CORPORATE UPDATES 06.05.2019

DANGEROUS TO LET VIABLE COS SHUT DOWN, IBC GIVES ANOTHER CHANCE: IBBI CHIEF

Committees of Creditors (CoCs) should provide all relevant information and share their vision for companies under the insolvency process, a senior official said Saturday as he asserted that it will be dangerous to let viable firms to close down. Amid rising number of stressed assets being referred for resolution under the Insolvency and Bankruptcy Code (IBC), M S Sahoo said the law also gives opportunities to rectify the mistakes during the insolvency process. The objective of the law is to rescue viable companies and close down unviable ones, he said. If due to incompetence (of market participants) the reverse happens, then it is dangerous, Sahoo said. The Insolvency and Bankruptcy Board of India (IBBI) Chairperson also noted that CoCs must provide all relevant information to resolution applicants so that they find interest in the companies. Commercial decisions are not black and white There is no mathematical formula to say that a company is unviable and another is viable. It depends on so much considerations and it depends on who is looking at it, he noted. S J Mukhopadhaya said that financial creditors should not play foul while going through the viability and commercial aspects of a resolution plan. Citing examples, he indicated that operational creditors should also be getting money and not just the financial creditors in a resolution process. Sahoo cited data till December 2018 to say that both operational and financial creditors on average, got about 48 per cent each of their claims. About haircuts taken by creditors, he wondered what can be done if the resolution process started very late. Today about 370-380 companies have been ordered into liquidation. Most of them, 80 per cent, were in BIFR (Board for Industrial and Financial Reconstruction) or defunct companies. So when there is nothing to really recover, when the liquidation value almost zero, you will have to take haircut, he noted. According to him, it also needs to be seen how much one gets in comparison to his claim and in comparison to the liquidation value. Up to March data, creditors have got about 195 per cent of the liquidation value. That means companies have been rescued and thereafter creditors have got 195 per cent of the liquidation value. Anything above liquidation value is bonus and that has come because of the IBC, he said. M M Kumar said that 32 more members would be joining the tribunal, which would help in stabilising the system. At present, it has 25 members. Despite the adjudicating authority functioning with a very poor infrastructure, the average timeline for resolution of cases is around 300 days, Kumar said. Kumar also said the institution of resolution professionals needs to be strengthened and such professionals must be more equipped and full of knowledge.

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TEMPORARY SURRENDER AND REVIVAL OF PROFESSIONAL MEMBERSHIP OF INSOLVENCY PROFESSIONAL-CIRCULAR

Regulation 10 of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 (IP Regulations) read with clause 26 of the Schedule to the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 (Model Bye-Laws Regulations) provide for temporary surrender and revival of professional membership by an Insolvency Professional (IP). Temporary surrender of professional membership creates inconveniences where the IP is:

(a) conducting a process – corporate insolvency resolution, corporate liquidation, individual insolvency resolution and individual bankruptcy – under the Code;

(b) is acting as an authorised representative representing any class of financial creditors;

(c) is included in the panel under ‘Insolvency Professionals to act as Interim Resolution Professionals or Liquidators (Recommendation) Guidelines, 2018’ or similar Guidelines,

(d) is included in the panel under ‘the Guidelines for Appointment of Insolvency Professionals as Administrators under the Securities and Exchange Board of India (Appointment of Administrator and Procedure for Refunding to the Investors) Regulations, 2018’ or similar Guidelines; or

(e) is acting as an Administrator under ‘the Guidelines for Appointment of Insolvency Professionals as Administrators the Securities and Exchange Board of India (Appointment of Administrator and Procedure for Refunding to the Investors) Regulations, 2018’ or similar Guidelines.

It is, therefore, advised that the Insolvency Professional Agency (IPA) shall not ordinarily accept temporary surrender of professional membership of an IP in cases under Para 2. It is further advised that the following forms may be used to process acceptance of temporary surrender and revival of professional membership of an IP:

a. Form A: Application by an IP to IPA for temporary surrender;

b. Form B: Intimation to the Board on acceptance of temporary surrender by the IPA;

c. Form C: Letter of acceptance of temporary surrender by the IPA to IP;

d. Form D: Application by an IP for revival of his professional membership;

e. Form E: Intimation to the Board on revival of professional membership by the IPA; and

f. Form F: Letter of revival of professional membership by the IPA to IP.

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IBBI REACTS ON MISLEADING NEWS OF IANS NEWS STORY ON HUGE GAP IN NPA CASES

This has reference to the IANS story Huge gap in 12 NPA cases’ dues with liquidation value: IBBI that appeared in print media on 2nd May, 2019. The story inter alia carries the following statement: While haircuts taken by creditors in case of the resolved accounts so far have been as high as 90 per cent, according to the insolvency regulator IBBI data.

The title of the story as well as the statement cited above have been attributed to IBBI. It is clarified that the IBBI or its data do not make or have not made any such claims The statement that the creditors in case of resolved accounts have taken a haircut as high as 90% is not correct Besides, the story has several errors, some of which are misleading. It states that the Alok Industries has the lowest realization at 11%, while the realisation is 17.11%. In view of the above, you are requested to advise your readers to ignore the above story.

