Tag: supreme court

SC declines to entertain plea seeking guidelines to tackle rising NPAs in banking sector, BFSI News, ET BFSI

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New Delhi [India], October 7 (ANI): The Supreme Court on Thursday declined to entertain a plea filed by BJP MP Subramanian Swamy seeking direction to frame guidelines to deal with the ever-increasing Non-Performing Assets (NPA) in the banking sector.

The Apex Court disposed of the plea and told Swamy that it’s a policy matter to be decided by the government and Reserve Bank of India (RBI).

The Court allowed Swamy to make representation before the RBI. (ANI)

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Study, BFSI News, ET BFSI

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An internal study by the central bank has revealed that borrower delinquency reduced after the RBI’s February 12, 2018 circular requiring banks to initiate insolvency within six months of default but deteriorated after the circular was struck down by the Supreme Court in April 2019.

The study was highlighted in an article by RBI executive director Saurav Sinha, which is part of an e-book published by the Insolvency and Bankruptcy Board of India. The article said that insolvency should not be the last resort, comparing a stressed asset to an ice cube with any delay in resolution melting away value. The article has said that a disquieting aspect for the RBI is the time taken for commencement of resolution from the time of filing application. In the article ‘IBC — A banking regulator’s perspective’, Sinha has pointed out that the study showed that notification of IBC alone did not result in any material change in behaviour of borrowers.

The article notes that the most positive impact on the credit culture was by the erstwhile February 12 circular, which resulted in increases in curing of defaults. The upgrades in the SMA-1 (special mention accounts or loans that are in default but not yet NPAs) improved to 18.6% from 5.8% before the circular.

Interestingly, the upgrades came down significantly after the Supreme Court declared that the erstwhile February 12 circular was ultra vires to the Banking Regulation Act, 1949 even though it recovered after the RBI issued rules incentivising early initiation of IBC.

Sinha has said that for the impact of IBC to be felt, the RBI needs to leverage the bankruptcy code in its resolution framework. While some commentators see bankruptcy as an extreme step, the article has said this is not the case.

“It is a disconcerting notion that IBC is seen as a last resort of resolution by many stakeholders including various banks — something that has to be thought about only after all other avenues have been extinguished. The RBI believes in the well-used analogy of a stressed borrower being similar to an ice cube taken out of the refrigerator — the longer it remains unprotected, the more ice melts into water and is lost,” the article said.

The article concludes with the expectation that the recently-introduced pre-packaged insolvency resolution process for small business is extended to all borrowers and is used in difficult resolution involving non-cooperative lenders.



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Will banks clamp down on cryptocurrency transactions again?, BFSI News, ET BFSI

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Banks which had started processing cryptocurrency transactions after RBI clarification may be again shying away from virtual currencies.

The country’s largest lender, State Bank of India, has blocked the receipt of funds by crypto bourses on its UPI platform. The bank has told payment processors to disable SBI UPI for crypto merchants, according to a report.

With this, traders cannot buy Bitcoin or any cryptocurrency by transferring funds via UPI, as none of the processors which handle funds for

exchanges will be unable to receive money sent for crypto purchases on their SBI accounts.

The largest domestic crypto bourse, WazirX, has already been impacted by the decision, with the processing agency following the directive of SBI. Industry circles said payment processors may stop accepting payment for other exchanges as well, unless SBI does a rethink.

With UPI blocked, many traders on WazirX are using one of the e-wallet services to transact.

But due to wallet charges and limits on fund transfer, traders prefer UPI in the absence of other payment modes like credit and debit cards, NEFT (national electronic fund transfers) and net banking.

After SBI’s decision, many banks may be reluctant to onboard crypto merchants on their respective UPI platforms.

The RBI decision

After the Reserve Bank of India told banks that they no longer can use the regulator’s 2018 circular prohibiting dealings in virtual currencies, as the direction has been struck down by the Supreme Court, banks were allowing crypto transactions.

Lenders including HDFC Bank, ICICI Bank and Axis Bank are allowing transactions in virtual currencies through the UPI platform.

According to crypto exchanges, more banks are now warming up to them and several channels are available for customers to buy crypto assets.

Till June this year banks were sending official notices to many customers warning them of curbs, including permanent closure of accounts.

Lenders were asking customers to clarify the nature of transactions and warning credit card users that transactions of virtual currency will lead to suspension/cancellation of card.

While trading in cryptocurrency is not illegal as per existing Indian laws, individual institutions can enforce their terms based on their risk assessment.

