Daniel Albuquerque discusses the recent amendments made to the IBC, 2016, through an ordinance where a moratorium on insolvency applications has been enforced which is intended for 6 months, starting from 25 March 2020, and may be extended up to a year
Notwithstanding anything contained in sections 7, 9 and 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed for any default arising on or after 25th March, 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf. – Section 10A, Insolvency and Bankruptcy Code, 2016, Amendment, Ordinance, 2020.
Further there is a caveat to the above mentioned section: Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period.
Explanation: For removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any default committed under the sections before 25th March, 2020. This simply means that if a debtor has defaulted in payment of debt before 25 March 2020, for that debtor, the promised relief or suspension of initiation of initiation of corporate insolvency process is not applicable.
The Case: State Bank of India (SBI) versus Reliance Communications (RCom): While the Covid-19 may have been an Act of God, in legal terms, that is to say an unforeseen calamity over which humans have no power, to some debt-ridden companies, on the brink of insolvency and bankruptcy, it has been a Godsend, a boon. Anil Dhirubhai Ambani Group’s telecommunications company, RCom must have thanked its stars as the above stated amendment to IBC, suspension of initiation of corporate insolvency process, was introduced through an amendment. The total debt of the company is a colossal `46,000 crores, however the company’s lenders have put up a gigantic sum of `90,000 crores.
However, the matter here is restricted only what the State Bank of India (SBI) brought up before the Mumbai National Company Law Tribunal (NCLT), a sum of `1,600 crores only. SBI had prayed to appoint an Insolvency Resolution Professional (IRP) to assess the assets of the company, RCom, as a part of the procedure of insolvency leading to bankruptcy. The tribunal gave its assent to the lending bank and accordingly passed the order. Challenging this order in the Delhi High Court, RCom pleaded for relief; which was granted, wherein the High Court has stayed the proceedings and has asked the concerned parties to file their replies before 6th October, 2020.
Lessons from the Case: The big lesson from the case is that there are no lessons learnt, for every corporate leader, is convinced such contingency will not occur to him. For their belief in the debt based growth is absolute. Some of the recent instances suffice to demonstrate the proposition that lessons from insolvency and bankruptcy are not learnt:
- a) V.G. Siddhartha who became synonymous with his Cafe Coffee Day venture, having suffered from the pressure from the lenders as well as the harassment by the tax authorities as stated by him in his suicide note, ended his life jumping off a bridge.
- b) Rana Kapoor and Yes Bank Ltd. were inseparably bound to each other; it was among the most successful private banks in the country until the Reserve Bank of India (RBI) found irregularities such as under-reporting the bad loans, finally caught up with him and he ended up with zero shares.
- c) Naresh Goyal, founder of Jet Airways, one time a successful and the largest private airlines in India, suffered from severe competition and demands from the lenders until the regulatory authorities grounded his fleet and shattered his dreams. There are many others such as the Singh brothers – Malvinder and Shivinder, the monarchs of pharma and healthcare industries, steel magnate brothers Shashi and Ravi Ruia of Essar, etc.
On the other hand, not everything is lost. Anil Ambani does not have to go very far to draw visible and real lessons for himself. He and his brother Mukesh, as they parted ways in 2005 from the inherited group of companies of their father, the business was divided down the middle. Mukesh, mostly with petrochemicals, sober, steady and focused, rose to global heights of business in spite of the financial meltdown, industrial slow down and to crown it all, the Covid-19 pandemic. Unwittingly, he dealt a mortal blow to his brother’s RCom, as he plunged into telecommunications with Reliance Jio which is ruling the market with a staggering 34% of the market share that is expected rise to 50% in the coming couple of years.
Anil, a financially savvy manager with an overriding ambition was extremely happy with the telecommunication companies, a quick money maker, and a great news maker with high end investments, press conferences and Bollywood glamour. Business trends changed winds, Anil’s fortunes sailed short, and money lenders exercised pressure; he got caught up in unrelenting litigation and ended up from the heights of 49 billion dollars just to a single billion. He was even ready to pledge his personal assets to offset the debts, which the court disallowed. The takeaway from the Ambani brothers is that while the current Jio share price is closing in on `2,000, that of RCom just above `2.
A small crutch like a stay order on initiation of insolvency proceedings is not the last word. What about a plethora of financial regulatory bodies in India – Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA), Forward Marks Commission of India (FMC), Pension Fund Regulatory Development Authority PFRDA? Do they have any positive roles to solve corporate problems? Checking on the synonyms for regulatory, one finds these disconcerting and distressing terms: authoritarian, dictatorial, narrow, dogmatic etc. Even these do not have the last word. The last word is with the last man of India, who remains silent, but who has to bear the brunt of losses caused by lending banks, agencies, entrepreneurs who couldn’t care less to save their firms, board of directors who neglected their responsibilities and investors who remained silent at Annual General Meetings. The little man of India is exactly like R.K. Laxman’s cartoon character, the common man, who observes everything in silence and bears all the burdens without a murmur
The columnist is a writer with Oxford University Press and a published author. Email: albuquerque.daniel@gmail.com