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CENTRE PLANS TO OFFER FINANCIAL AID TO MINORITY INVESTORS FOR CLASS-ACTION SUITS

In a significant move, the government is readying a scheme to provide financial assistance to minority investors filing class action lawsuits under the companies law, a senior official said. Working on ways to further bolster measures to protect the interest of investors, the Corporate Affairs Ministry would also be encouraging investors to resort to class action suits. Under Section 245 of the Companies Act, investors can file a class action suit in case they feel that the management or conduct of the affairs of a company are prejudicial to their interests. The concept of the class action suit, that provides an option for investors to seek remedy as a group, is well known in Western countries. We are looking at class action suits We will be soon coming out with a scheme for providing financial assistance to minority investors to file class action by using the IEPF (Investor Education and Protection Fund). The IEPF will introduce a scheme for reimbursing legal expenses incurred on class action, Corporate Affairs Secretary Injeti Srinivas told. The Investor Education and Protection Fund (IEPF) is managed by the IEPF Authority, which comes under the Ministry. The IEPF’s accumulated corpus is around Rs 4,138 crore, according to an official statement issued last month. We will define the threshold such as the minimum number of members, minimum shareholding or deposits. That will be notified very soon, Srinivas said about the eligibility criteria for filing class action suits. The push for class action suits also assumes significance against the backdrop of various instances of investors getting duped by illegal money pooling schemes as well as being impacted by corporate governance issues and fraudulent practices at some companies. According to the secretary, a class action is not easy, as there is information asymmetry. Minority investors are not well equipped to pursue a class action. There is provision for disgorgement also Class action suit is an important way to empower minority shareholders, who are worst sufferers, he said, adding that the rules would be notified at the earliest. Auditors, credit rating agencies, everybody would be liable to a class action. Minority investors who are suffering should resort to class action suits, which is provided for in the Companies Act. We will certainly do whatever is necessary to encourage investors to resort to a class action, Srinivas said. Among others, if statutory auditors have been callous and negligent, endorsing falsified statements, the investors can certainly proceed against them with a class action.

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RBI WEIGHS INCENTIVES FOR BANKS TO MOVE IBC

The Reserve Bank of India (RBI) is understood to be weighing a plan to ‘incentivise’ lenders to take errant borrowers to bankruptcy court It’s part of the regulatory countermove that RBI is working on to overcome hurdles in the wake of a recent Supreme Court ruling. According to people aware of the matter, RBI is considering a proposal to assign a ‘lower risk weight’ on loans to companies against which action has been initiated under the Insolvency & Bankruptcy Code (IBC) of 2016. A lower risk weight would act as an incentive to banks as it would help them in conserving capital. It would be a regulatory change that would be very much within RBI’s domain, a person familiar with the proposal told. Lower risk weights on loans would make it easier for banks to achieve and maintain capital adequacy ratio. Action Plan to Salvage Sunk Loans Capital adequacy ratio determines the quantum of loan a bank can disburse at a given level of capital (i.e, equity and free reserves). A bank has to live with a string of business restrictions if its capital adequacy slips below the floor set by the regulator. A lower risk weights on IBC companies should be an acceptable regulation — simply because initiating corporate insolvency is a step towards resolution of NPAs (non-performing assets), said a senior banker. After the apex court ruled that the February 12, 2018 circular was beyond the scope of the RBI’s powers, the regulator has been working on a new framework for debt resolution and invoking the corporate insolvency code. Since it would not be possible (post the court ruling) for RBI to fix a deadline of 180 days or even 1 year (from the day of default) for banks to invoke the insolvency law, it’s thinking of ways to incentivise lenders for using the IBC, said a banker. Under the circumstances lower risk weights could be an element in the new action plan to salvage sunk loans. There is a widely shared perception that the culture of loan recovery and repayment that IBC was beginning to inculcate would suffer following the Supreme Court ruling because neither lenders would be forced to move bankruptcy court nor corporates would be under pressure to regularise loan servicing. RBI had often raised or lowered risk weights on loans to either deter loans to certain businesses such as stock broking, real estate and commodities, or encourage lending to segments like agriculture. (If risk weight on a loan is 75% and capital adequacy is 9%, the minimum capital a bank needs for a loan portfolio of Rs100 crore is Rs 6.75 crore (100 ×0.75×0.09).)

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NESS WADIA SHOULD STEP DOWN ON MORAL GROUNDS: PROXY ADVISORY FIRMS

Ness Wadia, the scion of multi-billion dollar conglomerate Wadia Group, should take a moral responsibility and step down from his position as a Director from the listed companies, according to proxy advisory firms. Wadia, who was sentenced to two years of imprisonment by a Japanese court in March for possession of drugs, is on the board of four listed Wadia group companies — the Bombay Burmah, Britannia, Bombay Dyeing and the National Peroxide. Leading proxy advisory firms such as the SES and the InGovern said that Ness Wadia’s conduct and character is the reflection of that of the Board and hence, either the board should take ‘suo moto’ action or Wadia should step down on ‘moral grounds’. We do not know about the actual order of the Japan court nor the laws of the suspended sentence, and what arrangements India and Japan have. But Ness Wadia is on the wrong side of the law and morally he has to step down, said J N Gupta, Founder of Proxy Advisory firm SES. InGovern’s founder Shriram Subramanian, told that the board is responsible for ensuring that shareholders’ interests are protected and that it is imperative for a good listed company to take proactive action in such situations.

