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Cover Story

COVER STORY : National company flaw tribunal

Although touted as possibly the best way to recover bank loans in the quickest possible time, the National Company Law Tribunal has become a hotbed of complications, controversies, coercion, conflicts, and confusion. Alam Srinivas reports COVER STORY / Policy / Bankruptcy / By Alam Srinivas
Vol. 13 | ISSUE 4 | JULY 2019

Debt-BurdenExperts praised it. Former Finance Minister Arun Jaitley gloated over its achievements. Several entrepreneurs hailed its efforts. But when one examines the intricacies of its decisions to resolve the recoveries of huge debts owned by India Inc to financial, corporate, and other creditors, the National Company Law Tribunal (NCLT) seems to have largely failed. This is especially true in the cases, where the debt was huge, and the names involved were big, and publicly known. The law became flawed.

Almost all the big cases—including most of the 12 pinpointed by the Reserve Bank of India (RBI) as crucial and important—were mired in complications, controversies, conflicts, or confusion. In a few, there was a hint of indirect coercion on the country’s investigating authorities, and the lower courts. What’s more important is that some cases unravelled themselves in such a manner that the solution, i.e. “resolution” as the NCLT puts it, turned out to be temporary, and the entire process began again.

It was, but logical, that given this environment, there were allegations of corruption and favouritism. A few issues were raised in Parliament, but the officials denied them. However, the clouds of corrupt opaqueness continue to hover. This is due to the huge hair-raising haircuts, i.e. the creditors agreeing to accept a miniscule percentage of their total claims from the new owners. Add to this the occasions when the creditors accepted a payment that was the same as the “liquidation value, or the lowest possible amount, and one gets an idea of what is possibly wrong with the NCLT.

nclt-logoBank chairpersons, especially the heads of public sector ones, have emerged as the new power-base to dole out favours, and accept bids that may be extremely favourable to the new buyers of high-debt companies. Since these banks are largely owned by the government, there is a feeling that NCLT has become a new way of crony capitalism – instead of favourable loans and corporate debt restructuring, just reduce the quantum of existing loans by a huge percentage, and hand over the firms to loyalist industrialists.

Bank chairpersons, especially the heads of public sector ones, have emerged as the new power-base to dole out favours, and accept bids that may be extremely favourable to the new buyers of high-debt companies. Since these banks are largely owned by the government, there is a feeling that NCLT has become a new way of crony capitalism

In her Budget 2019 speech, Finance Minister Nirmala Sitharaman said that the Insolvency and Bankruptcy Code (I&BC), which led to the formation of NCLT, led to loan recovery of Rs. 400,000 crore, and banks’ bad loans fell by Rs. 100,000 crore in the past year. However, as we analyse the various resolutions under the Code, we find that the banks and, hence, the taxpayers, took a huge loss at the expense of the new buyers. The banks and all of us lost our hard-earned money saved in our bank accounts.

