TIME TAKEN TO APPOINT RESOLUTION PROFESSIONAL TO BE EXCLUDED
FROM CIRP: NCLT
Now time taken from the admission
of a case by the NCLT till the appointment of the Resolution Professional (RP),
will also be excluded from the IBC timelines, the Mumbai Bench has held. In the
case of Say India Jeweller Pvt. Ltd., the application was admitted on August 1,
2017. However, the appointment of RP was deferred to the Insolvency and
Bankruptcy Board of India. The RP was appointed only 62 days after the
admission order was passed on October 3, 2017. As a result, all actions that
are required to be taken during the Corporate Insolvency Resolution Process
(CIRP) were delayed. The 270th day from admission of the case was April 28,
2018. By this time, the corporate debtor received only one resolution plan,
from the suspended directors, which was rejected by the creditors committee. In
view of this, a liquidation application was moved at the NCLT on May 4, 2018.
However, the order goes on to record the dates in a manner, treating the 62 day
period as a buffer period which the corporate debtor earned for not having an
appointed RP. From the order, it is unclear who was in charge of the corporate
debtor during the 62 day period when CIRP had commenced, and no RP was
appointed. Meanwhile, the suspended directors of the corporate debtor whose
resolution plan was rejected filed an application with the NCLT for
reconsideration of their resolution plan. The NCLT passed an order admitting
the the directors application. While doing so, the NCLT noted principles laid
down in cases of Bhushan Power and Steel, MBL Infrastructure and Adhunik Alloys
& Power Limited. The NCLT further noted principles laid down in the Binani
case by the NCLAT, which suggested preference of resolution over liquidation.
Based on NCLT order dated December 5, 2018, the RP asked the suspended
directors to resubmit resolution plan. After several rounds of negotiation, the
plan submitted by the directors was approved by the committee of creditors and
presented to the NCLT for approval. The order further lists down the provisions
with which the resolution plan was compliant, and the provisions with which the
plan wasn’t. To that extent, the NCLT made two suggestions it first modified
certain parts of the resolution plan to make it compliant with the Regulations.
In the absence of the text of the resolution plan, it is unclear what these
modifications are. However, the second part to this is, the deletion of certain
portions of the resolution plan. In this regard, the NCLT suggested deletion of
portions such as: exemptions from dues under Income Tax Act; tax and stamp duty
exemptions; writing off of investigations/ inquiry/ show cause obligations
arising out of non-compliance of provisions of laws; extinguishment of rights
and entitlements of the Central Government, State Government, any regulatory or
local authority or body; extinguishment of rights & entitlements of Govt
agencies on account of acquisition.; the resolution applicant will not be
liable for Associate Companies. The NCLT further recorded that, It is clarified
that only crystallised dues shall stand extinguished on approval of this plan.
After having made all suggestions, the NCLT recorded that we are of the
considered view that the modified resolution plan may be sent to the Resolution
Professional for seeking acceptance from the Resolution Applicant. If the
modified resolution plan will not be acceptable to the resolution applicant,
liquidation would commence.
