NCLAT Rejects Venugopal Dhoot's Bid To Include Videocon Foreign Oil Assets In VIL CIRP

The National Company Law Appellate Tribunal (NCLAT) at Delhi on Friday held that the foreign oil and gas assets of Videocon Oil Ventures Ltd (VOVL) and its subsidiaries in Brazil and Indonesia cannot be included in the Corporate Insolvency Resolution Process (CIRP) of Videocon Industries Ltd (VIL).

The bench of Judicial Member Yogesh Khanna and Technical Member Ajai Das Mehrotra set aside the Mumbai NCLT's February 12, 2020 order directing inclusion of these assets in VIL's information memorandum. The bench also dismissed appeals filed by former promoter Venugopal Dhoot, who had argued that VOVL's foreign oil and gas assets should be treated as part of Videocon Industries Ltd's insolvency process rather than dealt with separately in VOVL's CIRP.

The bench observed, “Videocon Industries Ltd and Videocon Oil Ventures Ltd are involved in starkly different businesses – Videocon Industries Ltd being in the market of consumer electronic products while Videocon Oil Ventures Ltd being in the business of oil products. One single entity would not have the expertise to revive these varied businesses.”

It added, “Therefore, the creditors of Videocon Industries Ltd and Videocon Oil Ventures Ltd intended to conduct separate CIRPs for the two companies to ensure different buyers with the requisite expertise for their businesses who would be able to effectively handle the assets and revive the businesses. It was a decision taken in the commercial wisdom of the CoC, which cannot be interfered by this Tribunal.”

The dispute arose from the Videocon Group's financing structure. In 2012 and 2015, VIL and VOVL availed financing on an obligor/co-obligor basis from a consortium led by State Bank of India.

In 2016 and 2017, Dhoot asked lenders to restructure the arrangement. He sought to have VIL cease as a co-obligor and remain only a corporate guarantor. His letters expressly said this was to protect the foreign oil and gas assets from the financial stress of VIL's domestic business.

CIRP was initiated against VIL in June 2018 under Section 7 of the Insolvency and Bankruptcy Code. The Interim Resolution Professional did not take custody of the foreign oil and gas assets, treating them as distinct from VIL's assets. Separately, VOVL filed a writ petition challenging an SBI circular. It asserted that the oil and gas assets belonged to VOVL and that VIL's insolvency could erode their value.

VOVL entered CIRP in November 2019. Before that, Dhoot had moved NCLT Mumbai through MA 2385 of 2019. He sought inclusion of the foreign oil and gas assets in VIL's CIRP and information memorandum. The NCLT allowed that plea on February 12, 2020. SBI and other stakeholders appealed.

The NCLAT held that the issue had already effectively been settled in its January 5, 2022 judgment in an earlier appeal. In that case, Dhoot had challenged approval of the Twin Star Technologies resolution plan for VIL + 12 group companies. He argued that the foreign oil and gas assets should have been included. The tribunal rejected that position and upheld the commercial wisdom of the Committee of Creditors.

The bench said Section 18 of the IBC excludes assets of subsidiaries, whether Indian or foreign, from the assets a resolution professional can take control of. It also relied on Sections 30(4) and 31. The tribunal said questions of plan approval and distribution fall within the commercial domain of the CoC.

The tribunal further said the decision on whether to consolidate insolvency proceedings lies within the lenders' commercial wisdom. It cannot be forced upon them. The bench also clarified that CIRP can proceed against both a corporate debtor and a corporate guarantor. However, admission of lender claims against a guarantor does not mean the borrower's assets automatically become part of the guarantor's insolvency estate.

The bench also highlighted what it described as Dhoot's inconsistent positions. It noted that his own letters in 2016 and 2017 sought to ring-fence the foreign assets. His earlier consolidation application covered only domestic group companies. VOVL's writ petition made no claim that the foreign assets formed part of VIL's CIRP or were protected by the moratorium.

The tribunal also noted that Dhoot's Section 12A withdrawal proposal for VIL + 12 group companies specifically excluded the foreign oil and gas assets. It said this showed that before, during, and after the insolvency process, Dhoot himself treated VOVL and VIL as separate entities.

Rejecting Dhoot's ownership argument, the tribunal held that even if VIL held VOVL through shareholding, that would not justify treating subsidiary assets as assets of the parent company for insolvency purposes.

Accordingly, the NCLAT set aside the February 12, 2020 NCLT order. It allowed the appeals filed by SBI and others. It also dismissed Dhoot's later appeals arising from VOVL's insolvency proceedings.