Insolvency and Bankruptcy Board of India

Sl. No. Name of Corporate Debtor Triggered by NCLT Bench Defunct (Yes / No) Date of Commencement of Insolvency Date of NCLT Order approving Resolution Total Admitted Claims Admitted Claims of FCs Admitted Claims of OCs Liquidation Value Realisable Amount by FCs Realisable Amount by OCs
1 Synergies Dooray Automotive Ltd. CD Hyderabad Yes 23-01-2017 02-08-2017 972.15 972.15 0.00 8.17 54.70 3.91
2 Chhaparia Industries Pvt. Ltd. CD Mumbai Yes 24-02-2017 29-09-2017 49.75 49.75 0.00 17.15 20.60 1.53
3 Prowess International Pvt. Ltd. OC Kolkata No 20-04-2017 17-10-2017 3.54 2.88 0.66 NA 2.88 0.65
4 Sree Metalik Ltd. FC Kolkata Yes 30-01-2017 07-11-2017 1289.73 1287.22 2.51 340.62 607.31 10.95
5 West Bengal Essential Commodities Supply Corpn Ltd. FC Kolkata No 29-05-2017 20-11-2017 344.93 344.93 0.00 NA 185.84 0.00
6 Kamineni Steel & Power India Pvt. Ltd.# CD Hyderabad Yes 10-02-2017 27-11-2017 1523.50 1509.00 14.50 760.00 600.00 14.50
7 Shirdi Industries Ltd. CD Mumbai Yes 18-05-2017 12-12-2017 695.74 673.88 21.86 103.05 176.36 6.36
8 Hotel Gaudavan Pvt. Ltd. FC New Delhi No 31-03-2017 13-12-2017 70.68 70.44 0.24 36.12 44.20 0.80
9 Nandan Hotels Ltd. OC Bengaluru No 17-08-2017 14-12-2017 1.10 0.00 1.10 NA 0.00 1.10
10 JEKPL Pvt. Ltd. CD Allahabad No 17-03-2017 15-12-2017 606.57 606.57 0.00 222.06 162.00 0.00
11 Trinity Auto Components Ltd. CD Mumbai Yes 25-05-2017 22-01-2018 17.38 17.38 0.00 20.82 17.38 6.25
12 Kalyanpur Cements Ltd. OC Kolkata Yes 01-05-2017 31-01-2018 631.95 131.05 500.90 119.74 98.60 249.40
13 Precision Engineers & Fabricators Pvt. Ltd.# OC Kolkata No 04-04-2017 01-02-2018 79.96 79.27 0.69 27.24 35.06 0.14
14 Palogix Infrastructure Pvt. Ltd. FC Kolkata No 12-05-2017 12-02-2018 158.39 154.39 4.00 48.86 56.84 18.83
15 Shree Radha Raman Packaging Pvt. Ltd. OC New Delhi No 28-04-2017 15-02-2018 1.80 0.89 0.91 2.88 0.96 0.54
16 Kohinoor CTNL Infrastructure Company Pvt. Ltd. FC Mumbai No 16-06-2017 21-02-2018 2578.64 2528.40 50.25 329.90 2246.00 9.00
17 Sharon Bio-Medicine Ltd. FC Mumbai No 11-04-2017 28-02-2018 917.92 891.38 26.54 182.69 294.03 2.75
18 Burn Standard Company Ltd. CD Kolkata Yes 31-05-2017 06-03-2018 298.03 58.77 239.26 593.00 65.47 239.26
19 Divya Jyoti Sponge Iron Pvt. Ltd. FC Kolkata No 23-08-2017 13-03-2018 80.36 77.20 3.16 16.83 34.25 1.97
20 Propel Valves Pvt. Ltd. OC Chennai No 11-08-2017 19-03-2018 1.91 1.71 0.20 0.38 1.71 0.20
21 Kalptaru Alloys Pvt. Ltd. FC Ahmedabad Yes 05-09-2017 20-03-2018 51.23 51.20 0.03 27.48 31.60 1.90
22 Forward Shoes (India) Ltd.# OC Chennai No 19-06-2017 27-03-2018 138.08 120.62 17.46 79.69 120.62 17.46
23 Haldia Coke and Chemicals Pvt. Ltd. CD Chennai Yes 11-07-2017 27-03-2018 343.69 343.69 0.00 6.61 98.50 0.00
24 Basai Steels and Power Pvt. Ltd. OC Hyderabad Yes 19-07-2017 13-04-2018 896.05 853.69 42.36 52.09 125.81 13.93
25 Electrosteel Steels Ltd. FC Kolkata No 21-07-2017 17-04-2018 13958.36 13175.14 783.22 2899.98 5320.00 0.00
26 MBL Infrastructure Ltd. FC Kolkata No 30-03-2017 18-04-2018 1506.87 1428.21 78.66 269.90 1597.13 217.43
27 Raj Oil Mills Ltd. CD Mumbai Yes 10-07-2017 19-04-2018 612.59 243.19 369.40 22.83 55.87 6.39
28 Ved Cellulose Ltd. FC New Delhi No 30-06-2017 14-05-2018 29.21 24.51 4.70 13.26 14.47 0.00
29 Bhushan Steel Ltd. FC New Delhi No 26-07-2017 15-05-2018 57505.05 56022.06 1482.99 14541.00 35571.00 1200.32
30 BJN Hotels Ltd FC Bengaluru No 25-09-2017 04-06-2018 135.80 134.18 1.62 24.15 29.92 0.08