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IL&FS AUDITORS HAVE MANY QUESTIONS TO ANSWER, SAYS CORP AFFAIRS SECY

As the probe continues into the IL&FS case, a senior government official has said the group's auditors have many questions to answer prima facie as they are supposed to act as gatekeepers and detect widespread irregularities, but it will be premature to pass any judgement at this stage. We are not expecting an auditor to detect a needle in a haystack, but if an elephant is in a room they ought to find it. That is the issue, Corporate Affairs Secretary Injeti Srinivas said. Crisis-hit IL&FS group's debt burden is estimated to be more than Rs 94,000 crore and various entities, including some former officials and auditors, are under the scanner for widespread irregularities and huge loan defaults. Prima facie, it appears that they (auditors) have many questions to answer in IL&FS. If they are found at fault, action is bound to happen, Srinivas told. The problems came to light last year after some group companies defaulted on loan repayments resulting in concerns about overall impact on the financial system. Subsequently, the corporate affairs ministry superseded the board and a probe by the Serious Fraud Investigation Office (SFIO) is in progress. What is the gravity of the offence -- whether it is dereliction of duty, total negligence, collusion with management or abetting the crime and the extent of public interest involved -- will determine the quantum of action. It will be premature to pass any judgement on this at this stage, he said. While Srinivas did not name any particular auditor, reports have suggested that global auditing giant Deloitte and BSR & Associates, part of KPMG network, are among the entities under scanner allegedly for failing to flag loans that were granted in violation of norms by various IL&FS entities and to entities under severe financial distress and to those linked to top management personnel. The case is being investigated by multiple agencies, though the auditors who have worked on various accounts associated with the group have been denying any lapses on their part. Emphasising that auditors are often referred to as gate keepers, Srinivas said the statutory auditor plays a key role in auditing the financial statements of a company. If auditors work diligently, then auditing standards and accounting standards are capable enough to detect any widespread irregularity, he noted. Srinivas also said that some arguments that a statutory audit is not a forensic audit and these auditors are not investigators are not acceptable. According to him, if it is a one-off fraud, then it can be accepted that the fraud might not get easily detected. Where there are widespread irregularities bordering on fraud, then it is very difficult for any auditor to say that I did not see it at all or I believed the management's version. When they find such evidences, they should not blindly go by the management's version. When irregularities are glaring at you, then you have to cross verify facts if you are a good auditor, Srinivas said.

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NCLT SANCTIONS SCHEME OF AMALGAMATION OF REX POLYEXTRUSION WITH ASTRAL POLY TECHNIK

National Company Law Tribunal (NCLT), Bench at Ahmedabad has sanctioned Scheme of Amalgamation of Rex Polyextrusion with Astral Poly Technik and their respective shareholders and creditors vide order dated May 02, 2019.

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NCLAT SENDS RCOM BACK TO INSOLVENCY

An appellate tribunal has vacated a stay on insolvency proceedings against Reliance Communications (RCom) and its two units, which will make the Anil Ambani-owned telco the second operator after Aircel in the sector to enter bankruptcy proceedings. In the light of the order passed by the Supreme Court (SC), we allow the appellant (RCom) to withdraw the appeal. The interim order on stay of insolvency proceedings stands vacated, a two-judge bench of the National Company Law Appellate Tribunal's (NCLAT) led by Justice SJ Mukhopadhaya ruled on Tuesday. The SC recently disposed of a writ and a special leave petition (SLP) filed by RCom which wanted insolvency proceedings in the dedicated bankruptcy court quashed. The NCLAT also ordered continuation of the moratorium on recovery of dues from the now-defunct carrier, adding to a series of setbacks to the telecom department's efforts to take action against the telco for defaulting on three straight spectrum payments over March and April, worth a total of Rs 794 crore. DoT is also considered an operational creditor. The National Company Law Tribunal (NCLT) will now hear the insolvency case on May 7 and appoint an interim resolution professional (IRP) to manage the company - under a debt of some Rs 46,000 crore - and ultimately sell its assets to repay financial and operational creditors in 270 days.

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JAYPEE INFRATECH CREDITORS' PANEL TO DISCUSS NBCC'S BID ON MAY 9

The creditors panel of debt-ridden Jaypee Infratech will meet on May 9 to discuss the bid of state-owned NBCC Ltd to acquire the Jaypee group realty firm. The meeting has been called as creditors on Friday rejected the bid of Mumbai-based Suraksha Realty group, which was the lone contender after NBCC's offer was rejected in absence of approvals from the government departments. In a regulatory filing, Jaypee Infratech's Interim Resolution Professional (IRP) Anuj Jain informed that a meeting of committee of creditors (CoC) has been called on May 9. The agenda of the meeting was not disclosed in the regulatory filing. However, sources said the panel will discuss the NBCC's bid. The CoC would also discuss the voting result on Surakshs group. Meanwhile, the court-mandated deadline for completing the resolution process ends on May 6. Lenders have sought extension of the deadline and the matter is pending before the Allahabad bench of the National Company Law Tribunal (NCLT).

