B&B: Supreme Court settles insolvency proceedings against Mack Soft Tech

8 April 2019: The Supreme Court has allowed settlement of insolvency proceedings against Mack Soft Tech Pvt Ltd, based on an application filed by group company, Quinn Logistics India Ltd.

Quinn Logistics was the holding company of Mack Soft when the loans were disbursed to it during 2007-2010, in connection with the ‘Q-City’ project. Quinn Logistics held 99.9% of Mack Soft’s shareholding. The loan granted by Quinn Logistics was interest-free. Subsequent to insolvency triggered against a Quinn group company offshore, Mack Soft Tech diluted Quinn Logistics’s shareholding by issuing shares to Mecon FZE, in 2011 (which is also currently under dispute).

Quinn International Property Group (Quinn IPG), which had funded the asset, came into financial trouble in Ireland where it owed money to the Irish Bank Resolution Corporation (IBRC), a nationalized bank. IBRC alleged that the Quinn family had tried to take the Q City asset out of Quinn IPG knowing well that Quinn IPG would be taken over by IBRC. Since 2011, Mack Soft ceased to be a subsidiary of Quinn Logistics. And since 2011, IBRC and the Quinn Group have been attempting to take control of Mack Soft and various cases were filed in the courts in Hyderabad.

It appears that the total debt of Rs. 62.9 crores owed to Quinn Logistics was written off unilaterally by `Mack Soft‘ and adjusted as income in its balance sheet, for which income-tax was also paid.

Quinn Logistics in 2017 demanded the repayment of this debt. Mack Soft did not pay and Quinn Logistics moved to the NCLT under Section 7 of the Insolvency and Bankruptcy Code. Mack Soft’s primary line of defence was that the period of limitation had expired and thus the debt was time-barred. The NCLT did not find merit in this argument due to acknowledgment in the balance sheet and therefore admitted the application. On appeal, the NCLAT upheld the NCLT decision and found a ‘continuous cause of action’.

Subsequently, an appeal was filed with the Supreme Court against the NCLAT order upholding admission. The Supreme Court had, in September 2018, issued an interim stay against the NCLAT order. However, while the appeal was pending, on March 5, 2019, a global settlement was reached in respect of the litigation pertaining to Mack Soft between IBRC and the former shareholders and in terms, thereof the control of Mack Soft has passed to a new Board. Upon conversion of certain debentures, Mack Soft is now controlled by Quinn Finance (an Irish entity controlled by IBRC). With this global settlement being approved by the Supreme Court and the NCLT, the Resolution Professional appointed for Mack Soft has been removed and a new stable Irish led Board has been put in place.

The Supreme Court has recorded settlement and permitted withdrawal of the case while disposing of the appeal against the NCLAT order. It appears that this power was once again drawn from Article 142 of the Constitution.

Despite Section 12A having come into place last year by the IBC (Amendment) Ordinance, Article 142 is being used to withdraw cases. Section 12A permits withdrawal of CIRP provided 90% creditors vote is achieved in favour of settlement. However, the Supreme Court had previously in the case of Shipra Hotels held that this provision is to apply only prospectively, implying that all cases under CIRP as of the Ordinance date would not be entitled to use Section 12A for settlement. Technically, all such cases should go to the Supreme Court for settlement.

Quinn Logistics and Quinn Finance, the creditors of Mack Soft were advised during the insolvency process by team of lawyers from Delhi-based Capital Law Chambers LLP. Mecon FZE and the management of the Board prior to settlement were advised by RRG &  Associates.

Bar and Bench reported

BQ: NCLAT To Decide Over Insolvency Plea Of Reliance Communications

8 April 2019: The National Company Law Appellate Tribunal said it would decide on the insolvency of debt-ridden Reliance Communications Ltd. The Anil Ambani-led Reliance Group company has pleaded with the tribunal to go ahead with insolvency proceedings against it as it is unable to pay dues to its lenders.

Swiss telecom gear maker Ericsson, which received its unpaid dues of Rs 550 crore from RCom last month following a Supreme Court order, is opposing the move.

