Tag: National Company Law Tribunal

Sebi relaxes minimum promoter lock-in norm for Ujjivan SFB, Ujjivan Fin Services for amalgamation, BFSI News, ET BFSI

Banking & Finance

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Markets regulator Sebi has provided relaxation with regard to the minimum promoter lock-in norm to Ujjivan Small Finance Bank (SFB) and its promoter Ujjivan Financial Services, for the purpose of their amalgamation. On October 30, the bank had approved the scheme of amalgamation between Ujjivan Financial Services (transferor company) and Ujjivan SFB (transferee company).

Following this, it had submitted a joint application on behalf of the transferor/promoter to Sebi, seeking relaxation of the three-year minimum promoter lock-in requirements.

Besides, it also sought approval to adopt the proposed scheme of amalgamation as a method to achieve the minimum public shareholding.

“…we hereby inform you that the Sebi, vide its letter dated December 2, 2021, has acceded to our request to relax the three-year minimum promoter lock-in requirements,” it said in a regulatory filing.

The exemption is subject to no-objection certificate (NOC) from the exchanges and final approval by the National Company Law Tribunal (NCLT).

“The exemption being granted from lock-in is only for the period commencing after approval of the proposed scheme of amalgamation by NCLT and till expiry of the lock-in period,” it said citing the Sebi letter.

However, the Sebi specified that the relaxation is granted to them for the “specific purpose of scheme of amalgamation” between Ujjivan Financial Services and Ujjivan SFB and “shall not be treated as a precedence”.

Further, as advised by Sebi, the bank will initiate necessary steps to ensure compliance with minimum public shareholding requirements through mode specified under Sebi circular dated February 22, 2018, it added.

Currently, Ujjivan Financial Services holds 83.32 per cent of the equity shareholding and 100 per cent of preference shareholding of Ujjivan SFB.

As per the minimum shareholding norms, the promoter’s minimum initial contribution in the SFB arm should be at least 40 per cent. If the promoter’s initial shareholding in the SFB is in excess of 40 per cent, it is to be brought down to 40 per cent within a period of five years from the date of commencement of operations of SFB.

This period of five years is expiring on January 31, 2022.



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IBC to get welcome cross-border teeth, BFSI News, ET BFSI

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The government’s reported move to adopt a legal framework for cross-border insolvency resolution is welcome. It would enlarge the scope for debt recovery, provide comfort to foreign investors and improve the ease of doing business here. In a rapidly globalising economy, the impact of any business failure transcends national boundaries. An insolvent debtor can have assets and creditors in more than one country.

Rightly, India wants to adopt the UNCITRAL Model Law of Cross Border Insolvency, 1997, aligning with global practice. It will enable foreign creditors to start or participate in insolvency proceedings in India, sell or attach assets of the debtor to recover their loans. Similarly, Indian creditors will receive assistance from other countries that have adopted this model law. Any incentive to create assets overseas to escape domestic creditors would disappear. The UN model law gives precedence to domestic proceedings and protection of public interest. It also fosters cooperation between domestic and foreign courts and insolvency professionals. India’s draft legal framework, to be a part of the Insolvency and Bankruptcy Code (IBC), excludes banking and financial services, as well as pre-packs for small businesses.

The draft distinguishes between foreign main proceedings and foreign non-main proceedings to determine the level of control that a jurisdiction has over the insolvency resolution process, and the extent of relief that the National Company Law Tribunal can grant. NCLT’s adjudication capacity must be beefed up, if it has to work on par with foreign counterparts. Lenders (read Indian banks) too must act swiftly at the first sign of distress to prevent other, foreign, creditors from initiating insolvency proceedings.



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GN Bajpai-led panel wants IBBI to set up dashboard for insolvency data, BFSI News, ET BFSI

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Former Sebi chairman G N Bajpai-led working group has suggested designing a national dashboard for insolvency data, saying ”reliable real-time data” is essential to assess the performance of the insolvency process under the IBC.