A grey area

Despite the boom, cryptocurrencies are in a grey area in India, with the Reserve Bank hostile towards it and the government unsure about its prospects.

There is no legislation or regulatory code yet to govern the crypto ecosystem, leading to confusion among customers, businesses and financial institutions providing banking services.

In 2018, the Reserve Bank of India barred financial institutions from supporting crypto transactions, which the Supreme Court overturned in 2020. The government has circulated a draft bill outlawing all cryptocurrency activities, which has been under discussion since 2019.

The RBI asked banks not to cite its 2018 circular and clarified that banks can do their own KYC for crypto clients. With this, banks are now reassessing the situation, but several banks currently lack the technical expertise to make a supervisory assessment on these transactions.



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

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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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Axis Bk diversity charter to empower staff, clients, BFSI News, ET BFSI

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Mumbai: Axis Bank has taken several HR measures to bring equality to employees and customers from the LGBTQIA+ community as part of its strategy to promote diversity and inclusion.

The private lender on Monday announced a ‘ComeAsYouAre’ charter of policies and practices that will apply to those within the organisation and customers. The bank said that this charter is in keeping with the spirit of the Supreme Court verdict on September 6, 2018 on Section 377, which ruled that all sexual relationships between consenting adults in private should be decriminalised.

While multinational banks have already in place a diversity charter in keeping with their global practices, Axis Bank is the first among domestic lenders to publicly announce a charter. Under this charter, employees can list their partners for mediclaim benefits irrespective of gender, sex or marital status. Employees can dress following their gender or gender expression.

“We recognise that employees could have gender or gender expression that’s different from their sex assigned at birth. They can choose to dress in accordance with their gender/gender expression,” the bank said. Employees can also choose to use the restroom of their choice following their gender expression/gender identity.

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DHFL: SC asks NCLAT to wrap up 63 Moons’ appeal against Piramal Group in 2 months

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The Supreme Court has directed the National Company Law Appellate Tribunal (NCLAT) to complete the hearing of the appeal filed by 63 Moons Technologies against the Piramal Group’s resolution plan for mortgage financier Dewan Housing Finance Corporation Ltd (DHFL), within two months.

Enabling the implementation of the resolution process of DHFL to continue, the Supreme Court also refused to grant a stay on it.

“63 Moons appeal in NCLAT questioned the legality of Piramal’s Resolution Plan for DHFL, where Piramal may be able to potentially pocket ₹45,000 crore that may be recovered from the Wadhawans and their associates,” 63 Moons said in a statement, adding that the NCLAT, while issuing the notice, did not stay the implementation of the resolution plan.

63 Moons holds non-convertible debentures worth over ₹200 crore issued by DHFL.

It had moved the Supreme Court last month against the NCLAT’s order that refused to stay the resolution plan for DHFL. The next hearing of 63 Moon’s petition in the NCLAT is on September 15.

NCLAT to hear FD holders’ plea in DHFL resolution case on Sept 16

It has issued notices to the Committee of Creditors, the administrator of DHFL and Piramal Capital and Housing Finance Ltd (PCHFL).

The financial services company had approached the NCLAT soon after the NCLT approved (June 7) the Piramal Group’s ₹37,250-crore resolution plan for mortgage financier DHFL, subject to certain conditions.

Steep haircut

The company had termed the resolution plan as disappointing for NCD holders as they have to take a steep haircut.

“The Supreme Court order today is a win-win for both parties. It ensures that the implementation of the resolution plan of DHFL will continue even while the NCLAT will hear the petition of 63 Moons in a time-bound manner and gives clarity to NCD holders,” said an expert.

However, whether 63 Moons will appeal the order of the NCLAT if it is not in its favour remains to be seen.

“The order passed by the Supreme Court has come as a set back to the creditors holding NCDs in DHFL. Though the apex court has directed the NCLAT to expeditiously decide the issue of undue enrichment raised by 63 Moons Technologies Ltd. within two months, the refusal to stay the implementation of the Resolution Plan may cause discontent in the NCD holders, as at present, they stand to bear the maximum loss as opposed to any other creditor of DHFL,” said Ruby Singh Ahuja, Senior Partner, Karanjawala & Co.

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Delay in legislation on crypto boosts lobbying, BFSI News, ET BFSI

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NEW DELHI: The delay in the government finalising the legislation on cryptocurrency has prompted intense lobbying, with agencies worried over the risks emanating from an unregulated segment with extreme price volatility, posing a threat to investors, many of whom do not understand the instrument.

