Reliance Capital (RCAP) was the third major non-banking financial firm to be cherrypicked by the Reserve Bank of India (RBI) in November 2021 under IBC after Srei Group and Dewan Housing Finance Corp. Ltd (DHFL) for quick resolution of its festering NPA problem. But it has sadly been riddled with repeated extension of deadlines and other niggling issues.
On December 21, 2022, Torrent Investments made the winning bid of Rs 8640 crore in the first round of auctions for RCAP’s assets as against its monumental debts of about Rs 25,000 crore thus spelling yet again massive haircuts for creditors. Dismal as the winning bid was Hinduja group threw spanner in the works a day after the auction ended, by making an improved offer of Rs 8,950 crore. Following an appeal by Torrent, the NCLY restrained the administrator of RCAP Nageswara Rao Y from presenting the non-compliant bid to the committee of lenders.
Three days later, however, the lenders in a meeting decided that the winning bid in the first round of auctions was suboptimal and decided to hold another round of auctions. That flies in the face of one of the key principles of IBC—ensuring the resolutions take place in a time-bound manner. It remains to be seen what happens on 31st January 2023 when the NCLT meets again to resume the case.
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The Jaypee Infratech insolvency, for instance, took five years to complete. Data from the Insolvency and Bankruptcy Board of India say that the 553 cases that were closed under IBC on an average took 561 days to close and the 1800 odd cases that went into liquidation took 437 days to attain closure. Delays are explained away as due to woeful lack of infrastructure but the government needs to do more than give excuses.
Come to think of it, if creditors resignedly settle for liquidation after having plumped for the IBC redressal, they must be ruing their initial decision because each passing day pulls down the value of the assets realisable by the liquidator thus making their lot a lot worse. The situation is not improving. There were 1947 insolvency cases before the tribunals as on 30 Sep 2022; eight out of every 10 are pending for at least 270 days as against the 180 days fixed for resolution though NCLT is empowered to give extensions so ultimately closure is made at least within 330 days.
IBC is obsessed with ousting the incumbent promoters as if that alone will make them behave. In India, promoters are thick-skinned. They don’t lose sleep over being dethroned. DHFL promoters who presided over the ruination of their company ceded control to Piramal group. By being fixated with the highest bid which often entails as much as 90 percent haircut for the creditors, IBC leaves the creditors holding the can. Truth be told such huge sacrifices are not mere haircuts but tonsure.
One wishes the government had ordered an ILFS style rescue plan for RCAP given the fact that like ILFS, RCAP too has finger in every financial pie ranging from NBFC to insurance to asset reconstruction. No single buyer would obviously evince serious interest unless he is getting the diversified interests on a platter for a song. In other words, the government is guilty of making RCAP creditors victims of conglomerate discount----when a company has dabbled with too many businesses without focus.
Indeed, ILFS model seems to have produced fairly good results with Rs 55000 crore worth of debts out of Rs 90,000 crore pulled out of the mire and rehabilitated in the hands of worthy successors Had Uday Kotak the head of the ILFS rescue team, followed the IBC model of a single buyer, he might have reported dismal results. He wisely went business by business of ILFS instead of lumping them together in an incongruous heap. Government must take a leaf out of him and look beyond IBC to get the maximum from defaulters.
—The author, S Murlidharan, is a CA by qualification, and writes on economic issues, fiscal and commercial laws. The views expressed in the article are personal.
Read his previous articles here
(Edited by : C H Unnikrishnan)
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