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VAISH, L&L PARTNERS ACT ON PATANJALI-RUCHI SOYA DEAL

The Resolution Plan submitted by Patanjali Group was approved by the Committee of Creditors (CoC) for the acquisition of Ruchi Soya Industries Limited (Ruchi Soya). Accordingly, Patanjali Group has been declared as a Successful Resolution Applicant with its Rs 4,325 crore bid. Ruchi Soya has a total debt of about Rs 12,000 crore. It has many manufacturing plants and its leading brands include Nutrela, Mahakosh, Sunrich, Ruchi Star and Ruchi Gold. It is part of the second list of 28 defaulters the Reserve Bank of India flagged for resolution. The approval of the CoC has been received after protracted litigations and more than 16 months since the initiation of the Corporate Insolvency Resolution Process (CIRP). Initially, Resolution Plans were submitted, inter-alia, by Adani Wilmar Limited (Adani Wilmar) and Patanjali Group to acquire Ruchi Soya. The Resolution Plan submitted by Adani Wilmar was approved by the CoC in August 2018. However, Patanjali Group challenged, inter-alia, eligibility of Adani Wilmar to submit the Resolution Plan under Section 29A of IBC and process for negotiation. While the application filed by Patanjali Group was being argued before the NCLT Mumbai, Adani Wilmar withdrew its Resolution Plan citing delays in the CIRP. Subsequently, Patanjali Group negotiated its Resolution Plan with the Resolution Professional and Committee of Creditors. The CoC has approved the Resolution Plan submitted by Patanjali Group with approx. 96% vote in favour. Vaish Associates advised Patanjali on all aspects relating to the transaction. The transaction team included Partner Satwinder Singh and Principal Associate Kalpit Khandelwal. The litigation team was led by Associate Partner NPS Chawla, Partner Melvyn Fernandes, Senior Associate Kaustubh Prakash, and Associate Pratiksha Agarwal. The competition team was led by Head of Competition team M M Sharma and Senior Associate Anand Sree. The transaction was led by Partner Bikash Jhawar and the team included Managing Associate Avinash Subramanian and Associate Swetha Shankaran.

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IBBI FILES CRIMINAL COMPLAINT AGAINST LIBERTY HOUSE

The Insolvency and Bankruptcy Board of India (IBBI) has filed a criminal complaint against UK-based Liberty House Group for withdrawing after successfully bidding for Amtek Auto. The IBBI, the regulator for overseeing insolvency proceedings in the country, filed the complaint on Friday. Liberty House had emerged as the highest bidder for Amtek Auto but soon backed out citing inadequate information being provided, which was allowed by the National Company Law Tribunal (NCLT) after imposing a cost. But the lenders moved the NCLT, alleging that Liberty House wilfully withdrew. The tribunal in agreement with them said the board may move against Liberty House as per the regulations laid down under the bankruptcy code. Section 74(3) of the Insolvency and Bankruptcy Code (IBC) says that any party that violates conditions laid under the resolution plan is liable for prosecution and may face a prison term of up to five years with a penalty of up to Rs 1 crore.

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BELOW THE LINE: COC MUST BE A GOOD BARBER

NCLAT Chairman Justice SJ Mukhopadhaya was at his witty best at a recent insolvency law conference in the Capital. He wanted the ‘Committee of Creditors’ under IBC process to be a good barber and eschew the new ‘007’ haircut style (although loved by millions of youngsters) in its decision making. So what has ‘007’ haircut got to do with insolvency and IBC process?. Well ‘haircut’ has a different meaning in insolvency proceedings and loosely refers to the hit a lender is willing to take to get the financially-stressed company back on track. Mukhopadhaya quipped that a CoC should strive for a handsome haircut where both financial creditors and operational creditors get proportionate treatment and good deal from resolution. It should not be a ‘007’ haircut where the financial creditors get to take away the cream and almost nothing is left for the operational creditors. After all, both financial and operational creditors are important for the sustenance of the enterprise. It’s hard to disagree with this view. With formation of the new government just three weeks away, office attendants in the Finance Ministry have new topic for discussion — who will be the new Finance Minister? Will the present one continue or will a high profile politician be third time lucky? The current Finance Minister is known to be a people’s person. The staff in North Block love him, a key reason being he doesn’t stay late in office, unless circumstances demand and also doesn’t keep people guessing through the day about his plans. What about the other candidate? If he comes it will be longer working hours, and unpredictable lunch breaks. This fear is even making some staff consider new postings. No guesses on who the favoured candidate is. An exporter of a value-added commodity was miffed when a senior bureaucrat in an economic ministry listened to his complaints of smuggling of the raw material but refused to show concern. As the exporter explained that smugglers were buying the commodity in the country and taking it across the border either surreptitiously or by under-invoicing it, he was asked if the Indian suppliers were getting paid. When the exporter confirmed that payments were being made, the bureaucrat then wondered what the problem was. Seeing the exasperated exporter the bureaucrat let out a guffaw indicating that he was joking. But if action is not taken soon the joke could very well be on the bureaucrat! It is widely known that hundreds of automobile dealers are closing shop across the country, leading to job losses. But main reason for the closure is not the poor consumer demand as is made out to be in certain quarters, said a veteran banker. The real reason is that non banking finance companies — which had filled the space vacated by banks and supported the consumer boom of recent years — are absent from many automobile dealerships in recent months, thanks to the liquidity squeeze post the IL&FS blowout. No wonder, you don't see representatives of NBFCs at car dealerships egging you to go for a SUV when you had your eyes on a sedan. Flies can be very annoying particularly when food is laid. But dealing with files in the presence of the the CEO of Food Safety and Standards Authority of India (FSSAI) can be particularly embarrassing. At a recent event, where Pawan Kumar Agarwal, CEO, FSSAI was present, the food counter had so many flies that those serving it had a hard time dealing with them.

