dues and argued it was eligible to submit a bid. It eventually failed to pay the agreed amount to lenders.

    Liberty House had also bid for subsidiaries of Amtek Auto under the IBC, as part of its strategy to take over the entire business. However, it had to later withdraw these bids.

    Bloomberg Quint reported

    BS: Lenders demand more collateral from Reliance Group’s promoter entities

    13 February 2019: Lenders including private banks and mutual funds have asked Anil Ambani-controlled Reliance Group’s promoter entities to put more collateral on the table to secure their Rs 6,000-crore exposure. The margin calls first started in October last year when the Reliance Power stock began showing signs of weakness, according to a lender.

    The Anil Ambani group alleged last week that two of the 11 lenders — L&T Finance Holdings and Edelweiss — invoked the pledge and sold the company’s shares “illegally”, triggering a domino effect. The maximum fall in the group’s shares has been witnessed since early this month, after Reliance Communications declared it would move the National Company Law Tribunal (NCLT) for debt resolution.

    “There was a meeting on February 6 between lenders and Reliance Group officials about additional cover. The group promised additional cover and we are still awaiting a response from them,” said an executive of one of the lenders on Tuesday.  

    Apart from L&T Finance and Edelweiss, STCI Finance also offloaded Reliance Group shares to recover part of their loans to the group. 

    An email sent to Reliance Group did not elicit any response. Calls made to the STCI Finance office went unanswered.

    “The margin call notices have gone in accordance with the agreements signed by the company. We would certainly like to know where the money was invested by these group entities,” said the executive.

    On Monday, Reliance Group sent another letter to the Securities and Exchange Board of India (Sebi), seeking immediate ban on various entities of the Edelweiss group from all capital market and related activities. It has called for action against Edelweiss Commodities Services, ECL Finance, Edelweiss Special Opportunities Fund, and Edelweiss Credit Opportunities Fund for selling the pledge shares of the group companies and also selling in futures segment.

    The Business Standard reported