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BANKERS SUGGEST MEASURES FOR FAST RESOLUTION OF IBC CASES
To ensure the speedy
resolution of cases under the Insolvency and Bankruptcy Code (IBC), bankers
have suggested, among others, the introduction of a mechanism to reduce
unwanted litigation and strict adherence to the timelines under the code. As
per the FICCI-IBA Survey of Bankers (for July-December 2018 period), to reduce
unwanted litigation, provisions similar to DRT (Debt Recovery Tribunal) must be
introduced, where a percentage of the loan outstanding is insisted upon while
filing an appeal. The survey said the time norms under the IBC for admission,
appointment of valuer and forensic auditors, as well as for the resolution of
the company must be strictly followed. To cater to the rising number of cases
under the National Company Law Tribunal (NCLT), there is a need to improve the
capacity by increasing staff and establishing more NCLT benches across the
States. At present, NCLT has benches in 11 locations across the country. While
respondent banks have largely had a positive experience in recoveries since the
implementation of IBC, they underscored that the resolution process is being
delayed owing to limited infrastructure in NCLT and rising cases of frivolous
appeals. The FICCI-IBA survey said banks should be given an option to convert a
part of their debt into equity proportionate to amount of haircut (receiving
less than what is owed). To improve the efficiency of the resolution process,
the government should come out with guidelines for NCLT to take up petitions
the survey said. The FICCI-IBA Survey observed that interest from investors and
potential buyers is limited only to companies that are operational as on date,
and there is limited interest in smaller-sized companies. According to an
analysis by ICRA, as on December 31, 2018, 898 CIRPs (corporate insolvency
resolution process) were awaiting a resolution against 768 CIRPs as on
September 30, 2018. The credit-rating agency assessed that the number of CIRPs
outstanding are expected to only increase further at least for the next few
quarters until adequate steps are taken to ensure that the CIRP does not
significantly exceed the 180/270-day timeline prescribed under the IBC. Up to
December 31, 2018, 79 CIRPs yielded a resolution plan, while 302 cases entered
liquidation, which is a very high proportion. According to Abhishek Dafria,
almost 68 per cent of the NCLT cases exceeded the 270-day timeline allowed
under the IBC. Furthermore, CIRPs that concluded in the quarter ending December
2018 took an average duration of 354 days, compared to 340 days taken for CIRPs
concluded in the quarter ending September 2018. The CIRPs for the pending seven
corporate debtors from the RBI’s initial set of 12 large defaulter cases
identified in June 2017 that are still ongoing have seen the average duration
of the process now exceed 500 days which does not help the investor sentiment,
said Dafria.
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MAHARASHTRA LOOKS INTO TRANSFER OF SUMS BY BUREAUCRAT TO LLPS
The Maharashtra government
is looking into several transactions by two limited liability partnerships
incorporated by top bureaucrat K.P. Bakshi, whose name has cropped up in a
report by the Central Vigilance Commission (CVC) on suspicious transactions
worth over ₹2.5 crore during and after demonetisation in 2016. Bakshi, who
was the Additional Chief Secretary (ACS) when some of the transactions were
carried out, had transferred large sums into Oracon LLP and Crimson Park LLP,
in which his sons Shivesh and Anjan, and wife Neelima Bakshi, are partners. In
his explanation to the government on January 31, 2019, Mr. Bakshi had informed
the government of the existence of only one (Oracon) of the two firms, while
keeping the incorporation of the other off the declaration note. While Oracon
was incorporated on May 28, 2016 with Shivesh and Neelima on board as
designated partners, Crimson Park LLP was incorporated on January 28, 2014 with
an ‘obligation of contribution’ to the tune of ₹1,00,000, and Bakshi Anjan
and Bakshi Neelima as designated partners. The registered address of Crimson is
shown in the records of the Ministry of Corporate Affairs (MCA) to be 1404,
Greenwood Hiranandani Estate, Ghodbunder Road, Thane. In his explanation
forwarded to the government, Mr. Bakshi said the records of the Oracon LLP have
been revealed to the government, and the said company had applied for the
opening of a Dmat account to buy tax-free infrastructure bonds for saving
income tax. Since the process of the opening of the account was getting unduly
delayed my wife and son requested me to buy the above tax-free infrastructure
bonds through my Dmat account, for which the LLP Co transferred the required
amount to my bank account. Once the account was opened, the ITF bonds were
transferred by me to the company’s newly opened Dmat account, he said in his
letter, responding to letter of Chief Secretary D.K. Jain dated December 18,
2018. The response talks of cheque or NEFT transactions but does not mention
Crimson Park LLP at all.