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INDIVIDUALS MAY GET RS 60,000 DEBT WAIVER, LIKE FARMERS

If you are struggling with a loan of up to Rs 60,000 and can't repay it, you may soon qualify for debt waiver. The government's Insolvency Law Committee (ILC), set up to review the implementation of Insolvency and Bankruptcy Code (IBC), is likely to propose a new debt relief scheme under the personal bankruptcy law framework for individuals in low-income category. The recommendations in this regard are likely to be presented to the new government after the parliamentary elections are over. So far only corporate debtors can face bankruptcy proceedings. The government is yet to operationalise part 3 of the IBC which deals with insolvency resolution and bankruptcy for individuals and partnership firms. The government recently re-constituted the 14-member ILC headed by MCA secretary Injeti Srinivas and tasked it with studying the insolvency resolution and bankruptcy framework for individuals and partnership firms and making recommendations for its implementation. We have discussed it. After the proposal is taken through the committee process, technology will be developed for implementing the scheme. The relief would be provided to the applicant literally on a computer-based system, a senior government official said. The most important thing in personal insolvency is giving individuals such as farmers and artisans a fresh start. If banks can take haircuts worth Rs 1 lakh crore on account of 10 corporates, the individuals living in abject poverty should also be given a chance to have a fresh start. It's basically like NYAY scheme, the official said. Farmers, artisans and homebuyers among other individuals are likely to get covered under the proposed best relief scheme. Loans taken by farmers and artisans are essentially small-ticket. The maximum limit for loan waiver is being kept at Rs 60,000 per individual. If your outstanding loan amount is more than this and income above a certain threshold, say Rs 50,000-60,000 per annum, your application will not be considered for debt relief, the official said, adding that students have been kept out of it. The proposed law will cover only organised loan market and will not be applicable to non-formal sources of credit such as moneylenders. The government plans to allow graduates to become bankruptcy counsellors to deal with such small loans. However, if a person is not eligible for a loan waiver, he or she will be able to file a bankruptcy petition seeking to be declared bankrupt. Lenders, too, can initiate bankruptcy proceedings against individuals. Currently, there is no bankruptcy law for individuals. The government plans to bring rules for individuals to be declared bankrupt. Out of a total of about Rs 80 lakh crore disbursed from the banking system, loans given to individuals are to the tune of 19 lakh crore. This includes farm loans, car loans, personal and credit card among others, the official said. But before the proposed bankruptcy provisions are introduced, debt recovery tribunals (DRTs) will need to be strengthened, experts said. There are 33 DRTs in the country dealing with about one lakh cases. While the bankruptcy and insolvency cases related to companies are dealt with by National Company Law Tribunals (NCLTs), DRTs deal with the cases pertaining to individuals or non-corporate businesses.

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ROLTA GETS OUT OF BANKRUPTCY AS NCLT DISMISSES UBI PLEA

The city-based software firm Rolta India has become one of the first defaulters to come out of the bankruptcy proceedings on the basis of the April 2 Supreme Court order, with the Mumbai bench of the NCLT dismissing Union Bank's plea against the company. The NCLT has dismissed the insolvency plea against the company by the state-run Union Bank of India which had made a claim of more than ₹1,200 crore from the company. A Mumbai bench of the National Company Law Tribunal has held that Union Bank's bankruptcy plea is not maintainable after the apex court had squashed the new NPA recognition norms brought in by the central bank on April 2.