31 Wig Associates Pvt. Ltd. CD Mumbai No 24-08-2017 04-06-2018 17.82 10.67 7.15 0.87 3.55 0.10
32 Nutri First Agro International Pvt. Ltd. OC Mumbai No 31-07-2017 08-06-2018 15.18 13.83 1.35 10.21 13.83 1.19
33 Master Shipyard Pvt. Ltd. OC Chennai No 21-12-2017 15-06-2018 0.43 0.00 0.43 3.78 0.00 0.43
34 MOR Farms Pvt. Ltd FC Chandigarh No 04-09-2017 15-06-2018 32.52 32.52 0.00 3.91 9.25 0.00
35 Datre Corporation Ltd. FC Kolkata Yes 20-09-2017 22-06-2018 84.86 84.86 0.00 9.07 9.22 0.58
36 Orissa Manganese & Minerals Ltd. FC Kolkata No 03-08-2017 22-06-2018 5414.49 5388.54 25.95 301.02 310.00 7.79
37 Ellora Paper Mills Ltd. FC Mumbai No 19-07-2017 26-06-2018 44.35 7.60 36.75 3.88 5.40 1.83
38 Marmagoa Steel Ltd. CD Mumbai Yes 20-03-2017 02-07-2018 342.20 120.58 221.62 34.54 31.05 23.96
39 A Power Himalayas Ltd. FC Chandigarh No 03-11-2017 05-07-2018 112.39 55.60 56.79 6.31 23.13 24.17
40 Keti Highway Developers Pvt. Ltd. FC Ahmedabad No 17-08-2017 10-07-2018 78.71 76.57 2.14 10.28 18.50 0.28
41 Zion Steel Ltd.* FC Kolkata No 03-08-2017 10-07-2018 5368.17 5367.02 1.15 14.55 15.00 0.00
42 Yashraaj Ethanoll Processing Pvt. Ltd. FC Mumbai No 20-07-2017 13-07-2018 99.21 82.57 16.64 12.40 14.67 2.92
43 Adhunik Metaliks Ltd.* FC Kolkata No 03-08-2017 17-07-2018 5648.13 5371.23 276.90 431.50 410.00 33.63
44 The Sirpur Paper Mills Ltd. OC Hyderabad Yes 18-09-2017 19-07-2018 636.93 533.38 103.55 202.76 340.00 9.50
45 Stesalit Ltd. OC Kolkata No 20-11-2017 20-07-2018 76.73 49.73 27.00 15.06 19.28 2.59
46 Admiron Life Sciences Pvt. Ltd. CD Hyderabad No 28-07-2017 24-07-2018 78.73 72.46 6.27 42.50 50.70 0.00
47 Monnet Ispat & Energy Ltd. FC Mumbai No 18-07-2017 24-07-2018 11478.08 11014.91 463.17 2365.00 2892.12 25.00
48 Paragon Steels Pvt. Ltd. FC Chennai No 15-09-2017 24-07-2018 183.22 181.75 1.47 37.71 41.50 0.10
49 S M M Steel Re-Rolling Mills Pvt. Ltd. FC Chennai No 15-09-2017 24-07-2018 41.50 41.46 0.04 1.80 1.60 0.01
50 Amtek Auto Ltd.## FC Chandigarh No 24-07-2017 25-07-2018 12811.50 12605.00 206.50 4129.00 4334.00 51.34
51 Concord Hospitality Pvt. Ltd FC Chandigarh No 04-08-2017 25-07-2018 83.21 47.86 35.35 107.72 47.86 35.35
52 Mohan Aromatics Pvt. Ltd. FC Mumbai No 18-10-2017 25-07-2018 10.65 10.65 0.00 3.75 4.72 0.00
53 Frontline Printers Pvt. Ltd. FC Chennai No 02-11-2017 30-07-2018 62.90 62.90 0.00 19.55 19.55 0.00
54 S.M. Dyechem Ltd. CD Mumbai Yes 13-10-2017 30-07-2018 2.12 0.00 2.12 NA 0.00 2.12
55 Amit Spinning Industries Ltd. FC New Delhi Yes 01-08-2017 31-07-2018 142.63 85.95 56.68 25.96 22.04 6.16
56 Southern Cooling Tower Pvt. Ltd. OC Kolkata No 07-02-2018 06-08-2018 17.09 15.82 1.27 23.83 15.82 0.81
57 Shakti Nutraceuticals Pvt. Ltd. FC Ahmedabad Yes 28-08-2017 09-08-2018 1.12 1.11 0.01 0.00 1.18 0.01
58 Quantum Ltd. FC Mumbai Yes 29-05-2017 10-08-2018 32.18 32.18 0.00 19.20 32.18 0.00
59 Jalan Intercontinental  Hotels Pvt. Ltd. FC Kolkata No 29-08-2017 24-08-2018 170.66 167.10 3.56 103.00 108.82 1.64
60 Arcee Ispat Udyog Ltd. FC Chandigarh Yes 30-08-2017 30-08-2018 64.03 64.03 0.00 6.99 15.10 0.00
61 NSR Steels Pvt. Ltd. FC Chennai Yes 24-11-2017 30-08-2018 92.81 88.95 3.86 NA 13.58 0.46
62 Vangal Amman Health Services Ltd. FC Chennai Yes 22-11-2017 30-08-2018 47.75 46.68 1.07 55.05 46.65 0.78
63 Recorders and Medicare Systems Pvt. Ltd. CD Chandigarh No 16-03-2017 14-09-2018 109.47 103.16 6.31 14.83 45.29 2.28
