Jaypee In­fra de­posit hold­ers can file claims as ‘cred­i­tors’

Mint ST - - PERSONAL FINANCE - BY ASHWINI KU­MAR SHARMA ashwini.s@livemint.com

to the col­lec­tion no­ti­fi­ca­tion op­tion. Un­der the col­lect no­ti­fi­ca­tion, you will get a re­quest from Uber to col­lect Re1, with cus­tomer ref­er­ence num­ber and amount. Once ap­proved, you will get a mes­sage show­ing that the amount was ap­proved suc­cess­fully. The money will be deb­ited from your Upi-linked ac­count in­stantly. You will also get a mes­sage on your Uber app stat­ing the app is ready for ac­cept­ing UPI pay­ments. The next time you book an Uber cab, you can start us­ing your UPI pay­ments op­tion . To make a pay­ment for the trip, you will have to use your UPI PIN.

HOW TO USE UPI

To start us­ing UPI, you need to have a bank ac­count, a reg­is­tered mo­bile num­ber that is linked to your bank ac­count, and an An­droid or IOS smart­phone to down­load a Upi-en­abled app and your bank needs to be a UPI mem­ber. You can use UPI on your fea­ture phones too. To trans­act through UPI, you need to down­load a Upi-en­abled app and then choose the UPI op­tion. If you have apps that are Upi-en­abled—such as True­caller—and are al­ready on your phone, you can cre­ate a UPI vir­tual ad­dress through that app too. The process of cre­at­ing a vir­tual ad­dress will vary from app to app. In all cases, you will need to ver­ify you mo­bile num­ber on the app fol­lowed by your bank ac­count de­tails to cre­ate a vir­tual ad­dress. Usu­ally a Upi-en­abled app will pop­u­late the de­tails such as your bank ac­count num­ber and In­dian Fi­nan­cial Sys­tem Code (IFSC). If you have mul­ti­ple bank ac­counts, you can se­lect the one you want to link with UPI. You also have to gen­er­ate a PIN which will be re­quired to au­then­ti­cate the trans­ac­tion through UPI.

Ev­ery­body is talk­ing about how the in­sol­vency pro­ceed­ing against Jaypee In­frat­ech has left its buy­ers of un­der-con­struc­tion houses in the lurch. But these are not the only group of re­tail in­vestors af­fected by these pro­ceed­ings. There are also those who had in­vested in fixed de­posits of the com­pany. Ac­cord­ing to the In­sol­vency and Bank­ruptcy Code, 2016, these in­vestors fall in the cat­e­gory of un­se­cured cred­i­tors.

Such in­vestors have lost money in com­pany fixed de­posits ear­lier too. Hous­ing and con­struc­tion com­pa­nies such as Unitech Ltd, An­sal Prop­er­ties and In­fra­struc­ture Ltd, and DSK Group have also de­faulted on re­pay­ment of prin­ci­pal or in­ter­est. This is not lim­ited to a par­tic­u­lar sec­tor. Com­pa­nies like Birla Shloka Edutech Ltd, He­lios and Mathe­son In­for­ma­tion Tech­nol­ogy, and Elder Phar­ma­ceu­ti­cals have also de­faulted. While com­pa­nies of­fer bet­ter in­ter­est than banks, de­posits with them also come with higher risks. Let us read about them.

COR­PO­RATE FIXED DE­POSITS

Like bank fixed de­posits, these too of­fer a pre­de­ter­mined in­ter­est rate. How­ever, their in­ter­est rates are usu­ally 2-3% higher than those of banks. De­spite pay­ing a higher in­ter­est rate, for com­pa­nies it is still cheaper com­pared to rais­ing money from fi­nan­cial in­sti­tu­tions.

THE RISKS

Cor­po­rate fixed de­posits are far less se­cure than bank de­posits and carry greater risk of de­fault—which means, you could lose your prin­ci­pal and in­ter­est. Jaypee In­frat­ech had also raised money from such fixed de­posits. As part of the in­sol­vency pro­ceed­ings, these de­pos­i­tors too are re­quired to sub­mit their claims to the In­sol­vency Res­o­lu­tion Pro­fes­sional (IRP). Fixed de­posit hold­ers are cat­e­go­rized as fi­nan­cial cred­i­tors of the com­pany and are re­quired to file their claim in Form C is­sued by the In­sol­vency and Bank­ruptcy Board of In­dia (In­sol­vency Res­o­lu­tion Process for Cor­po­rate Per­sons) Reg­u­la­tions, 2016. How­ever, these de­pos­i­tors are clas­si­fied as un­se­cured fi­nan­cial cred­i­tors. Thus, if the com­pany is liq­ui­dated, they will get their money only after sat­is­fy­ing the claims of cred­i­tors whose prece­dence is higher than theirs. Ac­cord­ing to the in­sol­vency code, this means, after pay­ing: the costs of the in­sol­vency res­o­lu­tion process and liq­ui­da­tion cost, debts of the work­men, se­cured cred­i­tors, wages and un­paid dues owed to the em­ploy­ees other than the work­men. And if no money is left after sat­is­fy­ing all these cred­i­tors, the un­se­cured cred­i­tors may not get paid. The in­sol­vency code does not lay down how to deal with cred­i­tors whose claims could not be ful­filled by the liq­ui­da­tion pro­ceeds.

SHOULD YOU IN­VEST?

Com­pared to cor­po­rate de­posits, fixed de­posits in banks are in­sured up to Rs1 lakh (ag­gre­gate de­posits in one bank) by the De­posit In­sur­ance and Credit Guar­an­tee Cor­po­ra­tion (DICGC). This means, in case of de­fault by schedule com­mer­cial banks or co­op­er­a­tive banks, DICGC will pay you up to Rs1 lakh if banks de­faults on your fixed de­posit.

Cor­po­rate de­posits have no such guar­an­tee. Keep that in mind be­fore in­vest­ing in them. You should not be swayed by the high re­turns promised by these de­posits. You should have an un­der­stand­ing of the com­pany you are in­vest­ing in, go for only those with credit rat­ing higher than AA+.

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