Business Today - - COVER STORY - By Di­pak Mon­dal Il­lus­tra­tion by Raj Verma


DECCAN CHRON­I­CLE HOLD­INGS, the Hy­der­abad-based news­pa­per pub­lisher, is fight­ing for sur­vival in the Na­tional Com­pany Law Tri­bunal ( NCLT). With debt of around ` 8,000 crore, the com­pany has been dragged to the NCLT un­der the In­sol­vency and Bank­ruptcy Code (IBC) and is now wait­ing for a bid­der to save it from liq­ui­da­tion. “We have to en­sure that this com­pany sur­vives or else 40,000 jobs, di­rect and in­di­rect, could be in jeop­ardy,” says a source closely as­so­ci­ated with the res­o­lu­tion process. Srei Group’s Vi­sion In­dia Fund, the only bid­der left, has agreed to pay ` 1,000 crore and ac­quire the com­pany. A res­o­lu­tion would mean that Deccan Chron­i­cle is ac­quired by an­other group or pro­moter as a go­ing con­cern.

The In­sol­vency and Bank­ruptcy Code, seen as a path-break­ing re­form, now poses a moral dilemma. While it has has­tened the res­o­lu­tion process of many long pend­ing cor­po­rate loan de­fault cases, it has also led to a sub­stan­tial num­ber of com­pa­nies get­ting liq­ui­dated in the ab­sence of any tak­ers for their busi­ness. This has, in turn, led to thou­sands of jobs com­ing un­der threat.

Many ex­perts and res­o­lu­tion pro­fes­sion­als be­lieve that the IBC, by free­ing up lakhs of crores of money stuck in long-pend­ing cor­po­rate de­fault cases, would lead to clean­ing up of the mess and re­vival of many in­dus­tries in the long run, there is no deny­ing that jobs are be­ing lost in the short to medium term.

Liq­ui­da­tion: A Hang­ing Sword

Liq­ui­da­tion re­mains a big threat to com­pa­nies go­ing through in­sol­vency pro­ceed­ings. Of the 968 cases of cor­po­rate de­fault ad­mit­ted by the NCLT for res­o­lu­tion un­der the IBC, close to 40 have been re­solved and 156 have gone into liq­ui­da­tion. While many liq­ui­dated com­pa­nies may not have been func­tion­ing, there are sev­eral in­stances of op­er­a­tional com­pa­nies, with em­ploy­ees on rolls, get­ting liq­ui­dated.

Alok In­dus­tries and Lanco In­frat­ech are among the first lot of 12 com­pa­nies, with over ` 5,000 crore loan dues, re­ferred to NCLT by the bank­ing reg­u­la­tor Re­serve Bank of In­dia (RBI). These com­pa­nies now face the real risk of be­ing liq­ui­dated af­ter be­ing un­able to find a res­o­lu­tion within the thresh­old of 270 days. Alok In­dus­tries has 12,000 em­ploy­ees while Lanco In­frat­ech has 1,200. Ajay Joshi, the res­o­lu­tion plan­ner in the Alok In­dus­tries case, how­ever, says that the case is still on in NCLT and liq­ui­da­tion may not be in­evitable. Re­liance In­dus­tries and JM Fi­nan­cial ARC have jointly bid for Alok In­dus­tries, and the com­mit­tee of cred­i­tors (CoC) has ap­proved the res­o­lu­tion plan by 72 per cent votes. How­ever, the deal is far from done yet. The res­o­lu­tion plan, stip­u­lat­ing that lenders would have to take a hair cut of 83 per cent, has been slammed by bank em­ploy­ees as­so­ci­a­tion. In the Lanco In­frat­ech case, the CoC is yet to take a call on the res­o­lu­tion plan pre­sented by Tamil Nadu-based Thriveni Earth­movers.

The sword of liq­ui­da­tion is hang­ing on sev­eral com­pa­nies and many com­pa­nies have al­ready fallen prey to it de­spite be­ing op­er­a­tional. Con­sider the ex­am­ple of Gu­jarat NRE Coke. The com­pany owed about ` 5,000 crore to fi­nan­cial cred­i­tors and it vol­un­tar­ily took the IBC route. Dur­ing the res­o­lu­tion process, it did re­ceive a bid from RARE As­set Re­con­struc­tion Com­pany (ARC), which was re­jected by the CoC. The em­ploy­ees and work­ers of the com­pany then sub­mit­ted a res­o­lu­tion plan which could not be dis­cussed in the CoC as the time limit pre­scribed un­der IBC was over. Later, the NCLT or­dered the com­pany to be liq­ui­dated. How­ever, keep­ing in mind the liveli­hood of 1,178 em­ploy­ees and their fam­i­lies, ven­dors, con­trac­tors and job work­ers – to­talling around 10,000 – the NCLT asked the liq­uida­tor to sell the

as­sets of the com­pany as a go­ing con­cern.