A two-member bench headed by Chairman Justice SJ Mukhopadhaya also observed that if insolvency proceedings against RCom are allowed, then Ericsson would have to return Rs 550 crore.

“Why one party will take amount and let the financial creditors suffer,” said the NCLAT, adding that either it may quash RCom bankruptcy proceedings in NCLT or allow bankruptcy case to proceed.

The appellate tribunal also said that it would consider the reply filed by the Department of Telecom over the RCom’s plea against the show-cause notice issued by it over spectrum charges due on April 30, the next date of hearing.

“DoT reply would be considered on April 30. Let us be very clear which are the assets of corporate debtor, whether they have some right of asset. Can you take away licence? If yes, what is the value of the company (RCom) then,” the NCLAT said.

The NCLAT’s direction came during the hearing of applications moved by three RCom executives. Earlier on Feb. 4, the tribunal had said that until further orders of the NCLAT or the Supreme Court, no one can sell, alienate, or create third-party rights over RCom’s assets.

The NCLAT on March 26 stayed the two notices issued by the DoT to RCom over cancellation of its spectrum licence for a delay in payment. Its two-member bench had also stayed the DoT’s letter dated March 20, 2019, to Axis Bank to encash the bank guarantee of Rs 2,000 crore given by the Anil Ambani group firm.

On May 15, 2018, the Mumbai bench of NCLT had admitted an insolvency petition filed by Ericsson against Reliance Communications and two of its subsidiaries seeking to recover unpaid dues.

However, on May 30 NCLAT granted a conditional stay on insolvency proceedings against RCom and its subsidiaries — Reliance Infratel and Reliance Telecom.

The tribunal had directed RCom and its subsidiaries to pay Rs 550 crore to Ericsson India in 120 days, failing which it will direct insolvency proceedings against the company.

On Feb. 1, RCom had informed that it has decided to opt for insolvency proceedings following its failure to sell assets for paying back its lenders.

Last month, Anil Ambani warded off a possible jail term as RCom cleared dues of Ericsson on March 18 with money received from elder brother Mukesh Ambani.

Anil Ambani made a Rs 550 crore payment, including interest, to Ericsson just a day before the expiry of the deadline set by the Supreme Court to clear dues or face a three-month jail term.

The Bloomberg Quint reported

ET: Bain, Piramal-led fund offers Panacea a Rs 992 crore bail-out deal

8 April 2019: The Bain Capital and Ajay Piramal group-run distressed asset fund India Resurgence Fund Monday said it will invest Rs 992 crore in New Delhi-based pharma player Panacea Biotec which is facing financial headwinds.

The joint venture fund has been active in the pharma business and the announcement comes after the February 26 announcement by Panacea about reaching a one-time settlement with the lenders to pay off Rs 864 crore of debt.

In a statement, the fund said the deal involves an investment of Rs 864 crore into a forthcoming non-convertible debenture issue, and Rs 32 crore towards subscription in share warrants to be allotted on a preferential basis.

Subject to exercise of warrants, the fund and its affiliates will collectively own 10.4 percent of the company on a fully diluted basis, it said.

The subscription amount represents 25 percent of total amount of Rs 128 crore proposed to be raised on issuance of equity shares against warrants as per Sebi rules, it added.

Fund’s managing director Shantanu Nalavadi said Panacea is embarking on a journey to enhance its market position as a strong and research-focused pharma and biotechnology company.

He further said the fund has invested to work closely with the promoters and management team to drive rapid revenue growth and sustainable profitability improvement.

“We look forward to leveraging their proven global expertise in restructuring and turnarounds, and are certain that our combined efforts will now help accelerate our ambitious growth and profitability targets,” Panacea managing director Rajesh Jain said.

On February 26, Panaces had arrived at a one-time settlement with the lenders and at the extraordinary general meeting held on March 25, the shareholders had allowed the management to raise up to Rs 128 crore via issue of warrants on a preferential basis.

