Pramod somehow managed to make Internet Genie run at the high speed that was expected of him. Genie as usual started narrating a story. He started with a question, “What do you know about Dirty Dozen?” Pramod knew that if he uttered a word, Genie would slip out of his control and system will hang! So Pramod did not give any reply to the question asked.
As usual Genie kept on talking. Pramod, I know you are thinking about the war movie released just when you had joined engineering. Did you like the movie? Lee Marvin and Charles Bronson were two of the main characters from a dozen of them. It was your kind of movie and I know that you had seen it a couple of times.
But I am not talking of that Dirty Dozen; this is a list of modern day “Dirty Dozen” who have borrowed money from institutions to the tune of US $ 50/ Billion. Out of this at least 60% is borrowed by the Dirty Dozen. Their loans are declared NPA’s (non-performing assets) as these organizations will never be able to service the debt, ever! Pramod, I am not going to talk in technical lingo but will discuss in plain English. If this default is not handled properly the institutions who have given these loans will sink and will affect the overall market sentiment and Indian Economy. With these banks sinking our FD’s kept with these banks will sink and there will a major catastrophe. Government is pumping money in large amounts in the lending banks; Government has also come up with a comprehensive legislation in 2016 to overcome the issue.
Insolvency and Bankruptcy Code (IBC), 2016 seeks to address this issue by bringing in a consolidated legal framework for resolving defaults by infrastructure companies and partnership firms in a time-bound manner. The code, is in force since December 2016, supersedes all extant insolvency laws.
Before this there were different laws handling bad loans using separate routes, resulting in long delays or no action. Money would just go down the drain, but promoters would be billionaires many times over. Probably they had all conveniently forgotten the famous quote of Ex Chrysler Motors Chairman, Lee Iacocca. “We borrow the money the old way, we repay it”! Pramod, sometimes I get a feeling that the Dirty Dozen gang never had any intention of repaying the money! Below are the details of money owed by these companies.
India has done something right as its rank in “Ease of Doing business” jumped by 30 nos. Previously only debtors could apply for bankruptcy but now creditors can also ask for the bankruptcy proceedings against their customer if there is a proven delay in payment, as per law. This change has given more teeth to the system. Recently Ericson has filed insolvency case against Reliance Communication for non payment of dues. Before the new law, it was not possible to do so. In the world of business companies run well and they fail too. There has to be a simple method and law to handle the failures. Since India was lacking this, foreign institutions were very careful while dealing with Indian companies.
Pramod, I am sure that you are aware that there is are proven international practices to handle the failed companies; first step is to start the insolvency process. Secondly, lenders using a legal process can “sell” these companies. If total valuation of the failed company is 100, then these companies can be “sold” at 80 to 90 % value. Second method is global organizations with huge funds, buy the “debts” of these companies; thereby releasing funds for lenders.
Pramod, on 24th November 2017 the Government has released an ordinance. In the ordinance, if the assets of the insolvent companies are NPA for more than one year, then the promoters of these companies cannot take part in bidding process for the “sell’ of their own failed companies. There are more such entities who are also banned.
In August, National Company Law Tribunal (NCLT) allowed Synergies Castings to acquire Synergies-Dooray Automotive, which made and supplied Aluminum alloy wheels for Rs 54 crore when the company owed Rs 900 crore to lenders. The company could pay Rs 20 crore upfront with the rest over five years. This prompted the government to promulgate the ordinance. Don’t pay your lenders, become sick and then buy your own company dirt cheap, sans the loans, was the trick followed by “successful” manipulators. Pramod, the “experts” don’t want to run their business but they want to take advantages of loop holes! Pramod, would you like to become “successful” this way or you would rather follow Lee Iacocca’s footsteps?
Pramod, I want your reply on this as I know you have strong views!! Pramod just could not keep quiet. He said, ” Genie, I would rather be poor than being a cheat! I know that sometimes businesses fail genuinely, for example sudden policy changes, sudden changes in customer requirements and so on. But even during such events, I am not sure if the promoters have not made money on the side! Government is doing an excellent job of closing as many loop holes as possible in the system. At the same time, they are making the laws which are on par with international laws!”
With this statement Pramod broke the golden rule of silence that Genie had locked him in. At that instant Genie slipped out of Pramod’s grasp, Genie’s speed became equivalent of 2 G and system hung! Genie could not help but make a passing remark before escaping. ” Well said Pramod! Let us hope we see the results of the same very soon!”