64 Malabar Hotels Pvt. Ltd. OC Chennai No 16-08-2017 17-09-2018 35.64 33.76 1.88 89.93 33.76 4.84
65 Orchid Pharma Ltd.* OC Chennai No 17-08-2017 17-09-2018 3457.99 3341.55 116.44 1309.49 1292.22 50.00
66 Assam Company India Ltd. FC Guwahati No 26-10-2017 20-09-2018 1526.95 1379.17 147.78 359.91 884.00 135.53
67 Dooteriah & Kalej Valley Tea Estate Pvt. Ltd. OC Kolkata Yes 12-12-2017 26-09-2018 17.28 15.89 1.39 4.23 15.89 5.52
68 Rajpur Hydro Power Pvt. Ltd. FC Chandigarh No 11-07-2017 27-09-2018 76.73 75.23 1.50 31.95 9.45 0.00
69 Bhadravati Balaji Oil Palms Ltd. OC Bengaluru Yes 22-11-2017 28-09-2018 31.70 30.05 1.65 18.47 22.88 1.27
70 Quality Rice Exports Pvt. Ltd. OC Chandigarh Yes 28-02-2018 04-10-2018 29.58 23.88 5.70 7.40 10.86 0.00
71 Cosmic Ferro Alloys Ltd. FC Kolkata No 16-01-2018 11-10-2018 281.58 194.66 86.92 69.18 91.94 34.29
72 Universal Power Tranformers Pvt. Ltd. OC Bengaluru Yes 26-02-2018 11-10-2018 52.07 37.82 14.25 12.47 13.50 0.00
73 Sun Paper Mill Ltd. OC Chennai No 15-11-2017 16-10-2018 23.78 20.99 2.79 163.19 20.99 0.40
74 ConnectM Technology Solutions Pvt. Ltd. OC Bengaluru No 29-01-2018 17-10-2018 2.52 0.90 1.62 0.01 0.90 0.32
75 Fenace Auto Ltd. OC New Delhi No 15-11-2017 17-10-2018 505.66 483.41 22.25 104.80 127.44 3.76
76 Rave Scans Pvt. Ltd. CD New Delhi Yes 25-01-2017 17-10-2018 128.76 122.22 6.54 36.00 52.64 0.62
77 Parte Casters Pvt. Ltd. CD Mumbai No 14-08-2017 22-10-2018 8.71 6.30 2.41 1.30 1.79 0.48
78 Manor Floatel Ltd. FC Kolkata No 10-01-2018 30-10-2018 36.97 34.46 2.51 3.86 6.00 0.05
79 Rishi Ganga Power Corporation Ltd. FC Chandigarh Yes 25-01-2018 13-11-2018 164.35 159.64 4.71 15.38 45.12 0.50
80 Binani Cements Ltd. FC Kolkata Yes 25-07-2017 14-11-2018 7202.36 6469.36 733.00 2300.70 6469.36 633.64
81 AGP Steels Pvt. Ltd. CD Hyderabad No 21-09-2017 28-11-2018 3.07 3.07 0.00 2.25 2.65 0.00
82 Adhunik Alloys & Power Ltd. FC Kolkata No 23-08-2017 07-12-2018 771.65 756.71 14.94 174.97 397.00 12.87
83 Vardhman Industries Ltd. CD New Delhi No 16-11-2017 19-12-2018 139.14 133.84 5.30 62.07 62.50 1.00
84 Venky Hi-Tech Ispat Ltd. FC Kolkata Yes 08-05-2018 08-01-2019 50.06 31.70 18.36 8.80 11.20 1.12
85 BSR Diagnostics Ltd. FC Mumbai No 29-09-2017 22-01-2019 171.75 150.06 21.69 55.42 45.44 2.88
86 Merchem Ltd. OC Chennai Yes 15-01-2018 23-01-2019 339.68 278.66 61.02 86.52 109.82 1.61
87 Sunil Ispat & Power Ltd. FC Kolkata Yes 31-07-2018 08-02-2019 358.73 338.90 19.83 19.89 30.50 0.00
88 Naachair Paper Boards Pvt. Ltd. OC Chennai No 20-12-2017 08-02-2019 44.46 42.56 1.90 14.71 0.88 5.31
89 Swadisht Oil Pvt. Ltd. OC Allahabad No 30-05-2017 13-02-2019 68.20 58.66 9.54 44.09 58.66 5.94
90 Fortune Pharma Pvt. Ltd. CD Mumbai Yes 28-08-2017 20-02-2019 32.69 31.44 1.25 17.21 16.99 0.08
91 Bafna Pharmaceuticals  Pvt. Ltd. OC Chennai No 16-07-2018 01-02-2019 55.76 49.23 6.53 28.00 34.46 9.17
92 Darjeeling Rolling Mills Pvt. Ltd. OC Kolkata No 28-08-2018 01-03-2019 5.30 5.30 0.00 2.32 5.30 0.00
93 Alok Industries FC Ahmedabad No 18-07-2017 08-03-2019 30706.69 29523.86 1182.83 4433.00 5052.00 63.20
94 Essar Steel India Ltd.** FC Ahmedabad No 02-08-2017 08-03-2019
95 Subburaj Spinning Mills Pvt. Ltd. OC Chennai No 03-04-2018 12-03-2019 85.58 83.68 1.90 26.39 19.95 1.10
96 Dhanalaxmi Paper Mills Pvt. Ltd. FC Chennai No 29-05-2018 26-03-2019 113.09 95.89 17.20 23.44 37.79 1.75
97 Jyoti Structures Limited FC Mumbai No 04-07-2017 27-03-2019 8015.24 7364.52 650.72 1023.25 3691.00 273.43