Panacea scrips shed 0.19 percent to close at Rs 181.15 on the BSE as against a 0.42 percent correction on the benchmark.

The Economic Times reported

ET: NCLAT seeks details about 4 IL&FS group entities

8 April 2019: The National Company Law Appellate Tribunal Monday directed debt-ridden IL&FS to submit information over investment made by pension and provident funds in its four group firms, and also sought details of financial liabilities of those entities.

These four ‘amber’ companies are — Hazribagh Ranchi Expressway, Jharkhand Road Project Implementation Company, Moradabad Bareily Expressway and West Gujarat Expressway.

The NCLAT also made clear that it has not stopped IL&FS and its group entities from going for resolution process.

During the proceedings of the appellate tribunal, a two-member bench headed by Justice S J Mukhopadhaya observed that the money invested by pension fund, and provident fund in the IL&FS companies should be released first.

“Provident fund and pension fund have nothing to do with this, this is not your money, it is related to the employees.”

“We want that it should be released first,” the bench said.

The NCLAT had directed 4 out of 13 amber entities to prepare charts, and held that the remaining 9 firms will also try to prepare charts by the next date of hearing, which is April 16.

Earlier on March 29, the NCLAT had sought financial details about 13 entities of IL&FS group that have been classified under the ‘amber’ category.

Under its resolution plan, the government has categorised IL&FS group entities into green, amber and red categories based on their respective financial positions.

Entities classified as ‘green’ are those which continue to meet their payment obligations, while ‘amber’ category firms can meet only operational payment obligations to senior secured financial creditors.

Those falling in the ‘red’ category are the entities which cannot meet their payment obligations towards even senior secured financial creditors.

Earlier, the corporate affairs ministry submitted the debt resolution plan for IL&FS.

The entire resolution process is based on the principles enunciated in the Insolvency and Bankruptcy Code, as per the ministry.

During the previous hearing on March 19, IL&FS had informed the NCLAT that the number of ‘green’ companies has increased to 50 from 21.

The number of ‘amber’ entities also increased to 13 from 10.

The Economic Times reported

TNN: Adani Power secures letter of intent to acquire Korba West Power Company

8 April 2019: Adani Power Monday said it has been awarded a letter of intent to acquire debt-laden Korba West Power Company. “The company has been awarded the letter of intent (LOI) for Korba West Power Company Ltd (KWPCL).

The Committee of Creditors of KWPCL, a company undergoing insolvency resolution process under the Insolvency and Bankruptcy Code, 2016, has approved the resolution plan submitted by Adani Power,” Adani Power said in a BSE filing.

The closure of the transaction shall be subject to obtaining the necessary approval from the NCLT, Ahmedabad, and satisfaction of the conditions precedent under the resolution plan, the company added.

KWPCL owns and operates a 600 mega watt (MW) thermal power plant in Raigarh district in Chhattisgarh.

Adani Power said the successful acquisition and implementation of the resolution plan for acquisition of KWPCL will consolidate its position as India’s leading private sector thermal power producer, with a combined thermal power capacity of 11,040 MW.

“Further, this reaffirms Adani Power’s credential in development and operation of greenfield projects, and also successfully turning around brownfield acquisitions,” the company said. Shares of Adani Power were trading 0.80 per cent higher at Rs 50.15 apiece on BSE.    

As reported on timesnownews.com

ET: Plea against Valecha unit for Rs 105-cr default

8 April 2019: The dedicated bankruptcy court has admitted an insolvency plea filed by India’s third largest private sector lender Axis Bank against Valecha LM Toll, a subsidiary of infrastructure firm Valecha Engineering, for defaulting on about Rs 105-crore loans.

Axis Bank had given term loans of Rs 100 crore to the company in November 2010. However, the company was declared a Non Performing Asset (NPA) in November 2016.

“The lender has annexed the annual report for the year ending March 2017 to show that liability has been admitted by the company and to show that the erosion of substantial net worth raises doubt about the company’s ability to continue as a going concern,” said the NCLT bench presided over by VP Singh and Ravikumar Duraisamy.