Besides, there are concerns over the instrument being used for money laundering and terror funding, an issue that has been flagged by other agencies across the globe, sources told TOI.

While the Supreme Court had lifted the ban imposed by the RBI, the government had listed a bill on cryptocurrency to be introduced during the Budget session of Parliament but with the session cut short, the legislation could not make it.

During the monsoon session, the government remained silent on the future of the proposed bill with finance minister Nirmala Sitharaman recently saying that it has been sent for clearance by the Union Cabinet before it can be introduced in Parliament. The next session is at least two months away.

But crypto exchanges have used the interim period to launch a massive lobbying initiative with several governments and regulatory agencies, raising concerns. The exchanges have argued that a ban on digital currency transactions will result in job losses.

While there are fears that a ban will lead to investors getting locked into the instrument, sources indicated that a three-six month window will be provided for investors to exit.

Several officials have junked the argument that crypto currencies are an asset class. Besides, there are worries over the legal basis for the presence of some of the exchanges, which remain outside the jurisdiction of either Sebi or the RBI. “There has to be global coordination to combat the challenge posed by cryptocurrencies. They are not a currency as only the sovereign can issue currency. There is a grave danger in allowing these instruments,” said a source.



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Sebi moves SC, BFSI News, ET BFSI

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MUMBAI: PNB Housing has informed the stock exchanges that markets regulator Sebi has approached the Supreme Court against a split order by the Securities Appellate Tribunal (SAT).

Sebi is pushing the housing finance firm to relook at a deal to sell a Rs 4,000-crore stake to private equity investors led by Carlyle on the grounds that valuation norms have not been followed.

“It has been brought to our notice that Sebi has filed an appeal (no. CA5052 of 2021) to the Supreme Court of India against the order of SAT. The company is examining the appeal filed by Sebi,” PNB Housing Finance said in a notice to the stock exchanges.

On August 9, SAT delivered a split verdict over PNB Housing’s share allocation to Carlyle Group. This followed an interim order where SAT had restricted PNB Housing from disclosing the results of shareholder votes on the deal.

Sebi had asked the housing finance companies to call off the voting. However, following an appeal by the company, SAT allowed the general body to vote on the proposal.

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

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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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NCLT orders freeze of Venugopal Dhoot, Videocon’s senior management’s assets, BFSI News, ET BFSI

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It may not end for defaulting promoters with losing their companies. Their assets are at risk too.

The National Company Law Tribunal (NCLT) has ordered a countrywide search and freeze of the assets of Venugopal Dhoot, his wife, his company and the firm’s chief financial officer as well as company secretary.

The order was in response to a petition filed by the Ministry of Corporate Affairs (MCA) against the bankrupt group. The MCA’s move comes in the wake of banks being able to recover only 4% of their admitted claims of Rs 64,838 crore under the bankruptcy process.

The government had approached the tribunal under Section 241 and 242 of the Companies Act, which empowers the MCA to act if there is a fraud, misfeasance or persistent negligence.

Notices to be served

Responding to the petition, the tribunal has instructed the MCA to serve notices to disclose on affidavit moveable and immovable properties/assets, including bank accounts, owned by them in India or anywhere in the world. It also
directed the Central Depository Services (CDSL) and National Securities Depository (NSDL) to freeze all securities held by the respondent, which include the Dhoots, the company and senior management.

The Central Board of Direct Taxes has also been asked to disclose the information it has in its possession of all the respondents.

Bank accounts, lockers to be frozen

The Indian Banks Association has been directed to facilitate disclosures of the details of the bank accounts, lockers owned by the respondents and such bank accounts and lockers also be frozen with immediate effect.

Finally, the MCA has been instructed to write to state governments and Union Territories to identify and disclose all details of immovable properties held by the respondents.

Despite receiving a bid for only 4% of the admitted debt, which was close to the liquidation value, lenders had agreed to sell Videocon to Twin Star, a Vedanta company.

Unlike enforcement authorities that have sweeping powers, banks under insolvency can only pursue assets of the company that has gone bankrupt. The sale was, however, stalled as the appellate tribunal granted a stay following an appeal from Bank of Maharashtra — a dissenting creditor. In its order on Wednesday, the NCLT said, “This bench is

surprised with the manner in which the financial institution has come forward to grant loans to a sinking ship and again come forward to file petition under Section 7 of IBC and again supports this petition. This certainly rises the eyebrows of the common man in the public.”

Personal guarantees

In July, banks had 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



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