1. This is an Application filed by the Applicant seeking consolidation of CIRP of Aditya Vidyut Appliances Ltd. and Aditya Fabrication Pvt. Ltd.
(AVAL and AFPL) in the interest of justice to enable the maximization of value of assets of both Corporate Debtors and as well as all creditors and
other stake holders of Corporate Debtor.
BRIEF FACTS SET OUT BY THE APPLICANT SEEKING CONSOLIDATION:
2. Respondent No. 1 AVAL is undergoing CIRP vide an order of admission passed by the NCLT on 11.09.2019. The status of CIRP is as follows:
3. AFPL is undergoing CIRP pursuant to the order dated 15.05.2019 passed by the NCLT, Principal Bench, New Delhi. The status of CIRP is as
follows;
4. Respondent No. 1 (AVAL) is a company incorporated on June 26, 1989 under the provisions of the Companies Act, 1956 and is primarily involved
in the manufacturing, remanufacturing and testing of the Transformers. A Company Petition viz. CP IB No. 193 of 2019 filed by Easun-MR Tap
Changers Private Limited u/s 9 of the Code on account of default in making payment of INR 4,32,70,548/- came to be admitted against AVAL vide
order dated September 11, 2019 passed by Hon'ble National Company Law Tribunal, Mumbai Bench. In terms of the aforesaid order, Mr. Kshitiz
Gupta was appointed as Interim Resolution Professional of AVAL and his appointment was subsequently approved by the committee of creditors in
the first meeting of AVAL held on October 19, 2019. Subsequently, the following meetings of the committee of creditors of AVAL have been
conducted till date â€" 2nd meeting dated November 28, 2019, 3rd meeting dated January 15, 2020, 4thmeeting dated March 2, 2020, 5th meeting
dated June 12, 2020, 6th meeting dated October 13, 2020 and 7th meeting dated November 4, 2020 inter alia, to discuss, deliberate and decide upon
various pertinent issues in respect of the operations and management of AVAL. The RP had filed an Application u/s 12(2) of the Code viz. I.A. No.
2042/MB/2020, thereby seeking extension of CIRP Period of AVAL inter alia on account of grant of exclusion due to Covid-19 while computing the
CIRP period. The aforesaid Application was heard by this Hon'ble Tribunal on November 11, 2020 and this Hon'ble Tribunal directed that the CIRP
Period for AVAL stands extended till the date of next hearing in the matter of AFPL viz. November 24 2020, when the Hon'ble Bench proposed to
hear and decide the present Application seeking consolidation of CIRP for both the Corporate Debtors.
5. Respondent No. 2 (AFPL) is a company incorporated on November 24, 2003, under the provisions of the Companies Act, 1956 and is primarily
engaged in the business of buying, selling and fabricating of transformers and other electrical goods and provides support services to AVAL. AFPL
came to be admitted into CIRP vide order dated May 15, 2020 passed by the Hon'ble National Company Law Tribunal, Principal Bench, New Delhi
(Camp at Chennai) in CP IB No. 547 of 2020 filed by the Applicant u/s 7 of the Code on account of default in honoring Corporate Guarantee
furnished by Respondent No. 2 by executing the Deed of Guarantee dated September 27, 2014 in order to secure repayment of loan obtained by
Respondent No. 1 from the Applicant. By the aforesaid order, Mr. Kshitiz Gupta was appointed as Interim Resolution Professional of AFPL, in CIRP
of AFPL as per the provisions of the Code, and his appointment was subsequently approved by the members of the committee of creditors in the first
meeting of AFPL held on June 12, 2020. Subsequently, the 2nd COC meeting was conducted on October 13, 2020 in order to discuss, deliberate and
decide upon various pertinent issues in respect of the operations and management of AFPL. The Applicant craves leave to refer to and rely upon
copies of minutes of all the meetings of the committee of creditors in respect of AFPL as and when required. The RP had filed an Application u/s
12(2) of the Code viz. I.A. No. 2041/MB/2020, thereby seeking extension of CIRP Period of AFPL inter alia on account of grant of exclusion due to
Covid-19 in computation of the CIRP period. The aforesaid Application was heard by this Hon'ble Tribunal on November 11, 2020 and this Hon'ble
Tribunal was pleased to grant exclusion from May 15, 2020 to July 31, 2020 for the purpose of computation of CIRP Period for AFPL. In view
thereof, the CIRP period of AFPL can be effectively considered to commence with effect from August 1, 2020.
