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March 4, 2024

Omkara ARC acquired a “minor debt” from Phoenix ARC in Karaikal Port months before the resolution plans were voted on

According to documents, Omkara Assets Reconstruction Pvt Ltd (Omkara ARC), the biggest financial creditor of Karaikal Port Pvt Ltd, purchased a small debt in the port company for about Rs 92 crores from an asset reconstruction company that was partially owned by the Kotak Mahindra Group. This gave Omkara ARC full voting rights on a lender’s panel months before the panel would vote on the resolution plans for the bankrupt port.

Recently, the Committee of Creditors (CoC), in which Omkara ARC had a 100% voting stake and which Adani Ports and Special Economic Zone Ltd (APSEZ) had proposed a resolution plan of over Rs 1,200 crores for Karaikal Port, accepted it.

Phoenix ARC Pvt Ltd, which is controlled 49.9% by the Uday Kotak-led Kotak Mahindra Group and is its largest individual stakeholder, claimed that Karaikal Port Pvt Ltd owed it Rs91.98 crore in unpaid debts.

In response to a plea filed by Omkara ARC seeking to recover outstanding debts of Rs2,963.85 crores, the National Company Law Tribunal (NCLT) Chennai bench initiated the insolvency resolution proceedings against the private port in Puducherry sponsored by Marg Ltd on April 29.

On June 3, the bankruptcy court in Chennai fined Phoenix ARC Rs. 5 lakh while rejecting an application it filed to stop the insolvency resolution procedure started against Karaikal Port in April.

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 NCLT rejected the allegations made by Phoenix ARC and immediately thereafter Omkara ARC bought the debt of Phoenix ARC in Karaikal Port giving it a hundred percent voting share on the lender’s panel,” said a person briefed on the matter. “So, only one vote from Omkara ARC was required to pass the resolution plan,” he added.

There hasn’t been any prior information about Omkara ARC taking up Phoenix ARC’s debt in Karaikal Port.

The list of creditors posted on Karaikal Port Pvt Ltd’s website as part of the Corporate Insolvency Resolution Process, however, reflects the agreement (CIRP).

Omkara ARC and Phoenix ARC were on the list of secured financial creditors that were informed on May 20, 2022. However, the following list was made public on June 20 and all lists made after that have just mentioned Omkara ARC as the secured financial creditor.
According to the creditor’s list from 20 May, Phoenix ARC had submitted a claim for Rs 99.12 crores, of which Rs 55 crore had been approved by the resolution professional.

The presence of Phoenix ARC on the lender’s panel with a voting share of 3.4 percent would not have made any difference to the approval of a resolution plan for Karaikal Port as Omkara ARC held the majority voting share, a banking industry source said. “The purchase of Phoenix ARC debt by Omkara ARC merely removed a minor irritant,” he added.

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 the 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 percent through Omkara ARC and therefore, will solely control the decision-making power of the proposed Committee of Creditors”, the NCLT said, referring to the application filed by Phoenix ARC.

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 then Interim Resolution Professional (IRP) of Karaikal Port who admitted a claim of Rs55 crore, entitling the ARC to a 3.4 percent voting share in the Committee of Creditors.

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 “are not maintainable”, the NCLT said that once the insolvency resolution process is initiated, irrespective of who (the financial or operational creditor) triggered the process, the CoC is formed based on the claims submitted by all the creditors.

Citing Phoenix ARC’s arguments that Omkara ARC has the authority to decide the resolution plan’s outcome because it holds 96 percent of the voting shares in the CoC, the NCLT stated that it was “preposterous” to hold such a view and that all of Phoenix ARC’s allegations are “premature and mere conjectures.”

“We do not find any merit in apprehending, what might happen in the last CoC meeting at this point in 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”.

According to NCLT’s order, the fine must be paid to the PM National Relief Fund.

For Rs1,500 crore in November of last year, Edelweiss Asset Reconstruction Co Ltd (EARC) sold Omkara ARC the debt of Rs2,059.24 crore as well as the 11% equity it held in Karaikal Port Pvt Ltd.

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