The tribunal has also appointed Udayraj Patwardhan as interim resolution professional (IRP) for the resolution of the company.

“During one of the hearings, the corporate debtor stated that it does not oppose the admission of the petition,” observed the tribunal in its order.

Valecha LM Toll is primarily a road infrastructure company that works on the ‘build, operate and transfer’ (BOT) model.

To reduce debt, the Mumbai-based civil engineering firm Valecha Engineering had decided in 2014 to sell its three road assets Valecha LM Toll to US-based New Generation Infrastructure Inc, a subsidiary of New Generation Holdings Inc, for Rs 309 crore ($50.3 million), said a stock market disclosure.

The Economic Times reported

ET: Reliance Communications misses yet another payment of spectrum dues

8 April 2019: Reliance Communications missed its second straight spectrum payment, this time of about Rs 281 crore, which fell due on April 5. However, the company is banking on a case in the appellate tribunal to stop the Department of Telecommunications from cancelling its licences and withdrawing the airwaves.

“RCom has missed its payments for the second time but we will await the court’s order to see if we need to challenge or find any other way of recovering the dues. Our hands are tied till then,” a senior DoT official said, asking not to be identified. The official was referring to a dispute between DoT and RCom over spectrum dues, which the National Company Law Appellate Tribunal (NCLAT) is scheduled to hear on Monday.

RCom didn’t respond to ET’s emailed queries seeking comment on the matter.

The tribunal recently stayed DoT’s show-cause notice to RCom and asked the telco to explain why its licence and spectrum for Mumbai shouldn’t be withdrawn after defaulting on a Rs 21 crore spectrum payment that fell due in March.

RCom responded by saying it should be exempted from paying the dues because it was under a payment moratorium from an earlier appellate order related to a separate filing for insolvency and therefore, its licence cannot be revoked.

The telco also said the department was yet to return Rs 2,000 crore of bank guarantees despite an appellate court’s orders. It said the DoT had encashed an excess of Rs 750 crore of bank guarantees over the past few years, which must be returned as well.

RCom, under debt of Rs 46,000 crore, has missed paying Rs 21 crore for the spectrum in Mumbai, which fell due on March 13, and Rs 281 crore for eight circles, which was due on April 5. Both dates included a 10-day grace period. The operator has to pay Rs 492 crore for 13 circles later this month.

Withdrawal of RCom’s spectrum for non-payment of dues would likely hit the services of Reliance Jio Infocomm, which shares the airwaves in 21 circles. RCom and Jio’s spectrum-sharing deal is also under government scrutiny since DoT officials have said that it is disallowed in circles where there’s been a default in payment.

RCom and DoT have been waging many battles over spectrum dues and one-time spectrum charges. The Anil Ambani-owned operator has even blamed the government for scrapping the sale of its spectrum to Jio.

The Economic Times reported

TOI: Jet’s life-support reduced to Rs 200 crore

8 April 2019: The Rs 1,500-crore emergency funding Jet Airways was supposed to get is now down to Rs 200 crore in the best case scenario as lenders led by SBI await RBI’s fresh norms for debt restructuring after Supreme Court last week struck down the central bank’s controversial February 12 circular.

Bankers said the funding will enable Jet to part pay dues to agencies such as airports, oil companies and statutory charges. “This money is meant for crisis management while the bidding process starts,” a senior banker told TOI.

Airline sources, however, said that the private carrier is now on the razor’s edge as a small funding is unlikely to help the airline live long enough to wait for the bigger infusion that is required. “They (lenders) are putting in very small amounts only in dire situations like two small banks (not SBI) giving Rs 33 crore to Jet last Friday when Indian Oil cut off fuel supply. It is a very touch-and-go situation. Whether the airline can afford to wait for the new circular and then emergency funding to flow in or will shut down before that remains to be seen,” said a person in the know of developments.

While in past few months, only salaries of highly-paid personnel like pilots, engineers and senior management were delayed, the March salary has not been paid to anyone, including the low-rung employees. “Lenders are waiting for RBI to come out with a similar circular. Till then they may keep giving some oxygen. If the circular takes long or no bidder comes for Jet, then Jet is staring at insolvency and closure,” said a source.

