Com­mis­sion or Comp­trol­ler and Au­di­tor Gen­eral who may ac­cuse them of caus­ing loss to the bank. The gov­ern­ment’s worry hence seems to be that both bankers and pro­mot­ers may use the Na­tional Com­pany Law Tri­bunal (NCLT) process only to hand back the NPAS to the pro­mot­ers and that too with a cut in the loan load.

How­ever, for the gov­ern­ment all the 12 large NPAS go­ing back to their pro­mot­ers can be a se­ri­ous loss of face. What is worse, if even one pro­moter were to get back his plant with a loan hair­cut of more than Rs5,000-6,000 crore, com­par­isons with Vi­jay Mallya will surely hit head­lines. Why ban­ish one pro­moter out of the coun­try and al­low an­other to mer­rily win back his plant when the loss to the bank­ing sys­tem is same or even more!

Even with­out the po­lit­i­cal back­lash, it is not good for the long-term health of the banks, the fi­nan­cial sys­tem and the econ­omy, if an over­whelm­ing num­ber of de­fault­ing pro­mot­ers get back their plants with a lower loan bur­den and that too with the stamp of ju­di­cial ap­proval. Firstly, since some of these are re­peat of­fend­ers, they are likely to run their plants into trouble in the next down­turn. More im­por­tant, the demon­stra­tion im­pact on fu­ture of­fend­ers will be ter­ri­ble. The In­sol­vency Code is meant to ex­actly sig­nal the op­po­site: that those who de­fault out of in­com­pe­tence or fraud will be pun­ished by the sys­tem tak­ing away their as­sets. To put it in mar­ket lingo, the ef­fort is to en­sure that eq­uity hold­ers suf­fer more than and be­fore the debtors.

The new amend­ments to the In­sol­vency Code’s reg­u­la­tions, em­power bankers to boldly pre­fer non­pro­mot­ers even if the win­ning ap­pli­cant is ask­ing for a higher loan hair­cut. Sam­ple this: “The Com­mit­tee of Cred­i­tors is ex­pected to carry out due dili­gence of ev­ery res­o­lu­tion plan to sat­isfy it­self that (a) the plan is vi­able, and (b) the per­sons who have submitted the plan and who would im­ple­ment the plan are cred­i­ble, to avoid the plans which may lead to liq­ui­da­tion, post res­o­lu­tion, and to se­lect the most suit­able plan un­der the cir­cum­stances.”

This clause pro­vides enough le­gal cover for a banker who prefers a new ap­pli­cant who has no record of NPAS to the ex­ist­ing pro­moter, es­pe­cially if the ex­ist­ing pro­moter has a record of de­fault­ing on loans in prior in­stances too. Also the new reg­u­la­tions re­quire those who bid for stressed as­sets at the NCLT “to dis­close de­tails of the res­o­lu­tion ap­pli­cant and other con­nected per­sons to en­able the Com­mit­tee of Cred­i­tors to as­sess cred­i­bil­ity of such ap­pli­cant and other con­nected per­sons to take a pru­dent de­ci­sion while con­sid­er­ing the res­o­lu­tion plan for its ap­proval.” Clearly, this refers to pro­mot­ers who may be bid­ding along with new-found com­pa­nies who pose as pri­vate eq­uity cap­i­tal, but may be fronting for the pro­mot­ers them­selves.

So, it does ap­pear that the new reg­u­la­tions are stack­ing the odds against the pro­mot­ers. But then, if that is the case, the moral dilemma for bankers will come for the hun­dreds of stressed com­pa­nies where there are un­likely to be any suit­ors but the pro­mot­ers them­selves.

This could be ei­ther be­cause the as­sets have been so run down, that there is lit­tle value left. More likely ri­val com­pa­nies will shy away from ap­ply­ing for fear that ex­ist­ing pro­mot­ers may plant a poi­son pill in the plant, ei­ther by way of their moles in key places or by dis­rupt­ing the plant tech­ni­cally in some way.

A third and more deadly pos­si­bil­ity of sys­tem­at­i­cally dis­al­low­ing pro­mot­ers to buy back may come in the form of pro­mot­ers of stressed com­pa­nies rip­ping off all as­sets of a plant, when it starts to go down­hill.

Clearly bankers, the gov­ern­ment and the NCLT tri­bunals and in­deed the ju­di­ciary have to tread a thin line. They need to be dili­gent, yet vi­sion­ary. They hold the na­tion on the thresh­old of a ma­jor break­through. They need to suc­ceed for the In­dian bank­ing sys­tem and the econ­omy to break out of a decades-old sys­tem which al­lowed crooks to take ad­van­tage of the dila­tory le­gal process to cheat the banks.


Newspapers in English

Newspapers from India

© PressReader. All rights reserved.