The panel also said the IBBI has made commendable efforts in publishing quarterly data on the insolvency resolution process in detail. The data published by the Insolvency and Bankruptcy Board of India (IBBI), a key institution in implementing the Code, include those on insolvency filings, recovery amount and duration of the insolvency process across corporate debtors for all creditors. In its report, the group said that cross-validation of data sourced from multiple data banks is a challenge in making credible assessments.

The Insolvency and Bankruptcy Code (IBC), which provides for a time-bound and market-linked resolution of stressed assets, has been in force for more than five years now.

The objectives

The six-member group said in a report that resolution of the distressed asset remains the first objective of the Insolvency and Bankruptcy Code (IBC), followed by promotion of entrepreneurship, availability of credit and balancing the interests of stakeholders. “This order of objectives is sacrosanct,”
it said.

The working group on tracking outcomes under the Code has suggested a framework based on ‘Effectiveness, Efficiency and Efficacy’ with respect to Corporate Insolvency Resolution Process (CIRP).

Another suggestion is for the IBBI to look at including quantitative data on cost indicators such as court/bankruptcy authority fees, resolution professional’s fees and asset storage and preservation costs in its quarterly updates.

The report noted that data on time, cost and recovery rates will allow a reliable evaluation of the insolvency process with respect to parameters of effectiveness and efficiency.

The indicators

Further, the report said it was important to track the performance of related economic indicators to assess the performance of the insolvency process for other objectives such as ‘promoting entrepreneurship’ or ‘enhancing credit availability.

Such an assessment would measure the performance of the system with respect to the ‘efficacy’ parameter.

”The WG (Working Group) recommends a range of indicators such as the number of new companies registered, credit supply to stressed sectors like real estate, construction, metals etc, change in the cost of capital (particularly for stressed sectors), the status of non-performing loans, employment trends, size of the corporate bond market and investment ratio for the related sectors,” it added.

This is the second report in recent months after a parliamentary standing committee had suggested changes to the code in August.

In August, a 29-member standing committee headed by former minister of state for finance Jayant Sinha, and including former prime minister Manmohan Singh, said that low recovery rates with haircuts as much as 95% and 71% of the cases pending beyond the 180-day time frame envisaged by the law pointed towards a deviation from the original objective of the code.

The key recommendations of the committee include setting up specialised National Company Law Tribunal benches to hear only IBC matters, establishing professional code of conduct for committee of creditors, strengthening the role of resolution professionals and digitalising IBC.



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Bankers of McLeod Russel sign ICA for resolution on debt recast, BFSI News, ET BFSI

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Bulk tea major McLeod Russel India on Friday said its bankers have signed an Inter Creditors Agreement (ICA), a precursor to a resolution plan for debt restructuring, that rekindled hope of revival of the once largest tea producer of the world. After the promoters of McLeod reach a settlement with a financial creditor, Techno Electric & Engineering, the company could be out of National Company Law Tribunal‘s insolvency process.

The trigger for the insolvency application by Techno was a loan agreement for providing Rs 100 crore inter-corporate deposit (ICD).

“We hope to reach a satisfactory resolution shortly with the bankers on debt recast,” a McLeod official told PTI.

“All the banking lenders have signed/executed an Inter Creditors Agreement (ICA) to provide for ground rules for finalisation and implementation of Resolution Plan in respect of borrower/Company”, McLeod Russel said in a stock exchange filing.

There are nearly 8-10 lenders including a combination of private and public-sector banks, such as Axis Bank, UCO Bank, Allahabad Bank, Indusind Bank and ICICI Bank.

The outstanding debt including interest will be around Rs 2100-2300 crore, company officials estimated which is not sustainable for the tea major.

Till March 2018, McLeod had 52 estates in the country producing 67 million kg of tea with a total saleable production of 89 million kg. By FY20, its total saleable quantity had dropped by nearly 53 per cent to 42 million kgs with the company selling estates to square off debts.

