NCLAT sets aside Ricoh India acquisition by Dharamshi-Jhunjhunwala consortium

NCLAT – Creditors committee can’t approve illegal conduct

Ricoh shows its new webfed inkjet press at Hunkeler Innovation Days in end-February 2019. Photo IPP
Ricoh shows its new webfed inkjet press at Hunkeler Innovation Days in end-February 2019. Photo IPP

The National Company Law Appellate Tribunal has emphatically overturned or set aside the NCLT approved deal that gave Ricoh India to the Kalpraj Dharamshi-Rekha Jhunjhunwala consortium. The order issued on 5 August 2020, is a setback by all accounts to revive the print, document, and related services company that the consortium has renamed Minosha India.

In the order, the three-member appellate tribunal presided over by acting chairperson Bansi Lal Bhat directed Ricoh India’s committee of creditors to take a fresh decision within ten days on the resolution plans that were submitted within the stipulated deadline. The NCLAT said, “If no decision is communicated to the adjudicating authority (NCLT) and the time for the completion of the CIRP (corporate insolvency resolution process) has already expired, then the adjudicating authority is to pass an order for liquidation of the corporate debtor (Ricoh India).”

The NCLT order was challenged by Kotak Investment Advisors, the private equity arm of Kotak Mahindra Bank, one of the four bidders for Ricoh India. Its argument before the appellate tribunal was that the Dharamshi-Jhunjhunwala consortium submitted its bid after the deadline, and after the other bids were opened.

In its 43-page order, the appellate tribunal said Ricoh India’s resolution professional committed a ‘grave error’ in accepting the resolution plan beyond the last date without notifying an extension of the deadline.

Ricoh India’s committee of creditors invited expression of interest from prospective resolution applicants in July 2018, with a submission deadline by August. After that, it issued a ‘process memorandum’ requiring applicants to submit a resolution plan before 10 January 2019. Phoenix ARC, affiliated to Kotak Advisors, submitted its resolution plan within the deadline, but the Ricoh India resolution professional allowed the Dharamshi-Jhunjhunwala consortium to submit its proposal on 28 January 2019.

When the resolution plan was challenged in December 2019 by Kotak Advisors, its objections were rejected by a reconstituted two-person bench, including a technical member. According to the NCLAT order, this violated the principles of natural justice. The Dharamsi-Jhunjhunwala consortium was allowed access to Ricoh India’s data room by the resolution professional without obtaining the creditor’s committee’s approval. The NCLT approved a resolution plan submitted by Ricoh India’s minority shareholders providing significant payouts to them, resulting in a conflict of interest. Lastly, the resolution professional committed various other irregularities during the insolvency process.

The committee of creditors, the consortium and the resolution professional questioned the maintainability of the appeal on the ground that it was filed beyond the limitation period. The committee accepted the consortium’s resolution plan on 13 February 2019, with the intent to maximize value. And that the process allowed it to accept a plan according to its commercial wisdom at any stage.

Illegal and arbitrary conduct

The NCLAT (appellate tribunal) rejected the arguments. Although the committee of creditors can exercise its commercial wisdom in the context of resolution plans, it cannot approve or condone illegal and or arbitrary conduct during the resolution process, as in the case under consideration. An ‘illegal’ exercise of power by the resolution professional cannot be an exercise in maximizing value under commercial wisdom. The resolution professional failed to justify its reasons for not issuing notices and following procedures. Thus, the resolution professional committed a grave error in accepting the consortium’s resolution plan after the submission deadline.

Post office project

As we wrote on 20 February 2020, the battle to be the Indian lead partner in Ricoh India’s revival is perhaps because it is a technology company with substantial revenue potential. While it suffered governance issues and losses of Rs. 1,123 crore in Financial Year 2014-15, the company won a project to digitize 130,000 post offices across India in late 2014 that is said to be still under implementation.

The governance and mismanagement were highlighted in September 2015, when its new auditor, BSR & Co, pointed out financial discrepancies. Ricoh India, which is said to owe nearly Rs 2,519 crore to its financial and operational creditors, filed a voluntary insolvency application in January 2018.

The company has a significant installed base of equipment, including digital production presses in the country on which it continues to earn maintenance and consumable annuity income. In FY17-18, it reported a revenue of Rs. 680 crore and a net loss of Rs. 894 crore. More recently it has renamed the Ricoh India operations as Minosha India with an office in Greater Noida in the Delhi NCR.


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