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MALVINDER FILES COMPLAINT AGAINST SHIVINDER, SPIRITUAL LEADER;
ALLEGES CHEATING, SIPHONING OF FUNDS
Former Fortis Healthcare
promoter Malvinder Singh has filed a criminal complaint against his brother
Shivinder Singh, spiritual head of the Radha Soami Satsang Gurinder Singh
Dhillon and others alleging financial fraud and threats to kill him. Malvinder
Singh, who filed the complaint before the Economic Offences Wing here, alleged
that Gurinder Singh Dhillon or Baba through his lawyer Ferida Chopra has
threatened to kill him. Gurinder Singh Dhillon has threatened the complainant
through his lawyer Ferida Chopra that if he did not agree to the demands of
Gurinder Singh Dhillon, he would be eliminated by persons from the Radha Soami
Satsang, the complaint said. The complainant also charged of receiving veiled
innundoes and threats from various other satsangis about listening to the
demands of Dhilion. He alleged that Shivinder Mohan Singh and Sunil Godhwani in
conspiracy with other co-accused have carried out and orchestrated serious
financial fraud in two other companies - Religare Enterprises Ltd and Religare
Finvest Ltd, which has caused substantial financial losses. He has also claimed
that the accused misrepresented the financial condition of the companies and
conspired with Dhillon family to inflict wrongful loss to the complainant. The
accused persons have conspired criminal conspiracy and also misappropriated the
property of RHC Holding Pvt Ltd.
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UFO MOVIEZ, QUBE CINEMA MERGER HITS NCLT ROADBLOCK
Mumbai-based digital
cinema distribution company UFO Moviez’ planned merger with Chennai-based Qube
Cinemas Technologies has hit a major roadblock in the National Company Law
Tribunal (NCLT). Keeping in mind shareholders’ interest, NCLT has refused to
give its nod to the proposed scheme of arrangement and amalgamation between the
two companies. The whole scheme appears to be framed also for the purpose of
evading the duly payable stamp-duty and to deny the shareholders at various
levels their legitimate right of a proper valuation of the intrinsic share
value along with goodwill, V Nallasenapathy and Bhaskara Pantula Mohan, member
judges of NCLT’s Mumbai chapter said in the order released last week. However,
setting an example of protecting shareholders’ interest, NCLT has rebuked UFO
Moviez India dismissing its framed attempt for amalgamation as the dedicated
court prioritised shareholders’ worth. Further there is something illegal
definitely on the part of the Petitioners to camouflage the real intention
behind the whole concept, the order pointed out. UFO Moviez is planning to
challenge the order in National Company Law Appellate Tribunal (NCLAT).
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INFRASTRUCTURE COMPANIES EYE LITIGATION FUNDING TO SETTLE
CLAIMS
Litigation funding, or
monetisation of pending claims through a third party, is finding its feet in
India. A common practice globally, the Indian version of the funding comes with
a catch. As Indian infrastructure companies struggle with stressed assets and
huge pending claims, there is the case of Patel Engineering, which has been
successful in litigation funding. Besides, sources said, the HCC was in an advanced
stage to execute a similar deal Even lenders to Era Infra Engineering are
believed to be looking at it, albeit as a last option. In some cases, the
upfront cash payout is securitised against a pre-decided amount and a coupon
rate. While the principal is serviced by the holding company’s cash flow, the
interest is dependent on the outcome of claim settlement. A further upside or
downside in the event of claim resolution is also pre-decided between the two
parties. The process will need regulatory approvals in India. We are seeing
interest from buyers and sellers of infra assets as well as global funds who
specialise in litigation funding, said Deepto Roy. Shubham Jain, expects the new
arbitration laws to further help such funding Litigation funding opens up a new
source of long-term funds for infrastructure companies in India, which is
welcome considering their leveraged position. The funds are willing to make
these investments as the new arbitration act provides some comfort on
time-bound redressal of claims, Jain said. The funding entity, however, needs
caution. Sometimes, there is a big mismatch between what contractors claim and
what the paying agency thinks is due. For instance, National Highways Authority
of India's (NHAI’s) FY17 annual report says contracts have claimed about Rs
42,000 crore, whereas the actual payout may turn out to be less than 25 per
cent of the same.
