June 11: The dedicated bankruptcy court has approved the revised resolution plan for textile company Digjam, a well-known suiting brand of yesteryears. The order will set a precedent since lenders and the tribunal have allowed the successful bidder to change the payment schedule after the approval due to pandemic COVID-19 and the subsequent lockdown. 

The Ahmedabad bench of the National Company Law Tribunal (NCLT), while approving the revival plan submitted by the Mumbai-based Finquest Financial Solutions has also observed that such relaxation in the time frame or timeline for payments is not going to change the nature and character of the plan. The tribunal had passed this order on May 27, The Economic Times reported. 

“The very object of the IBC is, ‘Resolution is the rule and Liquidation is an exception’, liquidation brings the life of a corporate to an end,” observed judicial member of NCLT Manorama Kumari in her 24-page order. “Those concession/modification/relaxation, so sought for by the Resolution Applicant appears to be genuine and bonafide in view of pandemic COVID-19 virus and consequent lockdown which has a global effect on the economy.” 

The Ahmedabad bench of the national company law tribunal (NCLT) admitted the petition in April 2019 following which corporate insolvency resolution process (CIRP) was initiated. 

The Resolution Professional (RP) of the company Sunil Kumar Agarwal had received claims of about Rs 265 crore and the admitted amount was around Rs 141 crore. 

The Committee of Creditors (CoC) had approved the plan submitted by the Finquest Financial of Rs 95 crore with 100% voting in favour of the bidder. The liquidation value of the Digjam was Rs 93.79 crore. 

The Kolkata-based SK Birla-owned Digjam was referred to the insolvency resolution by one of its operational lenders. The company had only two financial creditors, UCO Bank and SBI Stressed Asset Management, with 83.31% and 16.69% voting rights respectively in the company. 

Apart from Finquest Financial, another BSE-listed firm that was popular through 90s and early 2000s, Donear Industries had also submitted its plan. However, the lenders had decided Finquest Financial’s plan. 

“This is unprecedented but a good step in the right direction wherein the resolution applicant is also given some relaxation both by the committee of creditors and the NCLT so that the company doesn’t go into liquidation and maximisation of value happens through the resolution process,” said Ashish Pyasi Associate, Partner, Dhir & Dhir Associates. 

“As the lockdown has affected everyone even the resolution applicant in this case which is a financial institution had to seek relaxation in the repayment timelines. In coming days, we may see similar applications or requests by the resolution applicants as due to COVID-19 effect, the bidders may not be comfortable to continue with their bids at the same level,” adds Pyasi. 

The successful bidder had approached on April 29 to NCLT for modification in the lender’s approved revival plan and sought relaxation in the timeframe for payment to financial creditors of Digjam due to the financial difficulties arising out of the current pandemic situation of Covid-19 Virus and consequent ongoing lockdown. The tribunal had approved the changes since lenders of the company had allowed the successful bidder to make changes in the payment schedule. 

In its heydays in the 90s and 2000s, Digjam was very popular suiting brand with filmmaker Shekhar Kapur was a model for its campaigns. 

BSE-listed Digjam was facing financial trouble for a long time. In October 2018, it announced the closure of its Jamnagar mill due to “extremely tight liquidity and working capital position”. 

Since, the inception of the Insolvency & Bankruptcy Code (IBC), several textile and clothing brands including Alok Industries, Reid & Taylor India (RTIL), Mandhana Industries and Provogue were referred for the revival. 

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