6. In the meanwhile, TJSB filed an Interlocutory Application viz. I.A. No. 1068 of2020 before this Hon'ble Tribunal in CP No. 547 of 2020 i.e. in the
CIRP proceedings of AFPL. In the aforesaid Interlocutory Application, TJSB had, inter alia, contended that in view of various decisions passed by the
Hon'ble National Company Law Appellate Tribunal and the Principal bench of the Hon'ble Tribunal, the Applicant and BOI, CFM and SVC are
prohibited from lodging any claim in the CIRP of AFPL (the guarantor) in connection with the consortium loan agreement as they have already lodged
their claims with regard to the same loan in the CRP of AVAL (""Principal Borrower""). TJSB further contended that apart from being a member of
the Applicant led consortium, TJSB had also provided an independent loan to AFPL and holds exclusive security in respect thereof, and therefore
TJSB ought to be holding 100% vote share in the committee of creditors of AFPL. The Applicant had filed an affidavit opposing IA No. 1068 of 2020
and setting out why the contentions of TJSB were not tenable. During the course of hearing of the above Interlocutory Application, this Hon'ble
Tribunal observed that both the Corporate Debtors are heavily interdependent on one another in terms of operations and therefore, all concerned
parties should make endeavour to arrive at a mutually amicable settlement of this dispute in the larger interest and to enhance the possibility of
successful resolution of both the Corporate Debtors. Thereafter the Applicant and TJSB, BOI, CFM, SVC and Pegasus began exploring the possibility
of a consolidated CIRP of AVAL and AFPL.
7. In view thereof, the Applicant and TJSB in consultation with the BOI, CFM, SVC and Pegasus have been making efforts to arrive at mutually
agreeable terms in furtherance of a consolidation of CIRP of both the Corporate Debtors in order to enable the maximization of value of assets for all
creditors and other stakeholders of both the Corporate Debtors, which is the purpose of the Code. The Applicant further states that on October 29,
2020, a joint lenders meeting of the members of the committee of creditors was held and attended by the lenders of AFPL (except BOI) wherein it
was agreed to file an application for consolidation of the CIRP of AVAL and AFPL.
8. The issue regarding consolidation of CIRP proceedings of the Corporate Debtors was discussed at a meeting of the members of the committee of
creditors of AFPL held on October 29, 2020 and attended by State Bank of India viz. the Applicant, TJSB, CFM, SVC, Pegasus as well as the RP.
BOI did not attend the meeting. In the aforesaid meeting, the following decisions, inter alia, were taken:
i. Applicant, TJSB, CFM, SVC, Pegasus agreed for consolidated CIRP of AVAL and AFPL and distribution to be in line with Section 30(4) of IB
Code, 2016, wherein the distribution as per the resolution plan would take into account the order of priority amongst creditors as laid down in sub-
section (1) of Section 53 of Insolvency and Bankruptcy Code, 2016 including the priority and value of the security interest of a secured creditor.
ii. Based on the directions, if any, of Hon'ble NCLT on November 2 hearing, if required , Resolution Professional to call an early meeting of committee
of creditors of AVAL and take view for consolidated CIRP of AVAL and AFPL and approval to proceed under Section 30(4) of the IBC in case
submission of Resolution Plan.
iii. Consolidation application was sought to be filed by the SBI after authorization letter from the lenders and confirming the minutes of the JLM dated
29.10.2020. Lenders will issue letter of authorization to SBI to file application for consolidation of CIRP of AVAL and AFPL within 5 days from the
circulation of this Minutes of the meeting held on October 29, 2020.
Subsequent thereto, as per the directions of this Hon'ble Tribunal in the course of hearing of the captioned proceeding held on November 2, 2020, the
Resolution Professional called for meeting of committee of creditors of AVAL on November 4, 2020. In the aforesaid meeting of the members of
committee of creditors of AVAL, the agenda for consolidation of CIRP of the AVAL and AFPL was approved with 89.48% voting in favour.