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IL&FS BOARD SEEKS PUNITIVE ACTION AGAINST DELOITTE, BSR

The government-appointed board of Infrastructure Leasing & Financial Services has proposed punitive action against Deloitte Haskins & Sells (DHS) and BSR & Co, part of the KPMG network, said people with knowledge of the matter. In its report to the Ministry of Corporate Affairs (MCA), the board said it had found the two firms failed to issue warnings about shortcomings while auditing the books of IL&FS Financial Services (IFIN), a subsidiary of IL&FS. Earlier, the Serious Fraud Investigation Office (SFIO), the investigation wing of the MCA, had in its ongoing probe allegedly found that DHS failed to exercise due diligence. Sources added that both the board and the MCA are of the view that action must be taken against DHS and BSR, including the possibility of invoking Section 140 (5) of the Companies Act, which allows barring an auditor for a period of five years, and also Section 147, which deals with punishment for contravention of rules. The investigations on the company (IFIN) are in progress and we are cooperating fully, a Deloitte spokesperson had said in an email. We reaffirm that we have conducted our audits in accordance with the standards on auditing and the applicable laws and regulations. IFIN gave loans to companies under stress, said one of the persons cited above. As the auditors, the firms were duty bound to highlight the loans to companies that were in financial stress themselves, he said. Also, the probe has found instances of loans being granted in violation of RBI (Reserve Bank of India) guidelines. These firms were required to tell the company that its loans were violating the provisions. The firms failed to raise the repeated rollovers of loans by IL&FS and IFIN, he added. It also failed to query the quality of collateral secured against loans made by IFIN, he added. While DHS been associated with IL&FS since inception for more than a decade, BSR audited IFIN’s books in 2018-19. The crisis in IL&FS first came to light in July 2018, when its roads unit was facing difficulty in making repayments due on bonds. Erstwhile IL&FS CMD Ravi Parthasarathy resigned on July 21, 2018. Both the MCA and the board are of the view that the firms should be dealt with stringently including exploring the possibility of invoking the provisions of the Companies Act that allows punitive action including the possibility of debarring a firm for a period of five years, said the official cited above. Some of the anomalies that the auditor failed to note were also mentioned in the 166-page interim report by audit firm Grant Thornton India. It had identified 16 instances in which loans amounting to Rs 1,922 crore were apparently sanctioned on a negative spread (average cost of borrowing rate minus lending rate), or limited spread, for companies in financial distress. In seven of these cases, the loans provided have either been written off or are related parties of the companies for which loans were written off. In five out of these 16 cases, loans were approved even after negative assessments by the infrastructure financier’s risk team. Both Deloitte and the auditors signing the report are to be punished. Parents think high of Big 4, but they don''t know that auditors of high quality and integrity are always kept in the loop line. Bright auditors are Indians doing slavish work to foreign companies. Like DRI,DGCEI, NIA etc., Central government should think of similar services to observe independently the auditors.

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SEBI DIRECTS NSE TO REVIEW DATA SHARING THIRD PARTY PACTS SINCE 2009

To safeguard equity investors from another NSE co-location type fiasco, the security market regulator has directed the stock exchange major to review all third party agreement having a data sharing component entered by it from year 2009 onwards. Accordingly, the NSE has been directed to take necessary legal actions against the parties with whom such agreements were signed wherever any actions of irregularity, breach of terms and conditions and other provisions of such agreements are observed. Noticee No.1 (NSE) is further directed to submit an action taken report in this regard along with the observation of its Governing Board to SEBI, within three months from date of this order, a Sebi order in the matter of NSE-Corporate Governance. Regulator further directed the NSE to prepare a detailed documented policy with respect to data usage and data sharing with external entities with due provisions for disclosures of conflict of interest to be made at the level of any employee of NSE. The direction on disclosures of conflict of interest assumes significance after a massive breach of corporate governance norms was observed in the case in connection to noted public policy academician Ajay Shah for collusion to access confidential market information for business purposes. Shah and his wife Susan Thomas are credited with co-creating the NSE Nifty50 index. He has had an illustrious stint at various high-level positions, including Ministry of Finance. However, in what could have been a criminal conspiracy worthy of celluloid screen, Shah along with some of his immediate family members created a virtual family enterprise and used their connections with NSE officials to gain a computing contract for Liquidity Index. But, the real intent was to use the NSE's confidential data gained from the computing contract to develop algorithmic trading software for sale in the securities market, thereby compromising the integrity of securities market. In addition, the order read: The (data usage and sharing) policy shall be comprehensive with proper maker and checker system with provision for a periodic review to ensure prevention of misuse of the data/information.

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SEBI PANEL MAY RECOMMEND FPI INVESTMENT IN UNLISTED COS

The Securities and Exchange Board of India (Sebi) committee on the overhaul of regulations for offshore investors is set to recommend that foreign portfolio investors (FPIs) be allowed to buy shares of unlisted companies. The committee, headed by former RBI deputy governor HR Khan, is expected to include this suggestion in its final report, said two people with knowledge of the matter. Such a measure would be a boost for startups and other unlisted entities as they will get access to a broader pool of capital. Currently, overseas funders of startups have to come in through the foreign direct investment (FDI) route and hence can only be strategic investors in such companies. Allowing FPIs to buy shares in unlisted companies will help them bring big-ticket investors on board without having to list on the exchanges. Further, FPIs will be able to pick up smaller chunks of stakes in unlisted companies, something that’s typically not done through the FDI route.

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CORPORATE LOAN GROWTH HIGHER THAN RETAIL

Corporate loan rate growth has trumped retail loan growth for the first time in seven years as banks slowed lending to automobiles and personal consumption. Bank loan growth to large corporates touched a five-year high in FY19 clocking 8.2% to Rs 24 lakh crore compared to growth of less than 1% a year ago. But retail loan growth, comprising auto, personal consumption and home loans among others, slowed from 17.8% to 16.4% at Rs 22 lakh crore, latest data on sectoral deployment of bank credit released by the Reserves Bank of India showed. Market experts attribute this rise in loans to lending rates turning more competitive after the liquidity tightness following the crisis in infra lender IL&FS because of which borrowers started moving to banks for their working capital needs. The main reason is increased competitiveness in banks in terms of lending rates compared to corporate bond market, said Anil Gupta. The yield of such bonds increased after the liquidity crisis in September. Though government bond yields decreased after RBI started its OMO operations but that has translated in a decline in bond yields in the corporate bond segment. AA-rated three-year bond yield would be upwards of 9.2% as opposed to a bank loan which would cost around 8.4% at MCLR, suggesting upwards of 50 bps difference between the two routes. Working capital needs of large corporates would have increased due to GST compliance needs among others. Our sense is that a large part of the spike is because of working capital requirement of large corporates, said Prakash Agarwal. Because of GST, the working capital cycle of corporates may have gotten elongated which warranted a slightly larger requirement of working capital. The rise in pace of loans to large corporates is significant, especially as almost all banks, new generation as well industry majors such as State Bank of India and HDFC Bank, are focusing on their retail loan books to grow business and profits. Retail continues to remain a priority. Banks have not only increased their exposure to retail but also bought out portfolio pools from NBFCs through securitisation in this period, said Gupta.