Gu­jarat NRE Coke be­came the first com­pany to be liq­ui­dated as a go­ing con­cern (or as op­er­at­ing com­pany). Chair­man and Man­ag­ing Di­rec­tor Arun Ku­mar Ja­ga­tramka told Busi­ness To­day that he is now try­ing to re­vive the com­pany through a scheme of ar­range­ment un­der Sec­tion 230 of the Com­pa­nies Act 2013. For the scheme to be suc­cess­ful, it re­quired con­sent of 75 per cent cred­i­tors and share­hold­ers. How­ever, Ja­ga­tramka says that Jin­dal Steel and Power, which ac­counts for 0.5 per cent of to­tal debt, threw a span­ner in his plan to re­vive the com­pany by get­ting a stay or­der at Na­tional Com­pany Law Ap­pel­late Tri­bunal (NCLAT), the ap­pel­late tri­bunal. “The com­pany had 1,100 em­ploy­ees be­fore the liq­ui­da­tion or­der came, and now we have still over 900 em­ploy­ees work­ing for the com­pany, whose fate now hangs in bal­ance,” says Ja­ga­tramka.

How­ever, a pos­i­tive from the Gu­jarat NRE Coke saga is that the law has been amended to al­low the liq­uida­tor to sell a com­pany as a go­ing con­cern. Ear­lier, reg­u­la­tions al­lowed a liq­uida­tor to sell an as­set on a stand­alone ba­sis or sell a set of as­sets col­lec­tively or in parcels in a slump sale. In an­other such ex­am­ple, Hin­dus­tan Dorr Oliver, a sub­sidiary of IVRCL, and its as­so­ci­ate com­pany HDO Tech­nolo­gies, both func­tional com­pa­nies, were sent for liq­ui­da­tion af­ter the res­o­lu­tion plan was re­jected by CoC. Over 100 di­rect em­ploy­ees work­ing in the com­pany now face a pos­si­ble job loss. There is a ray of hope though – the com­pany has got a stay or­der from NCLAT against the liq­ui­da­tion.

Ashish Bhan, a part­ner at law firm Tri­le­gal rep­re­sent­ing Hin­dus­tan Dorr Oliver in the NCLT, says, “We have con­tended in the NCLAT that we had given a res­o­lu­tion plan which was de­lib­er­ated for 150 days. Ma­jor­ity lenders had given in-prin­ci­ple ap­proval, so there is no ques­tion of liq­ui­da­tion.” The NCLT has ar­gued that liq­ui­da­tion pro­ceed­ings were started against the two com­pa­nies since there is no un­con­di­tional ap­proval from ma­jor­ity lenders. Bhan says the idea of IBC is to re­vive the com­pany and not liq­ui­date it so that hun­dreds of jobs can be re­tained. The two com­pa­nies to­gether owe ` 1,000 crore to banks. Mamta Bi­nani, who over­saw the first res­o­lu­tion in the Syn­er­gies Dooray case un­der IBC, says the dan­ger of job loss is huge if cases un­der IBC do not get re­solved. Liq­ui­da­tion means in­stant loss of jobs. She cites the ex­am­ple of Ste­warts & Lloyds of In­dia, liq­ui­dated un­der IBC – Bi­nani was the liq­uida­tor in the case. “With just a stroke of a pen, 48 jobs were lost. It was not an easy thing to do. There were days when these work­ers would come in groups and re­quest me to save their jobs. But I was help­less as I could not help them,” she says.