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IL&FS TO FORM CREDITORS’ PANEL TO ASSESS DUES
The board of
Infrastructure Leasing & Financial Services will form committees of
creditors at asset levels — the special purpose vehicles (SPVs) managing its
projects — to assess their outstanding payments. It is also looking to appoint
a claim adviser at the group level to coordinate the activity, people familiar
with the matter said. The board in its progress report has talked about
asset-level resolution and in some cases, a sale of business vertical
comprising a basket of companies or other entities.
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A YEAR AFTER $2-BN NIRAV MODI FRAUD, PNB ON ROAD TO ANNUAL
PROFITS IN FY20
One year after being hit
by a $2 billion scam, Punjab National Bank (PNB) is set to return to annual profits
and strong loan growth in fiscal 2020 even as investigations continue into the
country's biggest banking fraud. State-run PNB has already surprised markets
with an earlier-than-expected profit for the quarter ended Dec. 31 as it
completed setting aside funds to cover for the scam and its bad loan levels
eased. While the lender is still likely to post a loss of Rs 59.84 billion
($837.16 million) for this fiscal year ending March 31, analysts expect PNB to
return to a full-year profit in the next fiscal, according to Refinitiv data.
The bank is expected to clock a net profit of Rs 22.66 billion for the year
ending March 2020, which would be its highest annual profit in five years.
PNB's loan growth is estimated to be 8.33 percent for fiscal 2020, its highest
in 4 years, as per the mean of analysts' estimates from Refinitiv. Its total
assets are projected to grow at the highest rate in three years.
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SEBI INSERTS NEW RULE ALLOWING COMPANY SECRETARIES TO DO
SECRETARIAL AUDIT
The Securities Exchange
Board of India, last week inserted ‘Regulation 24 A’ providing for Secretarial
Audit in SEBI (Listing Obligations and Disclosure Requirements) Regulations,
2015 allowing the practicing company secretaries to do Secretarial Audit. The
Market regulator also came out with the format for listed entities for
preparing their annual secretarial audit and compliance reports. This would
also be applicable for the material unlisted subsidiaries of the listed
entities, the regulator said in a circular. The annual secretarial audit
reports are meant to keep a tab on entities regarding compliance with
applicable laws. The listed entities and their material subsidiaries would have
to provide relevant documents and information to the practicing company
secretary in order to obtain the certification. The Circular provides for the
format for the annual secretarial compliance report covering a broad check on
compliance with all laws applicable to the entity, listed entities shall additionally,
on an annual basis, require a check by the PCS on compliance of all applicable
SEBI Regulations and circulars/ guidelines issued thereunder, consequent to
which, the PCS shall submit a report in the manner and format specified in the
circular. The Institute of Company Secretaries of India (ICSI) expressed
sincere thanks and gratitude to SEBI for acceding to its request and reposing
confidence in the profession. This is a significant recognition to ICSI
professional fraternity and endorsement to Secretarial Audit/ Compliance
Reporting Mechanism and the Institute assure that members of ICSI shall
continue to serve as an extended arm of SEBI, said CS Ranjeet Pandey.