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FPIS PULL OUT RS 1,255 CR IN TWO SESSIONS

Foreign investors pulled out a net Rs 1,255 crore from the domestic capital markets in just two trading sessions in May after remaining net buyers for the previous three months. According to the latest depositories data, foreign portfolio investors (FPIs) pulled out a net sum of Rs 367.30 crore from equities and Rs 888.19 crore from the debt market during May 2-3, taking the total net outflow to Rs 1,255.49 crore.

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SIX OF TOP 10 FIRMS LOSE RS 64,219 CRORE IN MARKET CAPITALISATION THIS WEEK

The combined market valuation of six of the 10 most valued Indian companies plunged by Rs 64,219.2 crore last week, with IT giant TCS suffering the biggest drop. ITC, HUL, Infosys, SBI and ICICI Bank were the other firms which witnessed a slide in their market capitalisation (m-cap) for the week ended Friday, while Reliance Industries Ltd (RIL), HDFC Bank, HDFC and Kotak Mahindra Bank finished with gains. The m-cap of Tata Consultancy Services (TCS) slumped Rs 39,700.2 crore to stand at Rs 8,00,196.04 crore.

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PRIVATE POWER TRANSMISSION COMPANIES MOVE CCI, REGULATOR AGAINST POWER GRID PRICING

Private power transmission companies have written to the Competition Commission of India, Comptroller and Auditor General and power regulator Central Electricity Regulatory Commission, alleging predatory pricing by Power Grid Corp (PGCIL) in the midst of auctions of some Rs 9,000-crore projects. Companies have alleged that the central utility has unfair competitive advantages given its access to low-cost funds and government support. Private companies want PGCIL to be barred from crosssubsidising competitive tariff projects with the help of low-cost, AAA-rated debt raised through its cost-plus assets, and separation of central transmission utility role. A senior government official said the Centre will look into it. Letters were sent by the Independent Power Producers Association of India (IPPAI) late on Thursday. PGCIL has emerged as lowest bidder in most transmission projects so far auctioned on competitive tariff basis, bagging about 40% such contracts. Sterlite Power, Adani Transmission, Essel Infra and L&T Power are among other prominent private players in the fray. IPPAI has sought intervention of agencies and the power ministry in the competitive bidding currently underway for nine transmission lines in renewable projects of Gujarat and Rajasthan. There are some grave concerns on the abnormally and unreasonably low pricing being done by PGCIL in certain competitive bids for awarding transmission projects, taking unfair advantage of its massive financing and pricing power owing to its large base of assets built under the cost-plus mechanism, the association said. Private firms alleged that PGCIL has an asset base of over Rs 2 lakh crore of cost-plus projects allocated through government support. According to IPPAI, the 15.5% return earned by Power Grid Corp on cost-plus projects compensates for low returns from lines won under tariff-based competitive bidding. This has created a non-level playing field, which is not contemplated in the Electricity Act 2003, it said. The Independent Power Producers Association also alleged that PGCIL’s positioning as the central transmission utility and on the national and empowered committees on transmission gives it access to advance information about new projects and an edge over others in configuring them at the conception stage itself. If this goes unabated, it will slowly and steadily kill the private transmission industry and lead to monopolistic trends that hurt consumer interest by misusing public funds to kill competition, it said.

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ICRA DOWNGRADES YES BANK’S LONG-TERM RATING WITH NEGATIVE OUTLOOK

Rating agency ICRA has downgraded the long-term rating of private sector lender Yes Bank with negative outlook after the lender reported significant increase in below investment grade advances, which could impact the bank’s profitability in the coming quarters. Yes Bank reported its first-ever quarterly loss of ₹1,506 crore during the January-March period. ICRA said the increase in below investment grade advances was expected to translate into a moderation in the earnings profile in the near term. The rating downgrade also factors in the further weakening in YBL’s core equity (CET-I) capital cushions because of the voluntary provisions and consequent losses in Q4 FY2019, ICRA said, adding CET1 declined to 8.4% as on March 31, 2019 from 9.1% as on December 31, 2018 against the minimum regulatory requirement of 7.375% for March 31, 2019 and 8.0% for March 31, 2020. Given the limited capital cushions, the bank will not only need to accelerate the resolution and recovery from BB and below rated advances, it will also need to calibrate growth, it added. ICRA has also downgraded the short term-rating for Commercial Paper programme of Reliance Home Finance Limited to D citing delay in servicing debt by the company. The rating revision takes into account delays in debt servicing on some of its bank lines. The company however has confirmed, that there have been no delays in repayments in the commercial paper programme till date, ICRA said. Another group company Reliance Commercial Finance’s short term ratings were downgraded to D for the same reason as RHF. Both commercial papers and bank lines of RCF were downgraded to D by ICRA. Reliance Home Finance and Reliance Commercial Finance had said ‘minor’ delay on principal repayment to 5-6 banks of ₹542 crore and ₹477 crore respectively. ICRA has withdrawn the short-term rating of [ICRA]D on the ₹1,000 crore short term bank facilities at the request of the company and as the rating is unutilised, the agency added. ICRA has downgraded some of Canara Bank’s debt instruments taking into account the lender’s earning profile, asset quality and capital requirements. In a filing to the BSE, the bank said ratings on its additional Tier-I bonds worth ₹1,500 crore had been downgraded to ‘AA-’, with a stable outlook, from ‘AA’ with negative outlook. ICRA rating on Tier-II bonds worth ₹7,900 crore too has been downgraded to ‘AA+’, with stable outlook, from ‘AAA’ with a negative outlook. The outlook has been revised to stable on account of expectation of an improvement in the bank’s performance, reduced incremental stress on asset quality and gradual improvement in the solvency levels going forward, it added.

