PUDUCHERRY : A bankruptcy court in Chennai has imposed a Rs 5 lakh fine on Phoenix ARC Pvt Ltd while dismissing an application brought by the asset reconstruction company part-owned by the Kotak Mahindra Group seeking to reverse the insolvency resolution process initiated in April against Karaikal Port Pvt Ltd.
In the application, Phoenix ARC alleged a conspiracy between an Adani Group company, another asset reconstruction company, and the corporate debtor to “fraudulently” initiate the resolution process.
The Chennai-bench of the National Company Law Tribunal (NCLT) started insolvency resolution process against the private port located in Puducherry promoted by Marg Ltd on 29 April on a petition brought by Omkara Assets Reconstruction Pvt Ltd (Omkara ARC) seeking to recover unpaid dues of Rs 2,804.56 crores.
Karaikal Port Pvt Ltd also owes Rs 91.98 crore in unpaid dues to Phoenix ARC, which is 49.9% owned by Uday Kotak-led Kotak Mahindra Group and its largest single shareholder.
The squabble broke-out after the port company was admitted to insolvency.
Phoenix ARC alleged in the application filed with NCLT that “Omkara ARC and the corporate debtor (Karaikal Port Pvt Ltd) have conspired with Adani Ports and Special Economic Zone Ltd (APSEZ) and have fraudulently made this Tribunal to pass an order” dated 29 April 2022 to begin the corporate insolvency resolution process, according to a 3 June NCLT order.
“Further, it was stated (by Phoenix ARC) that in the guise of invoking the provisions of IBC, APSEZ will indirectly take over the majority voting share of 96.1% through Omkara ARC and therefore, will solely control the decision-making power of the proposed Committee of Creditors”, according to the NCLT.
The application filed by Phoenix ARC also sought a direction to an “appropriate authority” to investigate the alleged “fraudulent financial transaction effectuated between Omkara ARC, Karaikal Ports Pvt Ltd and APSEZ”.
Phoenix ARC sought to stay the insolvency resolution process and the constitution of the Committee of Creditors till the investigation is completed. Based on the outcome of the investigation, Phoenix ARC sought to “recall” the NCLT order initiating the resolution process, which it alleged was an “outcome of fraud and collusion”.
After hearing the parties, the NCLT said it “does not have the powers to recall or review its own orders” and hence the demand to stay the proceedings and recall the order “transcends beyond the scope of IBC” and is “not maintainable before this Tribunal”.
The NCLT also pointed out that Phoenix ARC has submitted its claim before the Interim Resolution Professional (IRP) of Karaikal Port who admitted a claim of Rs55 crore, entitling the ARC to a 3.4% voting share in the Committee of Creditors.
Thus, it could be seen that the applicant (Phoenix ARC) has acted in furtherance of the admission order passed by the Tribunal by submitting the claim before the IRP, the NCLT said.
If the applicant (Phoenix ARC) is aggrieved by the order passed by this adjudicating authority, then the applicant ought to have filed an appeal before the appellate tribunal, NCLT said.
NCLT observed that the application filed by Phoenix ARC was the result of a “serious infight between the two financial creditors” of Karaikal Port Pvt Ltd.
Stating that the allegations of “fraudulent transactions’ attributed to Omkara ARC “is not maintainable”, the NCLT said that once the insolvency resolution process is initiated, irrespective of who (financial or operational creditor) triggered the process, the CoC is formed based on the claims submitted by all the creditors.
Referring to the arguments made by Phoenix ARC alleging that Omkara ARC have the right to decide the outcome of the resolution plan for Karaikal Port by virtue of holding 96% of the voting share in the CoC, the NCLT said that it was “preposterous” to take such a view and that all the allegations made by Phoenix ARC are “premature and mere conjectures”.
“We do not find any merit in apprehending, as to what might happen in the last CoC meeting at this point of time, even before the first CoC meeting is conducted. Hence, this application is devoid of merits, in law and on facts,” the NCLT said, while dismissing the application and imposing a fine of Rs 5 lakh on Phoenix ARC “to dissuade other applicants from filing similar sort of application and wasting the judicial time of this Tribunal”.
The fine must be paid to the PM National Relief Fund.
In November last year, Edelweiss Asset Reconstruction Co Ltd (EARC) sold the debt of Rs2,059.24 crore along with the 11 per cent equity it held in Karaikal Port Pvt Ltd to Omkara ARC for Rs1,500 crore. Omkara ARC now is in charge of Karaikal port.
The Swiss Challenge auction by Edelweiss ARC of Karaikal Port’s debt was prompted by an offer from Omkara ARC, which is understood to have the backing of APSEZ.
Earlier this year, Omkara ARC inducted long-time Adani Group loyalists Ameet Desai and Surender Kumar Tuteja as its representatives on the board of Karaikal Port, reinforcing industry and market speculations that APSEZ has struck a deal for the all-weather port in Puducherry promoted by banker-turned entrepreneur G R K Reddy.
The speculation gained further credence after Omkara ARC hired Vettath Raghunandan and Nilanjan Bhattacharya – who had long association with the Adani Group in senior roles – to run Karaikal Port as chief executive officer and chief financial officer, respectively.
Unlike a formal acquisition deal, APSEZ, according to industry sources and experts, could be using the NCLT route to buy Karaikal Port as the IBC process allows India’s biggest port operator to buy the port on a “clean slate” without having to face any unforeseen liabilities that could spring up post acquisition.
Besides, the port can be acquired at a much lower price under IBC.
“Adani has more or less taken over Karaikal Port,” said a port consultant with knowledge of the matter.
“Adani has mobilised executives on the ground to run the port and its board prior to the sale through NCLT”, he added.
Chennai-based infrastructure developer Marg Ltd, promoted by Reddy, held a 45 per cent stake in Karaikal Port while four private equity funds – Ascent Capital Advisors India Pvt Ltd, Jacob Ballas Capital India Pvt Ltd, Affirma Capital India and GIP India – together owned 44 per cent stake.
The shareholders will not get any penny from the deal as the equity value will be wiped out nder the IBC process.
APSEZ and Omkara ARC could not be reached immediately for comments.
Source : ET Infra