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FORTIS CASE: SC REFUSES TO VACATE ORDER ON IHH’S RS 4,000
CRORE OPEN OFFER
The Supreme Court on
Friday refused to vacate its earlier order that restrained Malaysia’s IHH
Healthcare Berhad from going ahead with its open offer for Fortis Healthcare
(FHL). The Malaysian firm had in July won the bid with its Rs 4,000-crore
offer. The apex court had on December 14 put on hold the sale of controlling
stake (31%) in FHL to the Malaysian firm on a contempt plea filed by Japanese
pharma major Daiichi Sankyo against the former promoters of the hospital chain
— Malvinder Singh and Shivinder Singh. The order for maintaining status quo
till further orders of the apex court meant that IHH Healthcare had to wait and
could not go ahead with its open offer which was scheduled to commence from
December 18. A Bench led by Chief Justice Ranjan Gogoi without going into the
issue posted the matter for final hearing on February 26 after Daiichi’s senior
counsel Fali Nariman requested it to dispose of the case at the earliest. Singh
brothers and their entities have no interest in RHT or its assets nor any money
has being transferred to them, FHL said. The number of shares in respect of
which the contempt is alleged is 12.25 lakh shares which constitute a minuscule
percentage which has no impact on the controlling interests, it added.
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WHISTLE-BLOWER MAKES FRESH CHARGES IN FORTIS MATTER
The Fortis Hospitals
matter, in which the Securities and Exchange Board of India (SEBI) ordered the
company to refund over ₹400 crore in December 2018, has taken a new turn with the
regulator receiving a complaint alleging that the real beneficiaries of the
money were some of the top officials managing different businesses of the
Religare Group. Initially, the money was believed to have moved from the listed
entity to a subsidiary and thereafter to three borrower entities. In a letter
submitted to SEBI on January 17, a whistle-blower has named brothers Gurpreet
Singh Dhillon and Gurkirat Singh Dhillon, along with Sunil Godhwani and Sanjay
Godhwani, among others, as the main beneficiaries of the fund transfer. This
assumes significance as the SEBI probe that was initiated in February 2018 was
based on reports that the promoters of Fortis Healthcare took out ₹500
crore from the company. The SEBI probe further found that Fortis Hospitals had given
loans to three borrower entities – Best Healthcare, Fern Healthcare and Modland
Wears. The ultimate beneficiaries of the three entities, as per the SEBI probe,
were RHC Holding and Religare Finvest, with the former being controlled by
Malvinder Singh and Shivinder Singh, the original promoters of Fortis
Healthcare. The whistle-blower, in the letter, alleged that an advance of ₹155
crore that Best Healthcare received was disbursed to the Dhillon brothers.
Further, Modland Wears is also alleged to have transferred ₹133.36
crore to a few people, including the Dhillon brothers. Meanwhile, Fern
Healthcare, which received ₹114 crore from Fortis, transferred the money to the Godhwani
brothers and Dhillon brothers, among others. While one cannot deny
sensationalism through anonymous or whistle-blower complaints route, in some
cases, SEBI in the past was able to identify possible fraud and other
violations only because of information submitted by third parties, said Sumit
Agrawal, founder, RegStreet Law, who had earlier served as a law officer with
SEBI. SEBI usually wants these complaints to run it past by audit committees of
listed companies as a first-check, added Mr. Agrawal. Unfortunately, SEBI investigation
has conveniently forgotten and overlooked to collect and put out information
about the dealings of well-connected Satsang Beas and moneys flowing from the
Singh Brothers to the Dhillon family via an assortment of mysterious financial
instruments, the whistle-blower’s letter stated. To the best of my information,
around ₹488 crore has been extended to the Dhillon family as loans
whereas around ₹70 crore has been extended to the Godhwani family, the letter
stated.
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SEBI MAY ALLOW MUTUAL FUNDS & PMS IN COMMODITIES AT MARCH
BOARD MEET; INDICES TOO ON CARDS
The Securities and
Exchange Board of India (SEBI) may allow mutual funds and portfolio management
services (PMS) in the commodities market at its upcoming board meet scheduled
for the second week of March. The markets regulator has almost finalised
regulations for their entry as a new participant A source close to development
told that SEBI has already amended its custodian regulation so that they can
hold warehouse receipt as collateral. But even after that regulator tried to
allay all concerns raised by custodians, they remained unconvinced and refused
to take responsibility of underlying assets, which is lying at warehouses,
especially keeping in mind the National Spot Exchange fiasco, the source added.