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FOR INDIA INC, HUNT FOR TALENT GOES BEYOND COS’ CORE BIZ

Hasit Joshipura, who has a pharmaceutical background, now leads the electrical and automation business of Larsen & Toubro (L&T). An electrical engineer, Joshipura’s leadership skills have helped him head the vertical well. L&T has another person from the pharmaceutical industry to oversee its corporate centre function. Even below the leadership level, there are examples of people who have been hired from a different industry because of their established competencies and skills. L&T senior VP (corporate HR) Yogi Sriram said a person with good experience in the automobile industry could also be a fit for the company’s valves business, if his/ her skills are exemplary. L&T has been hiring candidates with requisite skills and competencies instead of strict adherence to their industry background. We see generic as well as specific domain skills in the candidates. Such a hiring strategy augurs well for a conglomerate like ours, whose multiple businesses have grown organically and inorganically in segments as diverse as valves manufacturing to the construction of the tallest statues to the making of missiles, said Sriram. For L&T, the nature of its businesses necessitates demonstration of agility and ability by its employees. If we are hiring a project director for our hydrocarbon vertical to set up a naphtha cracker plant, then a chemical or mechanical engineer with specific domain skills could be an ideal candidate. But it is rare to get such a person with exact industry background to execute a complex process plant project. Power sector may be the nearest in this case as an adjacent industry. Hence, for this role, we may look for the requisite skills in a given candidate from the power sector, said Sriram. When Mahindra & Mahindra (M&M) scouts for a maintenance person for the plant, the search is not restricted to auto alone. If the requirement is for talent in supply chain, it is quite likely that the auto major would source it from the e-commerce industry. M&M chief people officer Rajeshwar Tripathi said cross-hiring is the single most important change that has happened in the job market in recent years. Talent is now coming from various sectors. When we used to do talent-mapping earlier, 80-90% of our talent would come from within the industry. That may not be exactly reverse today, but it has dramatically come down. We will see boundaries collapsing further. It is increasingly becoming a skill-based job market rather than industry-based. Organisations are hiring for skills and competencies without caring for which industry the talent comes from, said Tripathi. At Avery Dennison, several such movements take place internally as well. The company moved the leader of supply chain management to a commercial role, thereby rotating people with fungible skills. Similarly, employees with analytical ability are moved to various roles in different functions, sometimes unrelated to their previous experience. Avery Dennison director HR (label & graphic materials - South Asia) Anushree Singh said, We primarily hire for skills sets and then train them. Even our internal mobility is based on the same premise where we rotate talent with potential, learning agility and right skills and attitude.

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BIGGER BAZAAR: MOST FUTURE BRANDS HOP ON TO AMAZON

Future Group has started listing nearly all its brands and products across fashion, grocery and electronics on Amazon, a move seen as a precursor to the impending stake sale deal by the Indian retailer. Over the past month, teams from both companies have met several times to make joint business plans in terms of distribution, warehousing and creating special products for Amazon’s marketplace and its grocery format Pantry and Amazon Now where Future’s Big Bazaar will be one of the preferred sellers, said people with knowledge of the matter. As part of our larger distribution strategy for our products and brands, we are working with various partners including Amazon, said Future Group promoter Kishore Biyani. The US-based online giant was earlier in talks to acquire a stake in Future Retail, which runs more than 1,600 stores across food, grocery and general merchandise. After the amended foreign ownership rules that bar ecommerce companies from holding shares in entities selling on their platforms, Amazon is now in talks to buy a stake in Future Coupons, a firm owned by Future Group promoter Kishore Biyani, to ensure that the US retailer is in compliance with the new norms. Biyani declined to comment on the deal. Until now, Future Group sold a few products on Amazon but it was mostly through specific stores or at the brand level without infrastructure or back-end integration from the group company. Both companies will now work closely in terms of warehouses, inventory management and could even share back-end logistics, said the people cited above. To begin with, Future Group's own brands across segments — from Koryo in electronics to Lee Cooper, Converse and FBB brands in apparel — are being launched on Amazon.in. Also both Future Consumer brands and retail format Big Bazaar are being aligned with Amazon Now, with delivery within two hours.

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CS Meetesh Shiroya