Brajesh Kumar & Anurag Shah
The National Company Law Tribunal (NCLT) Chennai Bench reburns IDBI Bank in a one-time settlement (OTS) transaction between IDBI Bank-led banking consortium and Siva Industries and Holdings Ltd (SIHL). It was. Bench today questioned the agility exhibited by major creditor IDBI Bank as CBI charged CSivsasankaran with IDBI Bank’s loan fraud case.
Bench also asked the banking consortium how well the proposer provided the settlement plan and the “true intention” behind the one-off settlement proposal. The referee also sought an explanation as to whether the proposal would be granted under the law.
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The NCLT Bench also asked if the plan proponent would “gift” the company to the original promoter.
RCK Vallar, the proponent of the settlement plan, is a shareholder and father of Siva Industries promoter CSivasankaran.
Bench also asked the banking consortium if this one-off settlement was not a solution to the camouflage, but a “promoter backdoor.”
In this case, I asked if I could trigger section 29A of IBC.
Section 29A prohibits the default promoter from submitting a solution plan.
Bench then asked what would happen if the settlement proponent defaulted.
While listening to the issue, I realized that the concern was not only what the banks would get from the OTS program, but also what they were losing as a result of this settlement program.
Bench also questioned the neutrality of Resolution Professional (RP), saying that RP did not affect promoters that RP rejected.
Bench also asked if the settlement plan was received, and if not, why he did not accept the plan.
Bench also asked what the bank would do if there were no payment plans.
NCLT Chennai’s bench heard the opinions of all parties to the case and withheld its order. The case was heard by member Judiciary R Shucharitha and member engineer BAnil Kumar.
Regarding the problem of default, the proposer of the settlement plan submitted that the bank confirmed the details of the funds, and there was no problem of default. He further stated that the precedent allowed the lender to make a one-time payment.
He also assured the bench that banks had sufficient remedies to act accordingly if the settlement clause was breached. The proponent also notified the banks that LIC, SBI, Union Bank and the central bank were collateralized lenders in this case.
IDBI submission at NCLT
While defending the settlement plan, major creditor IDBI Bank said the ongoing CBI case continued and CBI consent was obtained for the current settlement plan.
The bank, filed prior to NCLT, stated that under the settlement, the lender received a total of 323Cr for a liquidation value of 229Cr. IDBI Bank further said that all other loans and guarantees would continue.
IDBI Bank told Bench that the 37 Cr settlement amount was only for two loan accounts with a total exposure of 111 Cr. The bank said through its lawyer that the remaining loan of Axel Sunshine’s 492 kroner remained in a separate account and that the loan had a letter of comfort.
The total exposure of the lender in this case is Rs4863Cr.
IDBI Bank also said that the one-time settlement plan created a false impression of the bank.
Submission of resolution experts at NCLT
The Siva Industries RP upheld the proposed settlement, stating that the plan was approved by more than 93% of creditors. He further stated that the company did not receive a sound settlement plan, except for a plan from Royale Investment.
He said the plan proposed by Royale Investment was rejected by the lender because it was below the liquidation value. The RP also ensured that sufficient safeguards were provided under the IBC to prevent misuse of the application withdrawal mechanism. One such safeguard is to require a 90% vote for such withdrawals, as opposed to 66% for regular approval.
The RP argued that there were a variety of stakeholders other than lenders, such as employees, whose interests were important, and that if the company was liquidated, they could also be affected.
The RP also submitted that he was only working on NCLT’s remarks about whether he was siding with the promoter.
RP has informed the referee that the company has 50 employees and that the company is a going concern and handles the agricultural processing, software and real estate businesses.
SBI’s position in NCLT
SBI opposed the settlement, saying it had secured more assets than it had provided to the bank. In this case, he questioned the proposed compulsory settlement. SBI has mortgaged assets worth more than SEK 32 for the amount of SEK 25 offered under the settlement.
The SBI also submitted to the court that the corporate debtor was declared by the bank as a deliberate defaulter.
On the other hand, the settlement plan proponent guarantees that SBI’s interest will not be affected because the asset is not part of the settlement plan.
On June 18, while listening to this issue, Bench asked the lender a tough question about the settlement of Rs4883cr, a membership fee of only 323cr.
NCLT has heard an application filed by Siva Industries’ resolution experts regarding the withdrawal of the IBC proceedings under 12A. The company’s shareholder, RCK Vallar, holds a 1% stake in Siva Industries and is also the father of the CSiva sankaran promoter at Siva Industries and Holdings.
Vallal proposes to settle a membership fee of 4863cr for Rs323cr, which has a prepayment amount of only 5Cr, and the lender will receive the rest of the membership fee 180 days after NCLT approval.
Other lenders in the Siva Industries and Holding case include the Central Bank of India, Union Bank of India, PNB, LIC, SBI, IARCL, Bank of India and Masdar Energy (UAE).
Questions were raised regarding the withdrawal application and settlement plan, as the proposed settlement amount was only 6.5% of the membership fee. The plan proposes a heavy haircut, which appears to be contrary to the intent of bankruptcy and bankruptcy law.
IDBI Bank, the top bank of the consortium, is facing a backlash due to the proposed settlement plan. The movement is not considered ethical.
This is a tweet by Hirsch Goenka
Promoters hide money on their side, take the company to a cleaner, and have an 80-90% haircut from a banker / NCLT-it’s a new game in town.Many government-purified institutions-Next, please NCLT @PMOIndia.. You can’t steal the hard-earned public money!
— Harsh Goenka (@hvgoenka) June 22, 2021
The proposed settlement plan has not been made public, but sources said the previous plan offered banks a prepayment of 5 Cr and the remaining amount was significantly reduced within 180 days.
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