According to an exchange official, Allowing mutual funds and PMS will give a
huge boost to the commodities market in terms of participation, which has been
a major issue. SEBI may also give its consent to indices in the commodities
market. SEBI is in the finalisation stage for allowing indices and whatever
inputs they sought from exchanges have been provided, another source close to
the development said, adding that initially the regulator may allow one
agriculture and non-agri indices to start operations. Going forward, the source
added that indices may be given more options to hedge their positions
effectively, especially in a basket form.
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IRDAI PANEL WANTS 'SANDBOX COMMITTEE' FOR DIGITAL INNOVATION
IN INSURANCE
An expert panel has suggested
to insurance regulator IRDAI to set up a core 'Sandbox Committee' to promote
digital innovation in the sector while safeguarding the interest of
policyholders. Loosely defined, a sandbox approach means experimenting and
learning before finally adopting a technology or system. This approach helps in
containing the impact of failures The Insurance Regulatory and Development
Authority of India (IRDAI) had set up the 10-member expert panel to come out
with a consultation paper on regulatory sandbox approach to enable testing of
products in a controlled environment so that the industry could keep pace with
the fast-evolving financial technology (fintech). IRDAI should create a core
Sandbox Committee having dedicated personnel to monitor and supervise the
digital innovation activities, and provide support and advisory to the
applicants as envisaged in the draft guidelines, said the report of the expert
panel. The core sandbox committee would facilitate rollout of the experiments
and seek to provide the ecosystem required for the experimentation. The purpose
of the regulatory sandbox is to foster growth and increase the pace of the most
innovative companies, in a way that provides InsurTech (technology-led
insurance firms) in particular and the fintech sector as a whole with
flexibility in dealing with regulatory requirements and at the same time
focussing on policyholder protection, the report said. Regulatory sandboxing
will be instrumental in providing a safe environment for fintech solutions to
experiment and flourish in, given the fact that they would have enough time to
lay down the necessary groundwork, said Rohan Kumar. Further, it will assist
new technologies to emerge and ease into the highly regulated Indian market, he
added. IRDAI has sought comments on the consultation paper till February 26.
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FPIS TURN NET BUYERS IN FEBRUARY, POUR RS 5,300 CRORE INTO
EQUITIES SO FAR
Foreign investors have put
in over Rs 5,300 crore into the Indian equity market in the first half of this
month, primarily on account of positive view on the Interim Budget 2019-20. The
infusion into the equity market comes following a pull-out of Rs 5,264 crore by
foreign portfolio investors (FPI) in January. According to the latest data
available with depositories, a net sum of Rs 5,322 crore has been pumped into
equities during February 1-15. However, FPIs pulled out a net amount of Rs 248
crore from the bond market during the period. This has translated into a net
investment of Rs 5,074 crore in the country's capital markets (equity and debt
together).
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GOLD IMPORTS DIP 5 PER CENT DURING APRIL-JANUARY TO $26.93
BILLION
The country's gold imports
dipped about 5 per cent in value terms to $26.93 billion during April-January
2018-19, which is expected to keep a lid on the current account deficit.
According to commerce ministry data, total imports of the precious metal in the
corresponding period of 2017-18 stood at $28.23 billion. Industry experts said
softening prices of the precious metal in the world markets could be the reason
for the contraction in imports. After recording negative growth for three
consecutive months - October, November and December 2018, the imports grew by
38.16 per cent to $2.31 billion in January this year. India is one of the largest
gold importers in the world and the imports mainly take care of demand from the
jewellery industry. Gems and jewellery exports too dipped by 4 per cent to
$32.9 billion during the 10 months of the current fiscal. India's current
account deficit (CAD), or the difference between outflow and inflow of foreign
exchange in the current account, widened to 2.9 per cent of the GDP in the
second quarter of the fiscal, against 1.1 per cent in the year-ago period,
mainly due to a large trade deficit. In volume terms, the country's total gold
imports increased by 22.43 per cent to 955.16 tonnes in 2017-18. It stood at
780.14 tonnes in 2016-17.
