That deal, approved by 90% of Siva Industries lenders, was signed as there were no other suitable offers; lawyers say it will set a bad precedent
Taking a cue from C Sivasankaran-owned Siva Industries, which is getting a generous bailout from Indian lenders led by IDBI Bank to get out of insolvency courts, other Indian promoters are also planning to make such applications, say lawyers. The one-time settlement, approved by 90 per cent of Siva Industries lenders, was signed this April as there were no other suitable offers on the table, say lenders. But lawyers said this kind of a settlement will set a bad precedent for the insolvency and bankruptcy code, with most defaulters seeking a similar bailout at the cost of Indian banks. “The settlement between the two fails to take into consideration the impact on customers and the lopsided precedent that it would set for the lenders and defaulters. The bail out of Siva industries seems to be sending out a loud and clear message to the defaulters that there is an easy way out. With the exchequers bailing them out, the reality is crystal clear that the defaulters shall continue to be living well, while it is the lenders and the common man that bear the brunt of defaulters being spared,” said Sonam Chandwani, Managing Partner at KS Legal & Associates. In a statement, IDBI Bank said Sivasankaran has offered a deal of Rs 500 crore which was marginally better than the liquidation value. Hence, it has decided to accept the offer after the Siva Industries defaulted to Rs 5,000 crore of loans. The company is already facing enquiry from the Central Bureau of Investigation (CBI) while the promoter is also facing a Enforcement Directorate charge sheet in the the Infrastructure Leasing & Financial Services (IL&FS) money laundering case. Lawyers said the Siva Industries deal will encourage other promoters to file similar petitions under Section 12A of the IBC with the lenders which gives an option to promoters to get control back of the company. But similar petitions from the promoters of Essar Steel and Videocon Industries were rejected by the public sector banks. As per IBBI, Indian lenders have withdrawn the bankruptcy process against 378 CIRPs companies under section 12A of the Code as on December last year.
This was as compared to 291 cases closed under 12A in the September quarter. Of this, in six cases, banks had filed claims above Rs six crore in the December 2020 quarter. Lawyer said withdrawal of the bankruptcy process is purely at the discretion of lenders. “Once they have decided the same, the commercial wisdom of the lenders will need to be respected which is something that the supreme court also has reiterated with respect to creditors decision qua resolution plan. Under law lenders need to pass a resolution for withdrawal with 90 percent consent and has to furnish no other reasoning,” said Ajay Shaw, Partner, DSK Legal. Interestingly, lenders led by Andhra Bank had earlier agreed to offer a similar settlement to Sterling Biotech promoters but was later caught in litigation. The company is under liquidation. Lenders said due to the ongoing Corona crisis and the lockdown, there are no takers for many of the assets currently under IBC process. The process of Lavasa Corporation, Reliance Naval, Reliance Communications and several other smaller projects are either finding no takers or are mired in litigation. “For the lenders, it is a choice between the devil and the deep sea. On the one hand, they are not getting any buyers for the assets on sale and on the other hand, promoters of these companies are offering marginally better deals than liquidation value – which is as per the law. The IBC process is as good as dead and we are back to square one to reward defaulters,” said a banker asking not to be quoted.Dead End
Lenders accept settlement to 378 cos under 12A of IBC Defaulters offer better deal than liquidation value Lenders had earlier accepted similar offer from Sterling Biotech Lenders had rejected 12A applications from Videocon, Essar Steel promoters