9. The Applicant set out following are the reasons to consolidate CIRP of AVAL and AFPL:
a. The registered address with MCA is same of AFPL as well AVAL which is also called as Unit-H of AVAL situated at Survey No. 168, Hissa No-
10, Sonale Village Bhiwandi Bypass Road NH-3 Bhiwandi, Thane- 421302.
b. The aforesaid Unit-11 is on a land mainly owned by AVAL, AFPL and family of promoters in various pieces and parcels.
c. Land belonging to AFPL along with building were given on lease to AVAL. Further, such land of AFPL is mortgaged to the Consortium of lenders
to secure loans to AVAL. Further, plant & machinery located in such building and belonging to AVAL were also hypothecated to the Applicant led
consortium to secure the dues payable by AVAL. AFPL has also provided a corporate guarantee to secure the amounts due from AVAL to such
consortium of lenders.
d. Additionally, shareholding of AFPL is majorly held with AVAL (45%) and the promoter family. The shareholding pattern of AFPL and AVAL as
per the records available on the MCA website are as follows:
e. AVAL and AFPL have almost identical/ mostly common lenders, viz. the members of the committee of creditors of AFPL constitute approximately
82.85% in terms of quantum of debt of the committee of creditors of AVAL. The constitution of committee of creditors Of AVAL and AFPL is as
per the tables set out herein below:
As such, a consolidation of CIRP of both the Corporate Debtors will exponentially increase the chances of successful resolution of both the Corporate
Debtors. In the event of consolidation of CIRP of both the Corporate Debtors, all the common lenders will provide the best possible support and co-
operation towards successful resolution, decision making process in relation to the CIRP may be done in an efficient manner.
10. The claims have already been invited in accordance with the Code and the process of verification has also been completed for both AVAL and
AFPL. In the circumstances, in order to avoid needless duplication of work and expedite the resolution process, it is necessary that the Resolution
Professional appointed in the consolidated CIRP of AVAL and AFPL be permitted to treat the claims already received in the individual CIRPs of
AVAL and AFPL as claims in the consolidated CIRP without double counting. The CIRP commencement date for AVAL shall continue to be
September 11, 2019 and the moratorium under Section 14 of the Code will be effective from that date. The CIRP commencement date for AFPL
shall continue to be May 15, 2020 and the moratorium under Section 14 of the Code for AFPL will be effective from that date.
11. A new COC will be formed by the Resolution Professional for the consolidated CIRP of AVAL and AFPL and the voting share of all financial
creditors will be set out as per law based on the claims already received and verified in CIRP of AVAL and AFPL respectively.
12. The valuers have already been appointed in respect of CIRP of both AVAL and AFPL and have submitted their valuation reports. The finances
of both AVAL and AFPL are stretched and in order to be more cost effective it is proposed that since valuations for both companies are completed
the same valuers be permitted to provide an updated valuation report for the consolidated CIRP rather than undertaking fresh valuations.
13. It was decided in the 5th meeting of the committee of creditors of AVAL on June 12, 2020 and first meeting of committee of creditors of AFPL
on June 12, 2020 that the eligibility criteria and evaluation matrix for the prospective resolution applicant(s) were kept the same for both AVAL and
AFPL and the process of publishing the Form G in both companies proceeded in parallel. Three prospective resolution applicants have already been
shortlisted pursuant to expression of interest received from them. Upon this Hon'ble Tribunal approving the consolidation of CIRP, the Resolution
Professional appointed for the consolidated CIRP be permitted to call a combined meeting of the committee of creditors who will, inter alia, decide on
whether to proceed with negotiations with the three shortlisted resolution applications or invite fresh expression of interest.
14. The Applicant submits that no prejudice will be caused to any stakeholders of either of the Corporate Debtors if consolidation of both the
Corporate Debtors is permitted by this Hon'ble Tribunal. The Applicant submits that consolidation of CIRP of both the Corporate Debtors will result in
equitable treatment of all the creditors and other stakeholders.