A slew of ICDs – unsecured borrowings from other entities – extended to some of the other BM Khaitan group companies, hurtled the tea major into a serious crisis. PTI BSM NN NN



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RBI bans audit firm Haribhakti & Co for two years

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Haribhakti & Co was the auditor of Srei Infrastructure Finance, whose board was superseded by the RBI and against which insolvency proceedings were initiated last week.

The Reserve Bank of India (RBI) on Tuesday banned chartered accountant firm Haribhakti & Co from undertaking any type of audit assignments for regulated entities for a period of two years, starting April 1, 2022.

The action was taken for the firm’s failure to comply with a specific direction issued by the RBI with respect to its statutory audit of a systemically important non-banking financial company (NBFC), the central bank said in a statement.

This is the first time the RBI has taken such action against an auditor of a systemically important NBFC.

“The RBI has by an order dated September 23, 2021, debarred Haribhakti & Co from undertaking any type of audit assignment/s in any of the entities regulated by RBI for a period of two years with effect from April 1, 2022,” the statement said.

The action has been taken under Section 45 MAA of the RBI Act, which allows the banking regulator to act against auditors. The ban will not impact audit the firm’s assignments in RBI-regulated entities for the financial year 2021-22, the statement said.

In 2019, the RBI had imposed a one-year ban on SR Batliboi & Co, an affiliate of global auditing firm EY, after it found lapses in the audit report of a bank.

Haribhakti & Co was the auditor of Srei Infrastructure Finance, whose board was superseded by the RBI and against which insolvency proceedings were initiated last week.

The Kolkata Bench of the National Company Law Tribunal on October 8 gave its approval to start insolvency proceedings against Srei Infrastructure Finance and its wholly owned subsidiary Srei Equipment Finance after the RBI filed insolvency applications.

According to rating reports of March 6, 2021, by CARE Ratings, Srei Infrastructure Finance owed banks loans worth Rs 11,117.71 crore, apart from outstanding bonds and NCDs worth Rs 710.63 crore.

Srei Equipment Finance had outstanding bank loans worth Rs 16,912.21 crore and other debt instruments worth Rs 499.45 crore. All these facilities and instruments were rated ‘D’, or default grade, in March.

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Will Srei firms head for bankruptcy after RBI supersedes boards?, BFSI News, ET BFSI

Personal Finance

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The Reserve Bank of India‘s move to supersede the boards of Srei group firms may see the companies head for the National Company Law Tribunal for corporate insolvency resolution under the IBC.

Most banks favour DHFL-type resolution for the group. However, the move may be opposed by Srei promoters, who have submitted a proposal to pay the full amount to banks under a scheme filed under Section 230 of the Companies Act 2013 in October 2020.

What Srei says

“We are shocked by the RBI’s move as banks have been regularly appropriating funds from the escrow account they have controlled since November 2020. Moreover, we have not received any communications from banks on any defaults,” Srei group said.

“The question of IBC does not arise because we have already submitted a debt realignment plan which has been accepted by some creditors. The plan involves paying every creditor their entire dues in a structured manner over time. in the past 10 months, the banks have collected Rs 3,000 crore through the TRA account. Hence, we are already repaying our loans. So the question of default does not arise. As banks had control over the company’s cash flow, we could not pay any other creditors. Nevertheless, the matter is sub-judice since it is with the tribunals and counts,” Srei had said. according to a report.

Srei Group was in talks for a debt realignment and lenders were waiting for the outcome of an ongoing forensic audit to take a call on debt realignment.

Related party lending?

In FY2020, RBI audit had flagged Rs 8,576 crore of probable related-party lending by Srei group.

“We had submitted a proposal to pay the full amount to banks under a scheme filed under Section 230 of the Companies Act 2013 in October 2020. However, they have neither accepted the scheme nor proposed a payment schedule acceptable to them. Banks have been controlling the company’s cash flow since November 2020. Almost Rs 3000 crore has been collected by them, out of which they have been disbursing to themselves, Srei said.

