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Videocon- Vedanta: The Resolution Process

It is a long story with its roots in 1955 when Mr. Nandlal Dhoot set up a sugar mill named Gangapur Sugar Mill and made it a successful business. In 1986, along with his three sons, he started a company, ‘Adhigam Trading’ that sold paper tubes which was later renamed “Videocon”. Videocon’s tagline “Experience Change” has ironically become the reason for its downfall.

Within a few months of incorporation, it got a license for color television making. Venugopal Dhoot, son of Nandlal Dhoot, took control of Videocon in a short span of time and made Videocon the leading company of color television. By 1990, the company added products like ACs, refrigerators, and other home appliances to its business & became the no.1 home appliances company in India.

Videocon was inflating with successful explorations and continued to enter other sectors and industries such as oil & gas, telecommunication, DTH among others. To establish these businesses, Videocon took a hefty amount of loans from banks but unfortunately, these businesses didn’t follow the success path as was planned. And after the sun had shone bright, magnanimously, it came to set and the company’s debt began to rise, and eventually, the amount became about INR 35,000 crore.

After the entry into new sectors, home appliances & consumer durables remained the largest source of their revenue. However, it couldn’t survive the competition from rivals like LG, Samsung, etc. Eventually, welcoming Videocon to the bankruptcy court (NCLT) in 2018, and making Videocon’s bankruptcy the biggest ever in India.

On 16 December 2020, Videocon informed investors of approval by the Committee of Creditors (CoC) of the resolution plan submitted by Twin-Star Technologies Ltd., a company owned by Anil Agarwal, Chairman of Vedanta group. Mr. Agarwal was keen on increasing his stake in the Ravva oil field in the Krishna Godavari Basin located in coastal Andhra Pradesh. Through Cairn Oil & Gas, a vertical of Vedanta Group, Mr. Agarwal already owned a 22.5% stake in the oil field while Videocon petroleum had a 25% stake. This meant that after taking over Videocon, Mr. Agarwal would indirectly control 47.5%, which he would not want to miss.

The claims for the debt were INR 71,433.75 crore, out of which INR 64,838.63 crore were admitted but only INR 2962.02 crore was approved. This amounts to 4.15% of the total outstanding claim amount and the haircut to all creditors was 95.85%.

Twin Star Technologies was ready to take over the Videocon group until Venugopal Dhoot invoked section 12 A of IBA that allows the Committee of Creditors (CoC) to withdraw the insolvency case and consider the promoter’s settlement offer. He claimed that the settlement offered by him would be higher than what Twin Star had agreed to pay the creditors. He also challenged to ascertain if the liquidation value was leaked to Twin Star.

Financial creditors, who are a minority in the committee of creditors, can be overtaken by those who have more power. However, because the law requires the distribution to be "fair and equitable", resolution plans can be contested. On the other hand, the integrity of the IBC process must be preserved. Critical information mustn’t fall into the hands of interested parties in the resolution process. It is highly critical to keep an eye on the promoters who try to take advantage of the system. The spirit of IBC should be maintained while dealing with such sensitive and important deals.

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