In what could be seen as a last-ditch effort to maximise the value of assets of a company even under the liquidation stage, the Chennai Bench of the National Company Law Tribunal (NCLT) has declared null and void the termination of the agreement by PepsiCo India Holdings with its beleaguered third party bottling firm Oceanic Tropical Fruits, enabling the company to be tagged as a ‘going concern’.
The NCLT observed that the business of Oceanic Tropical, the third party bottling company, was mainly dependent on the exclusive contractual agreement (bottling operations) with PepsiCo India Holdings. By revoking the termination of the agreement, the tribunal directed both the parties to perform their respective obligations, as per the terms and conditions of the agreement of May 12, 2011.
PepsiCo India and Oceanic Tropical had entered into an agreement under which the latter undertook to manufacture, process and package Slice RGB for the former at the company’s plant in Tamil Nadu for distribution under the trademarks licensed by PepsiCo for a period of 10 years till May 2021.
Both the parties, thereafter, entered into an addendum agreement on April 27, 2016, for inclusion of another product namely Mirinda Cups, till the term of the agreement.
Oceanic Tropical was sent for liquidation on October 31, 2018, after a corporate insolvency resolution process (CIRP) ordered on September 12, 2017 failed to elicit any resolution plan for the company. The CIRP was ordered against the company, acting on a petition filed by ICICI Bank, over a default of `100 crore.
Post the NCLT Chennai ordering the CIRP, PepsiCo India terminated the agreement with the company and moved the tribunal with a plea seeking direction to the RP to hand over certain plant and machinery owned by it which were lying at the premises of Oceanic Tropical.
The RP submitted that PepsiCo India terminated the contract in an arbitrary manner without any valid cause during the CIRP period in violation of the contractual terms as well as the provisions contained in the I&B Code 2016.
The move caused the company run high and dry without any business to do on its own, subsequently suffering huge loss apart from losing its concept of a ‘going concern’. The RP submitted that Oceanic Tropical, even as per the liquidation order passed by the NCLT on October 31, 2018, should be allowed to retain its status of a going concern till the liquidation process is completed and an order of dissolution is passed.
The tribunal observed that the business of Oceanic Tropical has the intrinsic link with the agreement terminated. The termination of the agreement by PepsiCo India during the moratorium has taken away the interest created in favour of Oceanic Tropical in relation to its business which has resulted in taking away the property namely the trademarks and designs owned by PepsiCo.
Consequently, the company could not carry on the business as a going concern which frustrated the object of the CIRP and there was no occasion for the CoC to consider any resolution plan, as no resolution applicant came forward for revival of the business due to the termination of the agreement. The tribunal said the action of PepsiCo India terminating the agreement during the moratorium was in violation of clause (d) sub section (1) of Section 14 of the IBC.
Even during the process of liquidation, under the IBC, every attempt should be made to revive the company or sell the same as a going concern to maximise the value of assets, and till then the company is free to perform its obligations under the existing contract, the RP argued.
The RP alleged that PepsiCo approached the NCLT with unclean hand and the company was yet to pay the outstanding dues of `3.9 crore to Oceanic Tropical.
On the alleged dues, PepsiCo submitted that it had received a letter from Oceanic Tropical alleging a sum of `95.99 lakh was due to them. PepsiCo India disputed the claim and wrote back to Oceanic Tropical stating that the dues was only to the tune of `24.34 lakh.
Moreover, PepsiCo India argued that Oceanic Tropical was liable to pay a sum of Rs 61 lakh towards short supply of products in terms of agreement for the period of between September 2017 and November 2017.