HNG Insolvency Case: Unraveling Big Conflict And Quid Pro Quo Deal
Conflict of interest galore in the long pending debt resolution case involving Hindustan National Glass (HNG), India's oldest glass-making company. It has come to light that Edelweiss Group, Mumbai's leading financial services company, was a funding partner of AGI Greenpac, one of the bidders in the race to acquire HNG. The same Edelweiss Group was also on the other side of the deal and cast its vote in favour of AGI's bid to acquire HNG, making it a case of grave conflict of interest, said legal experts involved with the deal. The sensational revelations have come to light as the proceedings in the National Company Law Tribunal (NCLT) revealed a letter (in possession of BW) from Edelweiss Alternative Asset Advisors to AGI promising Rs 1100 crores in funding to acquire HNG. The plot thickens as the legal proceedings also show that Edelweiss was a key member of the Committee of Creditors (CoC), which is mandated to approve or reject the bids, and could swing the insolvency deal in favour of AGI - a quid pro quo.
One of the key clauses in the letter of funding issued by Edelweiss to AGI says that funding would be provided only if AGI's plan was approved by the CoC. But there was no chance of rejection of AGI's bid since on the other side Edelweiss also managed to break into the CoC club with a 24 per cent voting right, after it acquired HNG's debt from L&T, HSBC, HDFC and Axis in a structured arrangement, the records show. Among the only two bidders for HNG in the debt recovery tribunal, AGI's bid won 98 per cent of votes from the CoC while the other bidder secured 88 per cent vote. In this, while all the other COC members voted similarly for the two bidders, a vote from Edelweiss could have swung the deal in favour of AGI - the letter of funding reveals the plot.
As part of the funding deal, Edelweiss was to get debentures of HNG, which would be later converted into equity shares - a sweet deal.
An email sent to Edelweiss Group, COC and the RP has remained unanswered. Will add their responses as when received.
How objection was raised on Edelweiss voting in COC
Edelweiss wanted to be the part of the lead COC, which is authorised to take various decisions to close the deal. Further, minutes of the COC meeting also show that someone had objected to Edelweiss' presence in the committee during voting but it was overlooked. These details have come out in the copy of the minutes of the meeting filed with the adjudicating authority of Kolkata NCLT.
The minutes of the meeting show that RP Girish Juneja informed the CoC members that Edelweiss ARC had submitted four different claims and hence was entitled to have four separate voting rights and had requested the RP to provide four separate voting rights instead of one combined voting right. Then, the RP requested Edelweiss to share authorisation for four separate voting rights.
"One lender raised the concern about the validity of the votes already cast by Edelweiss. To this, the RP after taking the legal opinion of the COC counsel requested Edelweiss to share a letter along with revised authorizations stating the validity of the earlier votes cast," says the copy of the minutes of the meeting, which is in possession of BW.
Intriguingly, the RP is a person appointed by the COC, of which Edelweiss is a part, something that only deepens the conflict. COC consisted of three lead lenders including SBI with 38 per cent voting rights, Edelweiss with 24 per cent voting rights and DBS having 14 per cent voting rights. Clearly, Edelweiss had the second-largest voting rights in the COC, which gave it the power to swing the deal. Hence, when only two bidders got equal votes from the other COC members, AGI got 98 per cent votes. This suited Edelweiss Group since it was to earn a fat interest commission on a lending deal it had cut with AGI.
HNG insolvency matter is among the longest pending debt resolutions in India and has been marred by several controversies, mainly due to the highly vitiating process followed by the Resolution Professional (RP). India's two Supreme Court judges NV Ramana and AK Sikri have given a detailed opinion on the dubious role of the RP in the HNG resolution matter.
Questions over RP's role
"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 the 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 has said in his opinion.
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 did Justice Justice 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 the 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 were 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 15 March 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.
Letter by Edelweiss to AGI committing a loan of Rs 1100 crore
Copy of the minutes of the meeting detailing objections by COC members against Edelweiss ARC
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