SBI, Bharat Petroleum Oppose Venugopal Dhoot’s Plea For Moratorium On Videocon’s Overseas Assets

State Bank of India and a Bharat Petroleum Corporation Ltd.’s subsidiary opposed Venugopal Dhoot’s plea in the National Company Law Tribunal to extend the moratorium on sale of assets belonging to Videocon Group’s petroleum unit in Brazil.

Section 14 of the insolvency code allows the tribunal to declare a moratorium on a corporate debtor, preventing alienation or disposal of any of “its” assets. In the Alpha and Omega case, the NCLAT had interpreted the word ‘its’ to indicate the assets or legal rights owned by the corporate debtor. Subsidiaries are excluded from the scope of Section 14 as they are separate legal entities.

Section 60(5)(c) allows the tribunal to pass order on any question of law or facts, arising out of or in relation to the insolvency resolution process. This section operates notwithstanding any contrary provision in the IBC. Counsel for Dhoot argued on the basis of this section to seek relief from the tribunal.

SBI’s Counter

State Bank of India, part of the committee of creditors, opposed the moratorium saying that the overseas assets are outside the resolution under the insolvency code.

Here are the arguments the bank made:

• SBI can generate proceeds from sale of overseas assets which would help in recovery of debt owed by Videocon.
• SBI’s position would be prejudiced if a moratorium is imposed on overseas assets as it can delay the recovery from sale proceeds.
• The insolvency code does not apply to companies which are incorporated outside India and the tribunal must refuse to pass orders against the sale by SBI.
• Overseas subsidiaries of Videocon are actual owners of the petroleum assets.
• The information memorandum filed for insolvency resolution of Videocon did not include the overseas assets.
• While SBI would be subjected to moratorium, creditors in foreign countries would proceed with the sale which could deprive the bank from the sale proceeds.
• A resolution plan for overseas assets will not be binding on foreign entities which would make it less effective.
• Extension of moratorium to overseas assets may result in contravention of the NCLAT’s orders and the insolvency code.

Bharat Petroresources Argument

Bharat Petroresources, a subsidiary of Bharat Petroleum Corporation Ltd. that holds 50 percent in the Brazilian entity which houses Videocon’s petroleum assets, opposed the plea arguing that a moratorium would affect its position as a joint venture partner.

Counsel representing Bharat Petroresources argued:

• Bharat Petroresources has been incurring out-of-pocket expenses for payment of call money pursuant to the joint venture agreement due to Videocon’s consistent default since December 2018. This has prejudiced their position as a partner in the joint venture.
• Petrobas, the Brazilian state entity, is operating the oil fields on a concessionary model and Bharat Petroresources could forfeit oil exploration rights if call money payments are missed.
• A moratorium on overseas assets will have a far-reaching effect as foreign regulatory bodies would not comply with it.
• It will also amount to piercing of corporate veil which is envisaged only under cases of fraud and is not inevitable under present circumstances.
• The intergroup agreement by Videocon was executed by a single authorised signatory, who belonged to the Videocon promoters; such an agreement will not be binding or have any effect on third parties.

The tribunal, which asked the parties to file replies, will next hear the matter on Aug. 22.