OC= Operational Creditor, CD= Corporate Debtor, FC= Financial Creditor, NA= Not Available; Realisable Amount =Amount realisable by creditors (not on NPV basis). Defunct: Not Going Concern/ Erstwhile BIFR Note: The time taken for conclusion of CIRP as evident from dates in columns 6 & 7 is inclusive of the time excluded by the Adjudicating Authority. *Certain issues have arisen post approval of the resolution plan. **Claim and realisable amount by FCs and OCs is not included as apportionment between FCs and OCs is under consideration of NCLAT. # CIRPs mentioned at Serial Nos. 6, 13 and 22 have since moved into liquidation. ## CIRP mentioned at Serial No. 50 has restarted due to failure of approved resolution plan.
Disclaimer: The data is based on information provided by Resolution Professionals. The Board does not take any responsibility for correctness and any legal action thereof.

BEFORE we delve into the individual cases, and specific issues, let’s explore if the tribunal adheres to the philosophy of the I&BC, under which it was established. The law defines the “resolution” as an attempt to maintain the corporate debtor “as a going concern”. This implies that any plan has to ensure that the company makes enough money “to stay afloat or avoid bankruptcy”. Hence, a resolution, according to a website, “is not a sale, or an auction, or a recovery (of debt) or liquidation”. Its foundation lies not in the means, but only in the end, i.e. a going concern.

