Political Economy

In Bankruptcy Appeal, Videocon Blamed Modi’s Demonetisation, 2G Scam and Brazil

In a now-withdrawn bankruptcy appeal, Videocon insisted that it has always engaged in timely loan repayment in the past and its current default is because of “unexpected and unforeseen” circumstances.

New Delhi: In its now-withdrawn bankruptcy appeal before the National Company Law Tribunal, Videocon Industries has blamed demonetisation, the Supreme Court’s 2012 decision to cancel 2G licences and the Brazilian government for its inability to pay back loans to lenders in India.

The Videocon Group is currently promoted by Venugopal Dhoot, with the company’s total debt standing at a little less than Rs 20,000 crore as of March last year. Over the last eight years, a combination of bad business bets and failed implementation strategies has seen its profitability plunge and its debt mount.

Over the last few months, Videocon has sought to stall insolvency and bankruptcy proceedings by the State Bank of India (SBI), through a petition in the Bombay high court and through interventions in the NCLT. Both methods, however, have not been successful yet, with Videocon also changing its mind at the last minute on challenging the admissibility of SBI’s insolvency plea.

The NCLT-Mumbai order, which was passed last week and admitted SBI’s petition, is illuminating. Videocon insists that it has always engaged in timely loan repayment in the past and its current default is because of “unexpected and unforeseen” circumstances. It then lays out three reasons for the default.

The first is that the Modi government’s demonetisation move effectively ruined its cathode ray tube (CRT) television business, as its “suppliers were unable to provide the raw material”.

“… VIL was in the business of manufacturing and supply of cathode ray tube television and being only manufacturer earning considerable profit margin. The business was across the world as there was large demand of CPR-TV (sic),” the NCLT order, paraphrasing the arguments of Videocon’s senior counsel, notes.

“However, on account of demonetisation in India, the suppliers were unable to provide the raw material. As a result, there was sharp decline of business as a result VIL was constrained to close that business. Because of these reasons, the cash circulation was disturbed, which was beyond the control of VIL,” the order adds.

The second place at which Videocon places blame is the Supreme Court, which in 2012 cancelled over a hundred 2G licences of various telecom operators in the aftermath of the 2G scam. According to Videocon, 21 of its own licenses were cancelled, resulting in its telecom business being “victimised”.

A snapshot from the NCLT order passed last week.

“The group had suffered huge losses in telecom business on account of cancellation of licence which resulted into non-payment of bank liabilities,” the NCLT order notes.

Lastly, Videocon blames the Brazilian government for delays in executing a 50:50 oil and gas joint venture with Brazil Petroleum Ltd in 2008. “The delay was caused in obtaining the sanction from the local government, which resulted in heavy losses,” it notes.

U-turn in opposing petition

The current petition admitted by the NCLT has been raised by State Bank of India on Videocon Industries over defaulting on banking facilities of nearly Rs 500 crore. As other media reports have noted, this does not include the massive debt of its oil and gas and telecom ventures, although there are separate NCLT petitions in the offing that may cover those.

Over the last few months, the Videocon Group opposed SBI’s NCLT application, noting that it was wrong for the bank to to file an insolvency petition when a resolution plan has already been submitted for consideration.

The NCLT order passed last week, however, amusingly notes that even as the counsel of Videocon was “arguing the case and about to conclude his submissions”, he received a message from the company’s management that instructed him to “not vehemently oppose the ‘admission’ of the petition” in the “larger interest of the public”.

“So the Ld. counsel has conveyed in the court that the management of the company has taken this decision keeping in mind the public interest, although he was instructed to contest the maintainability of the petition,” the NCLT order notes.

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