The airline’s international flights on wide-body aircraft are no longer offering inflight entertainment as the content is licensed and needs to be paid for. Lounge access for premium passengers has been discontinued at many airports. The airline did not comment on this issue. In such a situation, whether the remaining oxygen in Jet’s lungs can sustain it till emergency funding comes remains to be seen.

In Kingfisher’s case, for instance, unpaid-for-months technicians got so agitated that on one day in October 2012 they refused to put chocks in front of and behind aircraft wheels after the airline’s flight landed. As a result, passengers remained stuck inside aircraft and could not alight. The same day Kingfisher stopped flying. The Jet management is likely to send a communique to employees on Monday on the pay issue. The airline’s pilots and engineers have said they may strike work from April 15 unless the airline “substantially” clears their January, February and March salary dues and gives a firm road map for the remaining amount. Meanwhile, the expression of interest “for change in control and management of Jet” was issued by SBI and SBI Caps early Monday and the last date for submission of EOI will be April 10.

The Times of India reported

DNA: SBI Caps, Kotak Mahindra get mandate to find buyers for Jet Airways

8 April 2019: Merchant bankers SBI Caps and Kotak Mahindra Capital have been appointed to scout for prospective buyers for the beleaguered domestic airline Jet Airways. Lenders are going to pursue a resolution in 180 days as earlier planned but will await Reserve Bank of India (RBI)’s revised framework on stressed assets.

The central bank’s new framework is expected to come in a few days time.

Bankers have postponed the date of inviting bids for potential buyers to April 10 after resolutions for the revival is yet to get the necessary regulatory approval. Bankers expect the bidding process to be completed in three weeks after the Expressions of Interest (EOI) are received. In the meantime, banks have started providing emergency funding to the airline to keep it afloat. Once the plan is approved, the banks will infuse Rs 1,500 crore through a non-convertible debenture (NCD) issue.

The resolution proposal missed the necessary legal and regulatory approvals by a whisker, as it did on the day Supreme Court quashed the controversial February 12 circular that mandated a framework to resolve bad debt of Rs 2,000 crore and above. DNA Money had reported in its April 4 edition that the airline had missed signing the resolution after the Supreme Court had struck down the RBI circular.

“The value of the airline is its brand and the goodwill it carries. In the National Company Law Tribunal (NCLT), it cannot get any value. We need to find an investor outside the Tribunal. The bidding process will take three weeks and we hope to implement the resolution by June 30, that is within 180 days,” said a senior banker of the consortium.

After Naresh Goyal, the founder of the airline, and his wife Anita were forced to resign from the airline’s Board last month, decks were cleared for a new investor. There are talks that its partner Etihad may cough up the money and increase its shareholding. Post the resolution plan, Etihad’s stake would have fallen to 12% with lenders being majority shareholders.

“There is a lot of interest from investors. But everyone will undertake due diligence which will take time. That is why we think Etihad is a good bet because they don’t have to undertake due diligence,” said a banker.

“If the verdict was a day later, we would have got the approvals. The issue is about converting 11.4 lakh shares at Re 1. The price was decided by the circular which is now nullified,” said the banker.

Even after the SC verdict, the bankers had put up a brave front saying that the bank-led resolution is on course and that EOIs will be called by April 6. But since the resolution was yet to be approved, EOIs had to be postponed until RBI comes out with a new circular.

Bankers led by State Bank of India (SBI) will wait for some clarity from the RBI before inviting bids for Jet Airways.

In a press release issued on April 5, the lenders said they were planning to pursue the bank-led resolution plan for the stake sale in a time-bound manner under the present legal and regulatory framework. The plan was to invite bids on April 6.

…& ANALYSIS

• Rs 1,500 cr – Banks will infuse in Jet Air through an NCD issue  

• 12% – Etihad’s stake in Jet likely to have fallen to

The DNA reported