15. TJSB is a part of the Applicant led consortium of lenders in respect of loan sanctioned to Respondent No. 1 and guaranteed by Respondent No. 2
as well as independent lender to Respondent No. 2. The Applicant, BOI, CFM, SVC and Pegasus are the other consortium lenders in respect of loan
sanctioned to Respondent No. 1 and guaranteed by Respondent No. 2. Fullerton India Credit Company Limited, Siemens Financial Services Limited,
Reliance Home Finance, IDFC First Bank, Dewan Housing Finance Corporation Limited and Axis Bank along with the Applicant, TJSB, BOI, CFM,
SVC and Pegasus are lenders to the Respondent No. 1 and constitute the committee of creditors of AVAL. The Applicant has received letter/email
of authorization from TJSB and Pegasus out of the members of committee of creditors of AFPL for the consolidation of CRP of AVAL and AFPL,
which along with State Bank of India constitutes 58.17% of debt ratio/ voting percentage in the COC of AFPL. However, the Applicant did not
receive authorization letter/ email from BOI, CFM and SVC despite repeated reminders in respect thereof. Further, in the 7th COC meeting of AVAL
held on November 4, 2020, the Applicant viz. State Bank of India, TJSB, CFM, SVC, BOI, Pegasus, Siemens Financial Services Limited and Dewan
Housing Finance Corporation Limited voted in favour of consolidation of CIRP of AVAL and AFPL which constitutes aggregate 89.48% of the
voting share of members of committee of creditors of AVAL. Whereas in the meeting of the committee of creditors of AVAL held on November 4,
2020, Fullerton India Credit Company Limited had voted against the consolidation and Reliance Home Finance, IDFC First Bank and Axis Bank had
abstained from voting. Accordingly, the Applicant is filing this Application pursuant to authorization of majority of members of committee of creditors
of both AVAL and AFPL.
16. The corporate Structure of AVAL and AFPL is set out as under, even at the cost of repetition.
a) AVAL (Respondent No. 1) since its inception was initially involved in the business of repairing distribution transformers. Subsequently AVAL
commenced manufacturing of transformers and also became a pioneer in the field of Transformer Remanufacturing. Primarily, AVAL operated in
three business verticals namely Transformer Manufacturing, Transformer Remanufacturing and Transformer Contract Manufacturing. The products
offered by AVAL included Power Transformers, Furnace Transformers, Rectifier Transformers, Railway Transformers, Distribution Transformers,
Wind Mill Transformers and Special Application Transformers and Reactors. AVAL also used to offer various types of transformer testing services.
b) AFPL (Respondent No. 2) since its inception was engaged in the business of buying, selling and fabricating of transformers and other electrical
goods. Pertinently, forty-five percent (45%) of the shareholding of AFPL is held by AVAL. In fact, shareholding of both the Corporate Debtors (i.e.
Respondent No. 1 and Respondent No. 2) are majorly held within the family of Mr. Narayan Shenvi Prabhu and his brother, Mr. Prakash Pundalik
Shenvi. Mr. Narayan Shenvi Prabhu and his family members are the promoters of both AVAL and AFPL. Also, both AVAL and AFPL have a
common suspended director, Mr. Narayan Shenvi Prabhu who was appointed as director of AVAL since its very inception whereas he was appointed
as director in AFPL on May 6, 2019.
17. In the year 2014, few machineries were purchased by AFPL for which they availed a Term Loan for INR 11,94,70,000/- from TJSB in order to
enter into reactor testing of transformers. However AVAL did not have testing equipment required for reactor testing purpose. As per the norms of
the National Accreditation Board for Testing and Calibration (""NABL""), the company which is into the manufacturing/ repairing of reactor
transformers must outsource the testing job to another company (which can be associate company) and cannot set up testing lab itself, hence in view
of abiding by the aforesaid norms, the management of AVAL and AFPL decided to undertake repairing job by AVAL and testing work by AFPL. In
order to facilitate the aforesaid arrangement, the land and building owned by AFPL were given on lease to AVAL and became major source of
revenue of AFPL .Lease rentals of AVAL and job work from AVAL was also expected to contribute to AFPL revenues but unfortunately did not
pick up. Hence, it is clear that both the Corporate Debtors are engaged in the business of Transformers as if they were a single economic entity with
different units dedicated to repairing and testing.