The loans

Srei Infrastructure, and its subsidiary Srei Equipment Finance, together owe lenders and debenture holders a total of Rs 30,000 crore. Kolkata-based UCO Bank is the lead lender, with more than Rs 2,000 crore of exposure. State Bank of India (SBI)’s exposure to the group is also more than Rs 2,000 crore.

The bank loans have turned non-performing assets after the end of the September quarter.

The company had earlier announced that Arena Investors, Makara Capital and others had evinced interest to invest in the company to the tune of Rs 2,200 crore. The company had formed a strategic coordination committee to coordinate, negotiate and conclude discussions with the investors.

The suitors

Till date, it received expressions of interest from 11 investors and has signed non-disclosure agreements with nine of them. Two Investors — Makara and Arena — had submitted non-binding term sheets indicating their intent for investment.

Srei Infrastructure, which is a listed entity, reported a net loss of Rs 971 crore in the June quarter as against Rs 23 crore net profit in the year ago period as provisions on loans rose nearly seven times to Rs 439 crore over the same period as repayment collections were hit due to the impact of the Covid 19 pandemic.

“The appointment of the administrator by the RBI paves the way for the corporate resolution process of the two Srei entities. Once the NCLT approves the same, the board of directors of these entities will stand suspended. A moratorium will be imposed on any proceedings against these entities, enforcement of any security or transfer of assets.

The CIRP will enable foreign creditors, including ECB lenders and bond holders to restructure their debts alongside domestic creditors. If a resolution plan is successfully approved under the CIRP, it will allow the companies to start on a clean slate, which is missing under the RBI stressed assets framework. This decision of RBI follows on the heels of a successful resolution process of DHFL,” Aashit Shah, Partner, J Sagar Associates, said.



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Lenders slap personal insolvency cases on promoters of defaulting firms, BFSI News, ET BFSI

Banking & Finance

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Banks are approaching the National Company Law Tribunal for invoking personal guarantees of defaulting promoters armed by the Supreme Court go-ahead for such action.

The latest data released by the Insolvency and Bankruptcy Board of India (IBBI) show that 56 new cases were filed in the first quarter ended June, almost half of the total 128 cases filed in the whole of fiscal 2021, as banks stepped up their recovery efforts from personal guarantors.

These include cases filed against promoters of Punj Lloyd, Amtek Auto, Videocon, DHFL, ABG Shipyard, Videocon, Varun Shipping, and Lanco Infratech.

Overall, a total of 201 cases have been registered against personal guarantors since the new law came into force in December 2019, 184 of which have been filed by financial creditors while 17 have been voluntarily filed by debtors.

Data from the IBBI show that creditors are chasing a total debt of Rs 36,014 crore through the personal insolvency process, which has been backed by personal guarantees of Rs 33,294 crore. Individual debtors have filed a relatively lower Rs 1,848 crore of claims backed by guarantees of Rs 791 crore.

The challenge

Anil Ambani, Kapil Wadhawan, Venugopal Dhoot had challenged proceedings against them under the Insolvency and Bankruptcy Code (IBC) to recover loans for which they had given personal guarantees.

They had argued that the resolution process would discharge them of all personal liabilities and guarantees and that the government was wrong to issue a notification that permitted lenders to initiate separate insolvency proceedings against them.

The guaranteed debt

According to an estimate, the top 10 personal guarantors have guaranteed debt of over Rs 1.6 lakh crore. Among the big names, former promoters of Bhushan Steel and Power Sanjay Singhal and his wife Aarti Singhal had furnished personal guarantees worth up to Rs 24,550 crore to take loans from a consortium of bank led by State Bank of India (SBI).

The former promoter of Reliance Communications, Anil Ambani, has also given a personal guarantee against the loan taken. Erstwhile promoter Wadhawan stands guarantee to loans taken by DHFL, which is sitting on debt of about Rs 90,000 crore, while Dhoot has also given a personal guarantee to a portion of Rs 22,000 crore loan to Videocon.

