When a company is unviable, the best solution involves both the promoters and the lenders—usually banks—taking a reasonable haircut and moving on; once the firm has both less debt and equity to service, the chances of its survival improve dramatically. That, in fact, is the principle behind the Insolvency and Bankruptcy Code that is being worked out through various benches of the National Company Law Tribunal (NCLT) across the country. Technically, since there has been very little progress in restructuring of these accounts, these companies have been admitted for being wound up. But since what gets recovered in such a process is really small, the hope is that in the period allowed for resolution, both promoters and bankers will come to an agreement on the haircuts. Given the dramatic rise in NPAs—between just March 2015 and June 2017, these rose by Rs 4.6 lakh crore—it is vital that a quick solution be found; in just the first 12 cases, RBI forced banks to refer to NCLT, the amounts involved are a whopping Rs 2.4 lakh crore. While there have already been cases like Synergy Dooray where it is alleged that gaps in the NCLT process have been exploited by the promoters, newspaper reports are suggesting there may be other gaps as well. One such could be a promoter floating another company, or using an existing group firm/subsidiary to bid at the NCLT.
So, let’s say a company has a Rs 10,000 crore that is clearly unsustainable and, say, gets sustainable at a level of Rs 4,000 crore. If, as part of the NCLT process, the bank loan is reduced, and a completely different set of promoters buys the firm, that is one thing. But if the existing promoter gets to buy his own company—with the banks taking a considerable haircut on their debt—that is quite another situation. Since the promoters whose companies are at the NCLT have been defaulting for years and have, in many cases, also been accused of siphoning off funds, the principle behind NCLT was that, in at least the most egregious cases, the original promoters would be shown the door.
If, however, the original promoters get to regain control of their companies, the optics of this are going to be very poor. In which case, even if the government does not wish to make any changes to the law, it has to ensure the bankers—who will be the mainstay of the creditors committee—carefully vet the new bidders so as to ensure against allowing the original promoters to regain control; if need be, the committees have to insist the corporate veil be pierced to know the identity of the promoters behind every bidding firm.