16 April 2019: It is one of India’s largest insolvency cases and is also proving to be among the most complex to resolve.
The Venugopal Dhoot-promoted Videocon Group, whose flagship Videocon Industries was part of the first list of firms to be referred for insolvency in June 2017, has seen no progress in resolution, according to bankers and lawyers in the know. The case was admitted for insolvency proceedings 10 months ago and has stretched well beyond the 270-day deadline set under the Insolvency and Bankruptcy Code.
Claims filed against two of the largest Videocon Group companies — Videocon Industries and Videocon Telecommunications — add up to Rs 88,000 crore. However, actual claims may be lower once an overlap of debt facilities between the two entities is weeded out.
Why The Delay?
Resolution has been delayed because lenders want group firms to be consolidated before a resolution plan is worked out, said two people familiar with the case.
While the resolution professional for Videocon Industries had initiated the process for inviting expressions of interest, the process was stalled after lenders approached the Mumbai bench of the National Company Law Tribunal for a stay.
Lenders argued that in many cases these entities took on debt collectively as ‘co-obligors’ and, hence, it would be better to finalise a resolution plan for the group as a whole. A co-obligor is one who is bound with another to fulfill an obligation.
On October 5, 2018, the NCLT had put a stay on the insolvency process till a decision is made on the issue of consolidation. More than six months later, the order is still pending.
Fifteen companies of the Videocon Group, including flagship company Videocon Industries, are currently undergoing individual insolvency processes. While most cases have a different resolution professional, the lenders are common.
The Videocon Group companies under insolvency include Value Industries Ltd, KAIL, Trend Electronics, Applicomp (India) Ltd, Sky Electronics Ltd, Techno Electronics Ltd, Century Appliances Ltd and Evans Fraser & Co (India) Ltd, as per orders available on the NCLT website.
Double-Counting Of Debt
According to the first person quoted above, there is considerable inter-connectedness in the debt availed by the group. As a result, there has also been double-counting of claims at the group level.
Videocon Industries owes its financial creditors Rs 54,000 crore, while Videocon Telecommunications owes over Rs 24,000 crore. Each of the other 13 companies within the Videocon Group have their dues to repay as well.
A large portion of the debt in question was availed by Videocon Industries, where it got its group companies to act as a ‘co-obligor’, leading to insolvency proceedings against both firms. Even in case of Videocon Telecommunications, there is considerable double counting of debt due to co-obligor arrangements with Videocon Industries, the first person quoted above said.
One example of such an arrangement is a Rs 3000 crore loan availed by Videocon Industries in 2012. According to NCLT orders, 14 other Videocon Group companies were listed as co-obligators for this loan. In 2017, Videocon Industries defaulted on Rs 457 crore worth repayment which was due on this facilities and banks were unable to recover money from the co-oligators as well. This prompted SBI to initiate insolvency proceedings against all of these firms in 2018.
While cases such as the insolvency proceedings in Videocon Group could have been dealt with under a group insolvency process, India still does not have a clear law for this.
“In situations like this, a group insolvency may be preferred for two reasons. One is the administrative convenience that comes with a single process and the second can be that lenders may want to chase the guarantor before the corporate debtor itself to settle debt,” said Saurav Kumar, partner at Indus Law. The Insolvency & Bankruptcy Board of India (IBBI) is currently working on guidelines for group insolvencies.
However, a group insolvency may not always be easy to implement, said Kumar. Multiple lenders and multiple businesses in different sectors across a group can complicate a group resolution process.
Investigations Against Venugopal Dhoot
Lenders are also closely watching investigations against the group’s promoter. Any prosecution by these authorities would have an impact on insolvency proceedings against the Videocon Group companies, the second person quoted above said.
Dhoot is currently under investigation by the Serious Frauds Investigation Office and the Central Bureau of Investigation for alleged quid pro quo in dealings with ICICI Bank’s former chief executive officer Chanda Kochhar and her husband.
The authorities have alleged that Dhoot funded businesses owned by Kochhar’s husband Deepak Kochhar in exchange for availing loans from ICICI Bank. The Enforcement Directorate has also registered a case of money laundering against all three. According to media reports, an internal investigation by the Ministry of Corporate Affairs had revealed that there were instances of financial records either being omitted or misleading financial statements recorded in companies owned by Dhoot and Kochhar’s husband.
Meanwhile banks have provisioned nearly 100 percent against Videocon Industries, suggesting that any eventual recovery from the account will add to profits for the lenders, according to a senior banker directly involved in the case.
“If an account is fully provided for, the delays may not cause much of an issue for the bank balance sheets, since whatever they recover from these accounts will go directly to their quarterly profits,” said Anil Gupta, vice president and head of financial sector ratings, ICRA Ltd. Gupta, however, added that a delay in resolution can reduce the prospect of eventual recovery due to deterioration in the asset.