The Supreme Court order

The Supreme Court in May had held that the November 15, 2019 government notification allowing creditors, usually financial institutions and banks, to move against personal guarantors under the Insolvency and Bankruptcy Code (IBC) was ‘legal and valid’.

Post the judgement, a senior official of a public sector bank said banks are assessing the level of involvement of those directors who pledged their personal guarantee against the loan.

Banks have started receiving calls from some of the promoters for the exclusion of their personal guarantee from the non-performing assets. Some of them are coming forward to resolve bad loans to save their personal wealth.

Most of the promoters thought that once their case is admitted under IBC, their past obligations cease.

However, the order has generated fear among the promoters and directors who pledged their personal guarantee of losing their personal wealth as part of the resolution process.

The personal guarantees are likely to expedite the resolution process as the guarantor stands the risk of losing personal property.

The hurdle

Many of these promoters are being investigated for fraud and their assets are already attached by the investigative agencies. Getting these assets released from the law agencies will take time.

SBI action

SBI was one of the respondents to the 74 petitions and challenges by promoters on invocation of personal guarantees. It has been in the forefront of invoking guarantees of promoters of defaulting companies. It had invoked Rs 1200 crore of guarantees given by Ambani for defaulting companies Reliance Communications and Reliance Infratel.

SBI had also approached the Mumbai bench of the NCLT to initiate guarantees by the Videocon Industries Dhoot brothers totalling Rs 11,500 crore.

It had also taken Bhushan Power & Steel promoter Sanjay Singal to court to recover Rs 12,276 crore dues to the bank for which he was a guarantor. All these promoters had challenged these actions in court.



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Bidders may walk away as NCLT delays erode value, tests patience, BFSI News, ET BFSI

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After the one-year suspension, the Insolvency and Bankruptcy Code (IBC) is now dealing with an acute shortage of members, or judges, that is forcing companies into liquidation which could have otherwise been revived.

Nearly 47 per cent or 1,349 cases closed under the insolvency law ended up in liquidation till the end of June this year but the economic value in the majority of the cases had eroded even before the commencement of the corporate insolvency resolution process.

The absence of members, the equivalent of judges, in the National Company Law Tribunal, which deals with both bankruptcy cases as well as those related to Companies Act matters, is showing and threatens to stall the landmark reform.

Bidders who are willing to take over the distressed companies may walk away due to the delays.

Depleted strength

The parliamentary standing committee on finance had noted that there were only 28 members in NCLT as against the sanctioned strength of 62. “The committee is deeply concerned to note that more than 50% of the sanctioned strength of NCLT is lying vacant and that the issue of vacancy has plagued the tribunal for years,” the panel observed, while noting how it had been working without a regular president either.

The report also showed how at the end of May, 71% of the IBC-related cases were pending in the NCLT for over 180 days when the law seeks to ensure that a case is decided within six months. At the end of May, over 40% of the cases filed in the tribunal were pending.

The recommendations for appointments are lying with the government for close to a year.

In contrast, fearing a rush of cases following the pandemic, the US had hired several of its retired judges to ensure that cases were decided quickly.

Parliamentary Committee suggestions

While speaking to ETCFO last month, Jayant Sinha, chairman of the Parliamentary Standing Committee on Finance, had suggested three steps to reduce litigation.

Firstly, fill the vacancies at NCLT as quickly as possible because then there is more time to adjudicate a case well and come up with a good resolution, he had said.

If judges don’t have enough time and rush through cases, they won’t give good judgments, and then things will end up in litigation. Therefore, adding capacity as soon as possible is one way in which we can deal with these endless litigation type issues.

Secondly, improve the quality of NCLT members. The parliamentary committee has recommended that the NCLT should at least have high court judges so that we can benefit from their experience and their wisdom. That’s another way to prevent litigation.