RBI

Most of the 12 cases pinpointed by the Reserve Bank of India (RBI) as crucial and important were mired in complications

This is why the Code says that any plan, according to the website quoted above, “should maximise the value of assets of the corporate debtor, and should promote entrepreneurship, availability of credit, and balance the interests of all the shareholders”. Clearly, the aim is make sure that a company that is deemed by its creditors to be insolvent, given its inability to pay its loans, is able to continue operations under a new management. If insolvency leads to bankruptcy and liquidation, the objective is lost.

AS in March 2019, as per data released by the Insolvency and Bankruptcy Board of India (IBBI), only 13.14% of the “closed” cases had resolution plans. They were taken over by the new owners to continue operations. Liquidation was ordered in 53% of the cases. The Board justified this by saying that 75% of the liquidated firms, i.e. 283 out of 378, “were with BIFR (sick) or defunct”. This implies that the number of the non-sick firms that were revived 13.14%), was lower than those that were liquidated (13.25%, or a quarter of 53%).

Surprisingly, there were cases where “resolved” became “unresolved”. The process began afresh in the case of at least two debtors, Amtek Auto, and AdhunikMetaliks. The reason: the new owners reneged on their payments

However, this urge to make efforts to retain the status of the companies as “going concerns” led to contradictions. In the case of Jyoti Structures, the original liquidation decision of the Committee of Creditors (CoC), which is formed to take the decision on the resolution before it is approved, was changed. It was directed to take a second look at a fresh bid that was submitted by a group of investors led by Sharad Sanghi. The reason, apart from the maximisation of the value of assets, was that Jyoti Structures was part of the RBI’s 12 companies, which had to have “mandatory resolution”.

Arun-Jaitley

Arun-Jaitley

In the case of Binani Cement, 99.43% of the CoC approved a plan submitted by Sanjay Dalmia-controlled Rajputana Properties. Later, when 10.53% (the percentages are calculated according to the debt owed to each creditor) of the CoC protested that they were being discriminated, the NCLT asked the CoC to entertain a revised bid by Ultratech Cement. This was despite the fact that CoC hadn’t even considered Ultratech Cement’s initial offer because it was “an email with an offer”, it wasn’t made as per the “process document”, and the offer was “beyond the time limit stipulated under the I&B Code”.

HOWEVER, the National Company Law Appellate Tribunal, which looks at appeals and reviews of the NCLT’s decisions, upheld Ultratech cement’s revised bid for three reasons. One, the CoC decision to approve Rajputana Properties’ offer “failed to safeguard the interest of the shareholders of the Corporate Debtor (Binani Cement). Two, the CoC erred as the Ultratech Cement’s bid “had taken care of the maximisation of the assets”. Finally, it balanced the “claims of all the stakeholders” of Binani Cement. In the end, the CoC accepted the Ultratech cement’s offer.

