The Mumbai bench of the National Company Law Tribunal (NCLT) has initiated corporate insolvency proceedings against Vadraj Cement, a group company of the insolvent ABG Shipyard, after the cement manufacturer defaulted on dues of over ₹87 crore to Punjab National Bank. The NCLT’s decision, which came in response to an application filed by Punjab National Bank under the Insolvency and Bankruptcy Code (IBC), marks a significant development in the ongoing financial challenges faced by Vadraj Cement.
The NCLT bench, led by Justices KR Saji Kumar and Sanjiv Dutt, found that the default by Vadraj Cement had been established, and the application filed under Section 7 of the IBC deserved to be admitted. The tribunal, therefore, ordered the commencement of the corporate insolvency resolution process (CIRP) for Vadraj Cement. Pulkit Gupta, a partner at EY (debt and special situations), was appointed as the interim resolution professional (IRP) to manage the day-to-day affairs of the company during the resolution process.
Punjab National Bank had filed the application under the IBC, stating that Vadraj Cement had defaulted on its dues despite repeated requests. The bank’s move was prompted by the company’s failure to repay the outstanding amount, leading to financial stress and a prolonged non-performing asset (NPA) status. Vadraj Cement had been classified as an NPA in December 2017, and despite subsequent requests for repayment, the default persisted.
The initiation of the CIRP is a significant step to address the financial distress faced by Vadraj Cement. This process, guided by the IBC, aims to provide a structured framework for the resolution of outstanding dues, allowing for the equitable distribution of funds among creditors. The appointment of an interim resolution professional is crucial in managing the affairs of the company during this period and facilitating negotiations between the creditors and the debtor.
Vadraj Cement, headquartered in Gujarat, has been grappling with financial challenges for some time. In August 2018, the Bombay High Court initially ordered the winding-up of Vadraj Cement after a trade creditor, Beumer Technologies India, sought legal intervention to recover dues. However, the court later recalled the winding-up order and transferred the matter to the NCLT bench.
The company’s total debt reportedly stands at ₹7,000 crore, with lenders including Punjab National Bank, Union Bank of India, Central Bank of India, Indian Overseas Bank, Bank of India, and Bank of Baroda. The financial strain faced by Vadraj Cement is part of a larger trend in the Indian corporate landscape, where companies, particularly those in sectors like cement and steel, have grappled with economic challenges and debt-related issues.
The decision to initiate CIRP against Vadraj Cement highlights the significance of the IBC in addressing corporate insolvency and providing a legal framework for the resolution of financial distress. The process involves the identification of a resolution professional, who, in this case, is Pulkit Gupta from EY, to oversee the operations during the resolution period. The resolution professional works closely with the creditors, company management, and other stakeholders to formulate and implement a resolution plan that ensures the maximization of value for all parties involved.
While Vadraj Cement faces a challenging period ahead, the initiation of CIRP provides an opportunity for the company and its creditors to engage in negotiations, explore restructuring options, and work towards a sustainable resolution. The NCLT’s decision serves as a crucial step in the insolvency resolution process and reinforces the importance of a robust legal framework to address financial distress in the corporate sector.