The third way of preventing litigation is to ensure when people submit the resolution plan as per the deadline, they do not have an opportunity to come in with another resolution plan after that. Because not doing so, will again rest in litigation, and a lot of contentions back and forth.

“So these are three very concrete steps that we have suggested to reduce litigation as it is one of the reasons a lot of these timelines are being extended,” he said.



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Personal insolvency proceedings start against Venugopal Dhoot; more promoters in line for action, BFSI News, ET BFSI

Banking & Finance

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Videocon chairman Venugopal Dhoot is already under CBI investigation on charges of causing a wrongful loss to a consortium of Indian PSU banks led by SBI.

After ordering the freezing of assets of Videocon promoter Venugopal Dhoot and other officials, the National Company Law Tribunal (NCLT) has admitted a personal insolvency petition against Dhoot.

Earlier the Ministry of Corporate Affairs (MCA) received permission to freeze Dhoot’s assets.

Asish Narayan has been appointed as the resolution professional (RP) in the case by a division bench led by judicial member Suchitra Kanuparthi and a technical member Chandra Bhan Singh. The next date of hearing is 20 September.

Lenders to Videocon had filed the personal insolvency petition to attach Dhoot’s assets a year ago and its admission now means the recovery process will go on full steam. But it is unclear how the admission of personal insolvency proceedings will impact the NCLT’s order freezing Dhoot’s assets on the MCA plea.

State Bank of India (SBI) the lead lender in the consortium of bank creditors to has also taken Venugopal’s brothers and Videocon co-promoters Rajkumar Dhoot and Pradipkumar Dhoot under the personal bankruptcy law.

Rs 18,000 crore debt

Banks led by SBI are seeking to recover close to Rs 18,000 crore by initiating guarantees given by the Dhoot brothers at different points in time to access loans from banks. Claims from Venugopal Dhoot come to about Rs 6100 crore while two separate petitions have also been filed by SBI has to invoke Rs 6,158 crore of personal guarantee given by Pradipkumar Dhoot and Rs 5353 crore to be recovered from Rajkumar Dhoot which are yet to receive the NCLT go ahead.

These guarantees were given by them for a mix of term and working capital loans granted to the company over the years.

Cyril Amarchand Mangaldas is representing SBI in the case.

The way ahead

Now that NCLT has okayed the recovery process the RP will examine the application and submit his report stating the reasons for approval or rejection of the application within 10 days.

This process is different from the corporate insolvency process and the NCLT will determine going ahead with the personal insolvency based on the report of the RP.

In December over 94% of the creditors by value voted for Vendanta arm Twin Star Technologies as the preferred bidder to take over Videocon. Vedanta’s offer of a little over Rs 3,000 crore was a haircut of more than 95% on admitted claims of Rs 61,770 crore.

Other defaulting promoters

Banks have approached the National Company Law Tribunal for invoking personal guarantees of promoters of 17 defaulting companies.

The defaulting promoters include those of Punj Lloyd, Amtek Auto, ABG Shipyard, Videocon, Varun Shipping, and Lanco, according to reports.

Armed with a Supreme Court order, banks are looking to invoke personal guarantees of tycoons from Venugopal Dhoot to Kapil Wadhawan to recover unpaid loans from their delinquent firms

The guaranteed debt

According to an estimate, the top 10 personal guarantors have guaranteed debt of over Rs 1.6 lakh crore. Among the big names, former promoters of Bhushan Steel and Power Sanjay Singhal and his wife Aarti Singhal had furnished personal guarantees worth up to Rs 24,550 crore to take loans from a consortium of banks led by SBI.

The former promoter of Reliance Communications, Anil Ambani, has also given a personal guarantee against the loan taken. Erstwhile promoter Wadhawan stands guarantee to loans taken by DHFL, which is sitting on debt of about Rs 90,000 crore, while Dhoot has also given a personal guarantee to a portion of Rs 22,000 crore loan to Videocon.



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