How­ever, Anil Goel, Chair­man of the AAA In­sol­vency Pro­fes­sion­als, an in­sol­vency pro­fes­sional en­tity, says many

com­pa­nies which have gone into liq­ui­da­tion should have been liq­ui­dated long back. Most of these com­pa­nies have no value and many don’t even have work­ers left. He cited many rea­sons why find­ing res­o­lu­tion in many cases was dif­fi­cult and why a ma­jor­ity of them are go­ing into liq­ui­da­tion – ex­pen­sive process of sub­mis­sion of res­o­lu­tion plan, un­re­al­is­tic val­u­a­tion, lack of clar­ity on waiver of statu­tory li­a­bil­i­ties, clash of in­ter­est among CoC mem­bers, etc. Goel pointed out that in some cases, like REI Agro and Ro­tomac Global (in both cases he was the res­o­lu­tion pro­fes­sional), it was dif­fi­cult to find any tak­ers be­cause in­ves­ti­gat­ing agen­cies had at­tached prop­er­ties of these com­pa­nies.

In the case of LML (where he was again the res­o­lu­tion pro­fes­sional), Goel says the prod­uct of the cor­po­rate debtor has be­come ob­so­lete and there are no res­o­lu­tion ap­pli­cants for re­vival.

Pu­nit Tyagi, Ex­ec­u­tive Part­ner at law firm Lak­sh­miku­maran & Srid­ha­ran, says that al­low­ing com­pa­nies un­der liq­ui­da­tion to be sold off as a go­ing con­cern would pre­vent wide­spread re­trench­ment. Mamta Bi­nani says the amend­ment was prob­a­bly brought fear­ing wide­spread job losses.

In hind­sight, keep­ing pro­mot­ers out of the bid­ding process is also not help­ing in get­ting res­o­lu­tion in many cases. The gov­ern­ment has par­tially cor­rected the mis­take by ex­empt­ing SME pro­mot­ers from this rule.

No Guar­an­tee of Job Safety

Cases re­solved have been few and far be­tween when com­pared to the num­ber of liq­ui­da­tions. While a res­o­lu­tion means there are more chances of em­ploy­ees re­tain­ing their jobs, it is no guar­an­tee that all the jobs would be saved. In the mat­ter of Bhushan Steel, ac­quired by Tata Steel through the IBC process, there are re­ports of labour un­rest in the com­pany’s Dhenkanal (Odisha), plant over fear of pos­si­ble job losses. There is fear among con­tract labour that they may not be re­tained. Tata Steel has not re­sponded to the query sent by Busi­ness To­day on the is­sue. An­other case in point is Ad­hu­nik Me­ta­liks. While Lib­erty House, which ac­quired the com­pany through the IBC process, has been say­ing that it would prob­a­bly in­crease the man­power go­ing for­ward as they try to re­vive the com­pany, there is fear among work­ers about pos­si­ble job losses. Am­rita Pandey, who rep­re­sented the work­ers of Ad­hu­nik’s Orissa plant in the NCLT over non-pay­ment of wages, said that though the new man­age­ment has promised to re­tain 600-odd work­ers, there is fear that some jobs could be lost as part of the com­pany’s ef­fort to right-size the op­er­a­tions.

Lib­erty House has also ac­quired Amtek Auto. On the ques­tion of job loss, how­ever, the San­jeev Gupta-led UK-based com­pany was not very forth­right. “Amtek Auto’s and Ad­hu­nik Me­ta­liks’ CIRP (cor­po­rate in­sol­vency res­o­lu­tion process) started al­most a year back. These busi­nesses have been un­der stress for longer than that. We are con­fi­dent about our turn­around strat­egy for these busi­nesses which will be re­vealed in time,” Ex­ec­u­tive Chair­man San­jeev Gupta told Busi­ness To­day.

The threat to jobs due to the in­sol­vency and bank­ruptcy pro­ceed­ings is real. Fail­ure to get res­o­lu­tion in many cases, what­ever may be the rea­son, is push­ing com­pa­nies into liq­ui­da­tion and that is un­set­tling for em­ploy­ees. The only sav­ing grace so far is that none of the big cases have so far gone into liq­ui­da­tion. But with prospects of res­o­lu­tion of the likes of Lanco In­frat­ech and Deccan Chron­i­cle not look­ing very bright, the IBC could lead to job losses, em­bar­rass­ing Prime Min­is­ter Narenda Modi in the run-up to man­date 2019.

“We are con­fi­dent about our turn­around strat­egy for these busi­nesses (Ad­hu­nik Me­ta­liks and Amtek Auto)” San­jeev Gupta Ex­ec­u­tive Chair­man, Lib­erty House

“There were days when the work­ers would come in groups and re­quest me to save their jobs” Mamta Bi­nani Res­o­lu­tion Pro­fes­sional

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