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Corporate Report

Published on: May 18, 2023, 6:55 p.m.
How long Rolta will stymie the insolvency process?
  • Rolta: losing its sheen

By Rommel Rodrigues

In 2015, before he became the president of the US, Donald Trump had famously said in an open Republican primary debate: “I used insolvency laws of the country to my benefit and will not apologise for filing for bankruptcy on my companies, because it is legal”. Trump, as he is known for, was bluffing, considering that deceitful promoters use bankruptcy laws to escape debts and filch investors, shun personal liabilities, avoid paying taxes and sink retail investments.

The insolvency mechanism which came to India quite late, (as the Insolvency and Bankruptcy Code (IBC) in 2016, offers a legally tenable framework to deal with companies which are unable to pay their due debts and aims to protect the interests of creditors. 

In most cases, such promoters, who are called corporate debtors (CD) under IBC, are happy being stripped of their ownership, as they have often invested very little of their own money, while collecting millions of dollars in salary, bonuses and other payments. However, there are cases in which some promoters try their level best to hinder the insolvency process, which is called the corporate insolvency resolution process (CIRP) under IBC on an order from the adjudicating authority (AA), which is the National Company Law Tribunal (NCLT). 

Such promoters, who have defaulted in heavy borrowings from banks and institutions, not paid employees’ dues, other vendors and government in taxes and other levies try all the means at their disposal to thwart the attempts. The sole objective of such promoters is to get back the debt-ridden company at a cheaper price. 

“In popular terms, this is called insolvency being gamed by promoters,” says one leading practitioner in the IBC space. “They do not want to pay back their debts while they want to retain the management.”

After a CIRP has been ordered, an interim resolution professional (IRP) is appointed and all the powers of the management are stripped off the promoters and given that to a professional. 

Getting more credit

With CIRP having little option left to recover the dues, creditors would be forced to rework the debt and they would be able to get more credit to continue with their operations. “So, they try to ensure that the CIPR order is reversed in their favour and the IRP has to go back,” the practitioner adds.

One classical example of such a case is information technology company Rolta India Ltd (RIL) and how its main promoter owner Kamal K. Singh tried to obstruct the insolvency process for an unbelievable record three times in five years, till the latest CIRP has been launched. 

RIL owes several banks, institutions, foreign investors, employees and other creditors to the tune of Rs17,000 crore and has foiled the insolvency process since 2018, when NCLT first ordered a CIRP on a petition of Union Bank of India (UBI) for default of Rs1,413 crore. 

An IRP was appointed and he tried to take over the management, however, Singh went up to the Supreme Court (SC) on a technical point based on an RBI circular, which stipulated that an entity could be labelled as a non-performing asset (NPA) only if it defaulted to the tune of over Rs2,000 crore and can be referred to NCLT after six months. Singh was able to get a reprieve in his favour and the CIRP was halted.

  • Singh: under a cloud: Pix: Sanjay Borade

In November 2019, NCLT admitted the plea of Value Partner Greater China High Yield Income Fund and Pinpoint Multi-Strategy Fund, both based in Cayman Islands, for Rs1,060 crore and another CIRP was ordered. An RP from consultancy firm E&Y was also appointed and he began his work, however, Singh again contested the order on technical grounds that the NCLT did not pronounce the judgement in an open court. 

The Bombay High Court in a landmark judgement ordered setting aside NCLT’s insolvency proceedings, considering the procedural lapse in delivering the judgement. Things were back to square one. 

In May 2021, NCLT passed another order for CIRP in a case filed by a former employee. And an IRP Vandana Garg was appointed who took over the management of the company and expeditiously began the insolvency process in a bid to salvage whatever value that could be ascertained. Singh privately settled with the employee who had got the NCLT order and then he filed a Special Leave Petition (Civil) in the SC which allowed it to set aside NCLT’s order and thus Singh took back control of the company.

In January 2023 in yet another case filed by UBI a Mumbai bench of NCLT passed an order for CIRP against RIL. An IRP Mamta Binani was appointed and has initiated the insolvency process. With this, the powers of Singh and the board of directors have been stripped off and RP is in control over whatever is existing in the company, its assets and its business.

A senior banker who is familiar with the RIL case says that five years was a long time for Singh and his team to siphon intellectual assets of value, and what may remain is some real estate and peripheral infrastructure. “Why else would you invest so heavily to obstruct a restructuring?” he makes a valid point

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