Surprisingly, there were cases where “resolved” became “unresolved”. The process began afresh in the case of at least two debtors, Amtek Auto, and AdhunikMetaliks. The reason: the new owners reneged on their payments. The UK-based Liberty House failed to pay the upfront payment of Rs. 410 crore for AdhunikMetaliks. This was because of two reasons. One, it had not received approval from the stock exchanges to issue new shares, as was agreed in the plan. Two, the asset was not “clean” and free from litigation, as a creditor, MSTC, a state-owned company, had legally opposed it.

Nirmala-Sitharaman

Nirmala-Sitharaman

Liberty House was also in the eye of the storm in the case of Amtek Auto, when the former failed to submit a bank guarantee of Rs. 100 crore, as was required. The CoC approached the NCLT to cancel the offer. While maintaining a deadline, the NCLT ruled, “The CoC can now either call for fresh bids or look at other applicants who had bid in the first round of the resolution process.” Liberty House alleged that there were “misrepresentation of facts” in this case, and there were “discrepancies in valuation of the stressed asset”.

Since the philosophy of the I&BC is to enable the creditors to receive as much of the money that they can, and still ensure that the debtor company continues its operations, the key to any resolution is the haircut that the former will accept on their loans. The reason: a new owner will only agree to pay a part of the loan and, therefore, the banks, and public and private financial institutions need to agree to an overall discount. This is an area that has proved to be extremely controversial.

Jet turbulence

Finally, the lenders, led by State Bank of India (SBI), initiated bankruptcy proceedings against Jet Airways, the Naresh Goyal-owned airline that suspended its operations in April this year. According to SBI, “A meeting of lenders was held to consider the way forward in respect of Jet Airways. After due deliberations, lenders have decided to seek resolution under IBC since only a conditional bid was received and requirement of the investor for Sebi exemptions and resolutions of all creditors is possible under IBC.” Jet Airways, which owed `8,400 crore to the lenders, and another `6,600 crore as unpaid salaries and vendors’ dues, was put up for sale earlier. In the National Company Law Tribunal, the ailing airline is likely to receive at least four bids. Obviously, the Tata Group are in the race, as it wants to emerge as the leading Indian aviation company. Naresh-GoyalHowever, media reports indicate that it is cagey to bid for the company, and may be interested in only piecemeal assets. These would include the fleet and flying rights. However, legal experts are divided on whether this is possible under IBC. Two major global airlines— Qatar Airways and Etihad Airways, with which Jet Airways had close links— may be interested in the negotiations. Earlier, Etihad Airways was in talks with the lenders, and it had partnered with the Hinduja Brothers. This sparked off rumours within the aviation circles that this bid was initiated by Goyal, the promoter and former owner, to regain the company indirectly. The speculation was that Goyal had promised the Hinduja Brothers a huge sum of money to be invested to buy the airline. At present, only one concrete bid is on the table, and it is a fairly exciting one. The Jet Airways Employee Consortium and AdiGroup have partnered to acquire 75% of the Jet Airways equity. The partners claimed, “This is a new dawn in the history of Indian aviation of operating an airline through Employee Initiative programme where every single employee of Jet Airways will become an owner of the airline.” At a press conference, Capt Ashwani Tyagi, a commander of Boeing 777 and General Secretary, Society for Welfare of Indian Pilots, said that he had been with Jet for 18 years, the airline was like a family, and it was “challenging yet exciting journey to revive Jet Airways”. gfiles end logo

Haircuts in several instances were huge, and hair-raising. Take the case of Synergies Dooray Automotive, where the financial creditors agreed to receive 5.65% of the nearly Rs. 1,000-crore loans. The new owner of Orissa Manganese and Minerals similarly agreed to pay Rs. 310 crore out of a total outstanding loan of Rs. 5,389 crore, or 5.75%. In the case of Kamineni Steel, which owed Rs. 1,500 crore, the realisable percentage was 26%. The initially accepted offer for Amtek Auto, which was later cancelled, was for a payment of Rs. 4,334 crore out of a loan amount of Rs. 12,605 crore, or 35%.

