Mumbai: State Bank of India (SBI) is seeking direction from the Insolvency and Bankruptcy Board of India (IBBI) on whether it needs to file separate insolvency cases against affiliates of Videocon Industries Ltd, given that they are jointly liable for loan repayments.
Last month, the country’s largest lender had filed separate insolvency proceedings against two group companies, Videocon Industries and Videocon Telecommunications Ltd, but the National Company Law Tribunal (NCLT) is yet to admit these petitions. They were both part of the second list of big corporate defaulters put out by the Reserve Bank of India (RBI).
The move also reflects the gradual toughening of stance by banks towards delinquent borrowers, a sentiment that is gaining momentum after the new ecosystem to deal with bad debts has been put in place.
SBI’s dilemma arises from the pooled borrowing structure of Videocon group companies. In 2011, a consortium of banks led by SBI had entered into a loan arrangement with the company under which all the rupee term loans of the companies were pooled. This structure, called obligor/co-obligor, made these 14 companies jointly and separately liable for loan repayments.
Co-obligor contracts are those where one is bound together with one or more entities to fulfil an obligation.
According to Videocon Industries’ FY17 annual report, the company is liable to repay the liability of other group companies to the extent of Rs5,082 crore as on 31st March, 2017. The company’s total debt stood at Rs19,506 crore as of March last year.
The group companies that were part of the obligor/co-obligor structure are Videocon Industries, Videocon Telecommunications and 13 other affiliates including Value Industries Ltd and Trend Electronics Ltd.
SBI and IBBI did not respond to emails seeking comment. Videocon Industries chairman Venugopal Dhoot declined to comment.
“The Insolvency and Bankruptcy Code (IBC) doesn’t have provision for a co-obligor structure. Hence, we have invoked the guarantees and may have to refer these group companies to NCLT," said a senior SBI official on condition of anonymity as he isn’t authorized to speak to reporters.
“The account will see 14 cases filed across several jurisdictions and will require one consolidated resolution plan. This will delay the IBC process, “ said another public-sector banker on condition of anonymity.
Separately, Videocon has approached the Bombay high court against SBI and RBI, seeking a stay on lenders’ move to send it to NCLT. The high court will hear its appeal on 17 April.
“If the borrowings are inter-connected, it is appropriate that the same NCLT hears the matter. Parties may have to approach superior courts to transfer these matters to a single NCLT," said Ramesh Vaidyanathan, founder of Advaya Legal.
SBI is in the process of inviting bids for selecting an interim resolution professional (IRP) for Videocon Industries and Videocon Telecommunications. The lender had earlier named Alvarez & Marsal as the IRP, but other firms, who claimed to have submitted lower bids, were displeased with this choice. According to a 29 January Mint report, SBI has formed an internal committee to address concerns around the process.