Resentment is growing among the employees of Hindustan National Glass (HNG), India's oldest glass making companies, against the Committee of Creditors (COC) and the Resolution Professional (RP) for the long delay in concluding the insolvency resolution for company. State Bank of India, the lead (COC) for HNG is now scouting for Asset Reconstruction Companies (ARCs) as a backup to buy HNG in case the Supreme Court (SC) disqualifies the applicant chosen by them on the back of conditional approval from the Competition Commission of India (CCI). But the HNG employees are likely to oppose any move by COC to sell the company to an ARC tooth and nail, since it could further mark-down the asset value and put the future of thousands of employees at risk, the sources said.
HNG insolvency process has been among the longest stretching matters in India's debt recovery tribunals. While the COC has blamed the judiciary for the delay in finalization of the resolution, employees blame the COC and RP for their missteps over the past couple of years for the delay. Letters written by one of the largest HNG employee union, which highlights how the initial choice of applicant to takeover the company was the key reason for the delay. The letter states that the COC waited for nearly six months for an applicant to win an approval from the CCI, which gave only a conditional nod -- that the the Rishikesh plant of HNG be sold-off for the deal to close. Yet in the defense of the COC and the RP, the experts say they have a right to choose the applicant they want.
A letter written by the Nala Sangam, Puducherry employee union of HNG said, "In our view, the COC should consider a resolution applicant who is in immediate compliance with the set requirements to avoid catastrophic time delays or further claims that could frustrate and delay the process and jeopardies our livelihood and income. As dedicated employees for three generations, we have dedicated our lives and families to the Puducherry plant."
The Nala Sangam union has been living in the fear of an ageing giant furnace, the collapse of which due to delay in the corporate insolvency resolution process, could impact the safety of thousands of workers. Despite such appeals by the employee unions in 2022, the COC then waited for nearly six months for an applicant to receive CCI nod and not choosing those who had already received such approvals, the employees said.
"The repercussions of this decision (by COC) will lead to further long delays in the resolution process, which will have unintended consequences that will serious and detrimental for the safety of assets, personals and job security,' the employees," the letter had told the COC.
What did Justice Sikri's say about the COC and RP
In the opinion of Justice AK Sikri, the former SC judge, a conditional resolution plan cannot be said to be in compliance with regulations of Corporate Insolvency Resolution Process (CIRP). Justice Sikri gave his opinion in August 2023 to the Nala Sangam Employees Union.
"The actions of the RP have given an undue advantage to AGI (one of the applicants) over remaining resolution applicants, especially INSCO. The prejudiced and partisan conduct of the RP can be seen from the following: The RP watered down the requirements under the RFRP (request for resolution plan) through email dated 25.08.2022 by allowing the CCI approval to be availed after approval of the plans by the COC but before application to the NCLT. The RP, contrary to his own decision communicated through email dated 25.08.2022, submitted the Resolution Plan of AGI, without there being any CCI approval on that date. It is noteworthy that AGI did not have any CCI approval on the following dates: On the date of submission of Resolution Plan on 26.09.2022. On the date of CoC approval on 28.10.2022. On the date of application of AGI's Resolution Plan for approval before NCLT Kolkata," Justice Sikri said.
Further, Justice Sikri also said that the decision taken by the RP was categorically to favour an applicant. "Considering there were only two bidders, INSCO and AGI, and since INSCO already had the approval under green channel on the date of submission of its final Resolution Plan, the decision taken by the RP was categorically only in favour of AGI being the only other bidder and who did not have a CCI approval. Had the decision of the RP not been taken, AGI's Resolution Plan would not have been eligible for voting. It is also pointed out that on the dates of submission of Resolution Plan as well as voting, AGI did not even have an application before CCI pending, yet the RP has reposed utmost confidence in the Resolution Plan of AGL Perusal of the above events shows that action of the RP was to give special preference to one bidder as opposed to the remaining bidder and the same ought to be examined by the NCLT Kolkata under Regulation 36 of the CIRP .; Regulations and prevalent judicial precedents.
What is Justice Justice NV Ramana say?
In the view of Justice NV Ramana, the former chief justice of SC, the RP's actions may have given an undue advantage to a party AGI. Justice Ramanna gave his opinion in June 2023.
"The actions of the RP have given an undue advantage to a bidder. In fact, considering there were only two bidders and since one already had (CCI) approval under green channel under the date of submission of its final resolution plan, the decision taken by the RP was categorically only in favour of AGI being the only bidder who did not have a CCI approval," Ramana said.
Interestingly, Ramana also said that AGI's resolution plan would not have been eligible for voting in the first place since on the date of submission of the plan as well as voting, AGI did not have any application pending before the CCI. "Yet, the RP has reposed utmost confidence in the resolution plan of AGI. There is merit in the arguments that actions of RP was to give special preference to one bidder and the same ought to be examined by the NCLT under regulation 36 of CIRP and prevalent precedents," Ramana said.
Mystery of conditional CCI approval
The CCI order dated March 15, 2023 reveals that CCI is of the prima facie opinion that the combination of HNG and AGI is likely to result in an 'appreciable adverse effect on competition' in the overall container glass packaging in general and in the sub-segments of alco-beverage and F&B in particular.
However, CCI proposed modifications by AGI that involved divestment of the Rishikesh plant of HNG, which in the submission of AGI would reduce the impact on the competition. Thus, the CCI granted approval to AGI only on the basis of this modification.
"Modifications were only submitted (by AGI) on March 10 and 14 and CCI order was passed on March 15. Thus it is clear that the CCI order is completely based on the submission of AGI and it has not had a chance to verify and examine the submissions. The submission of AGI, if proved to be false, would render the basis of the CCI order as wrong and liable to be set aside," Ramana noted.
Further, since AGI's plan was not disclosed to the RP, CoC on the submission of the resolution plan and its voting and on the date of filing of application by the RP to the NCLT for final approval, it is a clear case of non-disclosure and concealment by AGI. It would be tantamount to misrepresentation, Ramana noted. "A resolution plan discussed and approved on the basis of such non-disclosure should be set aside and sent back to the CoC as being violative of various sections," Ramana said.
Is conditional approval allowed?
"There cannot be a conditional approval of a resolution plan and the plan cannot be approved subject to receiving permissions from CCI," Ramana said.
The former CJI placed the reliance on an SC judgement in Ebix Singapore v/s CoC of Educomp Ltd where it had been held that a resolution plan conditional to future events/negotiations cannot be approved in the present form. The acquisition of HNG would lead to direct horizontal overlaps and also vertical overlaps and would attract the rigours of Section 5 of the Competition Act, he said. Also, the modifications would involve the closure of plants and the HNG workers union too have submitted various complaints to the chief of the Insolvency and Bankruptcy Board of India, the Comptroller and Auditor General, the finance ministry, SEBI and other regulatory and investigative agencies raising concerns over the role of the RP and controversial process being followed.
The matter is now in the SC and a final decision is likely in the next 2-3 weeks. Yet, the employees union are planning to stage a strong protest if the COC moves to sell the companies to ARCs.