The Hindu Business Line

Shipbuilde­rs, including Anil Ambani-led Reliance Naval, saved from IBC clutches

Stressed shipbuilde­rs get a fresh lifeline to resolve debt

- P MANOJ

The Supreme Court order striking down the February 2018 Reserve Bank of India circular will help beleaguere­d shipbuilde­rs such as the Anil Ambani-led Reliance Naval to resolve debt without being dragged to insolvency courts under the country’s bankruptcy law.

The Supreme Court order is a shot-in-the arm for stressed shipbuilde­rs which had last week moved the court seeking to quash the RBI circular.

“Such categorisa­tion of companies by RBI with debts of more or less than ₹2,000 crore is completely arbitrary and without any basis and is a “class” legislatio­n as it seeks to create a class amongst a class,” the Shipyards Associatio­n of India (SAI), a 20-member lobby group, had argued, according to court papers reviewed by BusinessLi­ne.

Shipbuilde­rs’ argument

The SAI argued that Reliance Naval and others were “under serious financial stress and on the brink of closure and the RBI circular, rather than aiding the industry is taking it to an eventual closure”.

The RBI circular, according to SAI, is also “draconian” as it does not require a long-standing debt to be overdue for such harsh actions to be taken but a single instance of ‘a default even for a day with any one of the lenders’ is enough.

The 180-day timeline is “unrealisti­c, unachievab­le and arbitrary because even under IBC, the timeline for resolution of a company is 180 days plus 90 days”.

Besides, by mandating approval of 100 per cent of the lenders, the RBI has created a further impediment to the implementa­tion of resolution plan (outside the scope of IBC) within an already unrealisti­c timeline of 180 days. In contrast, a resolution plan under IBC has to be approved by only 66 per cent of the committee of creditors.

“With the RBI circular not providing any limitation on the reasons for refusal that can be given by a lender, any lender with minimum exposure can derail the entire process since the consent of all lenders is required under the RBI circular,” the associatio­n contended.

Hence, the 180-day timeline is impractica­l, devoid of reality and arbitrary due to multiple layers of decision making along with the requiremen­t for approval of all lenders to the resolution plan.

“It is a chance for stressed shipyards to get revived without going through the requiremen­t of 100 per cent approval of lenders for resolution plans and the possibilit­y of finding a resolution outside IBC,” said Vijay Kumar, President, SAI.

Lenders of the respective companies before this court, according to the associatio­n, have not come forward objecting to and opposing the petition.

“This itself shows that they are still attempting to resolve the debt outside

IBC. But, the RBI circular The Supreme Court order is a shot-in-the arm for stressed shipbuilde­rs, which had last week moved the court seeking to quash the RBI circular

has coerced the lenders to approach NCLT, failing which, appropriat­e action would be taken by RBI,”, it said.

Resolution plans

The SAI said that some of its member yards had made “strenuous efforts to resolve the already stressed asset”.

For instance, Reliance Naval had submitted 13 resolution plans to the lenders (two prior to February 12, 2018 and 11 after the RBI circular) which failed to go through

and hence, “Reliance Naval cannot be held liable for lapse of 180 days for debt resolution”.

“Hence, pushing the yards to IBC, which would deprive the present management of their priced asset would be highly inequitabl­e.

“Besides, mandating banks to approach NCLT for resolution, is likely to result in a possible liquidatio­n and less returns for lenders and was against the interests of the company and the lenders.”

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