18. Further, all the consortium lenders led by Applicant had granted a loan of INR 1,68,75,76,000/- (Rupees One Hundred Sixty Eight Crores Seventy
Five Lakhs Seventy Six Thousand Only) to AVAL which was enhanced to INR 1,92,14,30,000/- (Rupees One Hundred Ninety Two Crores Fourteen
Lakhs Thirty Thousand Only). Under the Deed of Extension of Charge dated July 31, 2018, both AVAL and AFPL had, inter alia, mortgaged their
respective securities (as more particularly described in the aforesaid Deed of Extension of Charge) to secure the aforesaid loan facility. All the
consortium members of AVAL (viz. Applicant, TJSB, BOI, CFM, SVC and Pegasus) are joint charge holders in respect of the mortgaged properties
on paripassu basis. Hence, both the Corporate Debtors have mortgaged their respective properties to secure the same loan and the security sharing
structure in respect of those properties is also such that they are jointly held by all the consortium members on paripassu basis. As such, the Applicant
submits that considering the aforesaid security sharing arrangement, it is clear that a consolidation of the CIRP of both the Corporate Debtors will
ensure a higher possibility of successful resolution of both the Corporate Debtors.
FINDINGS:
19. This Bench relies upon the ratio laid down by the coordinate Bench in the matter of Videocon in MA 1306/2018, MA 1416/2018 in CP 559/2018
wherein the NCLT at para 78 has laid down certain guidelines which are para material before allowing a consolidation of group companies which
includes common control, common directors, common assets, common liabilities, interdependence, inter-lessening of finance, fooling of resources,
coexistence of survival, intricate link of subsidies, intertwined of accounts, interloping of debts, singleness of economic of units, cross shareholding,
interdependence due to intertwined consolidated accounts, common polling of resources etc., these principles are borne out of judicial authorities and
precedents.
20. The facts set out by the applicant corresponds to the ratio laid down in Videocon consolidation case as per the table given below:
The above table demonstrates that the consolidation protects the substantial interest of stakeholders and amounts to a fair treatment to all creditors.
21. Therefore this bench is of the considered view that consolidation of both the Corporate Debtors would be conducive and would result in the
following advantages:
a. All the assets of the Corporate Debtors be pooled together as if all such assets belong to a single manner;
b. A common resolution professional shall be appointed. Such resolution professional will be required to perform the mandatory functions under the
Code for both the Corporate Debtors as if he is the resolution professional of a single entity. This will enable the resolution professional to
invite/consider comprehensive resolution plans for both the Corporate Debtors which will result in maximizing value for all the stakeholders of each of
the Corporate Debtors;
c. There should be a single committee of creditors for both the Corporate Debtors. In any event, a huge majority of the members in terms of voting
share of the committee of creditors of both the Corporate Debtors are identical. A single committee of creditors will ensure that there is unitary
decision making in relation to affairs of both the Corporate Debtors which in turn will ensure that all major decisions related to the CIRP of both the
Corporate Debtors are taken by a single committee of creditors thereby enabling the preparation of a comprehensive resolution plan for both the
Corporate Debtors which will result in maximizing value for all the stakeholders of each of the Corporate Debtors.
d. The CIRP period is hereby extended after consolidating the CIRP of both the Corporate Debtors such that the time period of 180 days is permitted
for completion of CIRP under Section 12 of the Code shall be extended so as to expire after 180 days from the date of the order directing such
consolidation. This will enable the resolution professional and the committee of creditors enough time to formulate a comprehensive resolution plan for
both the Corporate Debtors in accordance with the provisions of the Code
22. In view of the aforesaid discussion consolidation, this Bench doth orders as follows:
a) Consolidation of both the Corporate Debtor’s namely AVAL and AFPL is ordered.
b) The CIRP of the Corporate Debtor’s would commence from the date of the order.
c) All the assets shall be pooled together as if it belongs to single entity.
d) There should be a single committee of creditors for both corporate debtors.
e) Upon consolidation, the CIRP would commence form the date of the order and shall complete within 180 days as required under the Insolvency and
Bankruptcy Code, 2016.
f) Mr. Kshitiz Gupta is appointed as Resolution Professional to conduct the common CIRP.
g) IA is allowed and disposed off.