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THE UNEXAMINED ASPECTS OF TREATING HOMEBUYERS AS FINANCIAL
CREDITORS UNDER THE IBC
In the recent past, there
were delays in giving possessions to home buyers who had booked flats/homes in
real estate projects. There were also instances of Developers/Builders borrowing
money from homebuyers in one project and investing them into another project or
even siphoning funds, and then becoming incapable of completing projects in
which homebuyers had invested their hard earned savings. Homebuyers who had
taken loans ended up paying EMI’s for flats whose possession they never
actually got. Cases like Jaypee Infratech Case, Supertech Case, Amrapali Case,
etc had projected Homebuyers as the worst sufferers. All of these factors
propelled the government to bring in an amendment to the Insolvency and
Bankruptcy Code, 2016 and recognise homebuyers as financial creditors. The
resultant amendment is as follows: Section 3 of the Insolvency and Bankruptcy
Code (Second Amendment) Act, 2018 (second amendment Act) has inserted two
explanations in Clause (8) (f) of Section 5 of the Code. Pursuant to the first
explanation, any amount raised from an ‘allottee’ of a ‘real estate project’
i.e a homebuyer shall be deemed to be an amount having the commercial effect of
borrowing, and resultantly he is a financial creditor under the section 7 of
the IBC. (Which allows financial creditor(s) to file an application in NCLT for
initiating corporate insolvency resolution process against a defaulting
company). The amendment has further allowed the homebuyers being financial
creditors to have representation in the Committee of Creditors through an
authorised representative and also have voting rights.
Dilemma about the
‘default’?
Though the amendment has
classified the homebuyer as a financial creditor, the definition of the term
‘default’ vis-à-vis a homebuyer has not been amended When is the ‘default’ said
to have been committed by the developer and when ‘debt’ becomes due remains a
grey area. As per Section 6 of the Code, financial creditors can initiate the
insolvency proceedings against a corporate debtor upon the corporate debtor
‘committing a default’. The default referred to is default in payment of monies
by the corporate debtor to the financial creditor. Generally, terms of
allotment letters and agreements for purchase of under construction flats
provide for repayment of the monies by the developer only upon termination of
the allotment. But in the cases of delay, builders don’t actually terminate the
allotment agreements. Relying on the definition of ‘default’ [Section 3 (12)],
only once the refund is demanded by the homebuyer, it can be said that the
amount of debt has become due. However, in the situations of delay in the
delivery of possession which is largely the substratum of the dispute between
the homebuyer and the developer, in the absence of termination of the
agreement, there remains lack of clarity as to when the ‘debt’ has become due
and the ‘default’ has been committed.
Disputed debt
The Amendment is based on
a premise that the developer/builder is always a defaulter and presupposes a
situation in which the projects are not completed on time. However, that is not
really the situation in all the cases At times, the default can also be
committed by the flat buyers due to delay in paying the instalments or final
consideration amount. This amendment has actually conferred such status to the
homebuyers that they are entitled to sustain their claim irrespective of a
disputed debt. It is pertinent to note that Insolvency application under
section 7 will be admitted notwithstanding whether debt is disputed or not, as
long as it is ‘due’ [M/s Innoventive Industries Ltd. vs. ICICI Bank]. The
question that arise is whether the insolvency forum being a forum of summary
adjudication is an apt forum to adjudicate upon a disputed debt which involves
a mixed question of fact and law. Whilst it true that the avoid of IBC has
resultant into an enormous pressure being created on the developers for the
timely delivery of flats but at the same time if the developer/builder is not
at default and the claim is disputed, IBC proceedings turn into an abuse of
process of law. For instance, in a matter before the Principal bench NCLT New
Delhi, there was no delay in the grant of possession by the builder, however,
the allottee defaulted in paying the instalments on time. After asking for the
remaining consideration from the buyer several times, the builder eventually
terminated the agreement, the flat buyer approached the NCLT under section 7.
