The Rs 4,000-crore resolution plan by Sharad Sanghi and others for Jyoti Structures Monday got a thumbs-up from the Supreme Court, a decision that nullified the possibility of the debt-laded engineering, procurement and construction firm getting liquidated.
The National Company Law Tribunal (NCLT) had last month had approved an amended plan for the firm with a heavy debt of Rs 7,011 crore, on a directive from the appellate tribunal (NCLAT). However, DBS Bank, the sole first charge holder over certain assets of the firm, subsequently challenged the plan in the apex court.
An SC Bench led by Justice R F Nariman has now dismissed DBS Bank’s appeal against the NCLT order which accepted the amended resolution plan for Jyoti Structures.
The NCLAT had on March 19 set aside the July 31, 2018, NCLT-Mumbai order to liquidate Jyoti Structures and remitted the case back to the tribunal. DBS Bank argued that the amended plan did not distinguish between the first charge holder and the second charge holder, but had distinguished between the secured and unsecured creditor, which made a resolution plan (RP) contradictory in nature.
Senior counsel K V Vishwanathan, appearing for DBS, argued that the liquidation value of the assets charged to DBS is more than three times of its exposure and the company owes Rs 53.77 crore to it. DBS also said the appellate tribunal ignored the principles of law of mortgages, which give sanctity of property rights, more so right of a creditor holding a first and sole charge.
Terming as “unfair” the voting process adopted by the committee of creditors (CoC) to approve Sanghi’s RP, DBS also said the RP had completely ignored the superior security structure vis-à-vis other financial creditors and had treated the bank’s claim on an equal footing with other financial creditors who do not enjoy the same superior security structure.
Senior counsel Mukul Rohtagi, appearing for Sanghi, opposed DBS’ plea, saying that in the CoC, SBI had the largest exposure of 25 per cent and it had supported the RP. “Besides, there was only one RP and if the same is rejected, the firm will go into liquidation and that is not the purpose of the IBC.”
The sole bidder, Sharad Sanghi, who heads software firm Netmagic, had submitted a revised bid pursuant to the NCLAT’s order. As per the fresh bid, Sanghi will pay Rs 3,965 crore in 12 years against the original bid of 15 years. An amount of Rs 50 crore would be paid upfront, followed by Rs 75 crore over the next 12 months and the remaining in staggered payments over the next 12 years. As per this first bid, the firm has a liquidation value of just Rs 1,112.52 crore, leaving the bankers with a 43 per cent haircut.
On March 26 and 27, 2018, Sanghi’s RP was approved by 62.66 per cent of lenders, while 23.12 per cent voted against, and 14.21 per cent abstained. On April 2, 2018, some lenders changed their decisions and the RP got an 81.3 per cent approval. —FE