Several experts question such whopping discounts on the loans. They contend that this is akin to giving large benefits to the new private owners at the expense of the lenders, mostly public sector banks, which mop up deposits from the public. Hence, apart from being a loss to the state, it is a burden on the citizens. If this is the way forward for the bad loans in the private sector, why shouldn’t the public sector firms be disinvested in a similar fashion, where the government as the majority owner will take a beating?

Obviously, in the case of the public sector, the government will face allegations that it sold the “family jewels”, or highly-valuable companies, for a song. So, shouldn’t the same logic be applied to the private sector since many of the companies being “resolved” are not bankrupt or sick, but only stressed since they cannot repay the huge loans? Why should the private sector receive such largesse? Isn’t it better to dole out such haircut sops to the public sector, which too are built with the hard-earned taxpayers’ money?

However, the IBBI justifies the I&BC and NCLT. In its January-March 2019 newsletter, it explains, “Till March 2019, realisation by FCs (financial creditors) in comparison to liquidation value (the amount that would be earned if the company was liquidated) in respect of the CD (corporate debtor) is 194%, while the realisation by them in comparison to their claims is 43%.” In effect, it contends that although the overall haircuts were a massive 67%, the amounts realised was higher than what the creditors would have received if there were no resolutions, and no new owners.

Anil-Ambani

Anil-Ambani

This is where there is tremendous confusion. Although the liquidation values are determined by independent professionals, there are huge discrepancies. In the case of Kohinoor GTNL, for example, the liquidation value was 12.8% of the total claims of Rs. 2,579 crore. Shockingly, the amount realised by the creditors was a whopping Rs. 2,254 crore, or over 87% of the overall claims, and a crazy seven times the liquidation value. In the case of Bhushan Steel, which was one of the largest debtors with total claims of Rs. 57,500 crore, the respective percentages were 64%, and two-and-a-half times.

At the same time, there were cases, which were even more bizarre. According to the IBBI data, the liquidation value in the case of Binani Cement was less than a third of the total claims of Rs. 7,200 crore. The total value realised by the financial creditors and operational ones was almost 100%, or Rs. 7,100 crore, of the claims. In several companies with huge debts of over Rs. 1,000 crore each, the liquidation values were extremely low, and the amounts realised were almost the same as the former. Hence, there were substantial differences between total claims, liquidation values, and amounts realised.

Prashant-Ruia-of-Essar

Prashant-Ruia-of-Essar

Ever since the I&BC came into existence in 2016, there are hints that it may be above the official investigating agencies, and the various high courts in its status. This is evident from several orders of the NCLT, and its appellate tribunal. An order under the Code said that any attachment of properties and bank accounts by agencies like the Enforcement Directorate will be unfrozen since the assets to be resolved by NCLT have to be “clean”, and free from any limitations, restrictions, and legal disputes.

WHEN one of the former directors of Bhushan Steel approached the Punjab and Haryana High Court, and complained that the copy of the resolution plan were not provided to the former directors. The High Court asked the NCLT to take a “fresh decision” on the matter. When the CoC approached the NCLAT, the latter said that a high court cannot intervene in such matters. The implicit issue was that the NCLT has to decide the various cases on “merit in accordance with law uninfluenced by any order except the decision of this Appellate Tribunal and the Hon’ble Supreme Court”.

Clearly, there are a lot of grey, even black, areas in the operations of the I&B Code, NCLT, and NCLAT. One can fairly say that the laws need to evolve over a period of time. But there is a need for urgency as companies that may be worth much more are being handed over to the new owners with little transparency, and at huge haircuts. We, as taxpayers, are the real losers. gfiles end logo

COVER STORY / Policy / Bankruptcy / By Alam Srinivas

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