Before the arguments on the insolvency application could be completed, the
builder entered into a hefty settlement with the flat-buyer in order to save
his financially solvent company from the insolvency resolution process. It is
argued that the resolution which is a process to rescue a failing business can
also become recovery tool and merely an instance of dispute with one out of
hundreds of allottees could result into driving a financially solvent and
healthy real estate developer/business into insolvency. Many builders have
asserted that homebuyers have an apt remedy to claim before the Consumer fora
and RERA, and IBC amendment has only resultant into an additional encumbrance
upon them.
Homebuyers Secured or
Unsecured
The amendment raises
ambiguity about the priority in which homebuyers would be repaid their loans Under
IBC, the difference between secured financial creditors and unsecured financial
creditors mostly has an implication on the priority of payments upon
liquidation. The amended law grants homebuyers the status of financial
creditors but stops short of stating whether they are secured or unsecured
creditors. The homebuyer will have to prove which category of creditor he is
qualified to be as per the agreement with the real estate company. If the
developer company gets into liquidation, and the homebuyer is an unsecured
creditor as per the agreement, he is actually even worse off. A plea by Jaypee
Infratech homebuyers seeking secured financial creditors status is pending
before the Supreme Court.
Third Party Interests
Many homebuyers have
booked flats by taking loans from the banks. The general practice these banks
follow while giving loans is that they enter into a tripartite agreement with
both the homebuyer and the developer. By entering into such loan -cum
-tripartite agreements with the banks, the homebuyers are actually creating
third party interests in favour of the banks and are actually subrogating his
rights in favour of the banks. In one such case with similar situation, NCLT
Allahabad [Ajay Walia V. M/s. Sunworld Residency Private Limited, CP (IB)
11/ALD/2018] held that the homebuyers who has subrogated his rights in favour
of banks cannot be treated as a financial creditor. The homebuyers need to be
wary of the fact that if they will enter into such tripartite loan agreements
while booking a flat, they no longer will be treated as financial creditors and
it would adversely affect their rights to initiate a corporate insolvency
process against the developer. Many homebuyers are continuing to pay EMIs for
the loans they took from the bank for their flat. This aspect of creating
third-party interests in favour of the bank and continuing to pay EMI’s for the
flats whose possession they have not really gotten requires a further scrutiny
in the Courts of law in the background of the amended Code. Furthermore, it has
yet to be seen how effective the participation of the homebuyers in the
committee of creditors would be and their contribution in assessing and
approving resolution plans.
Key Observations and
Suggestions
The Hon’ble Supreme Court
[In Swiss ribbons Pvt. Ltd. & Anr. v. UOI] has held that the Insolvency and
Bankruptcy Code is constitutional in entirety However, Justice Nariman has also
sought response from the ministries of corporate affairs, law and justice and
housing, and others on a petition by (PULIL), which challenged the
constitutional validity of the Homebuyers amendment. IBC might have empowered
homebuyers but its extent is still questionable. Furthermore, the homebuyer
amendment also has the ingredients of being used as a tool to recover money
from the developer/builder who hasn’t actually committed any default.
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SBI SHELVES RS. 15,431-CRORE ESSAR STEEL LOAN AUCTION
State Bank of India (SBI),
which had put its Rs. 15,431-crore exposure to Essar Steel on the block to sell
it to asset reconstruction companies and other financial institutions, is not
likely to pursue the proposal further The auction received lukewarm response
because a resolution on the issue is expected soon through the bankruptcy
proceedings. In January, SBI decided to sell the exposure to Essar Steel and
the e-auction was scheduled for January 30. However, the auction process
received response only from one prospective buyer. The Essar account was
referred to the National Company Law Tribunal for resolution and the committee
of creditors had selected the Rs. 42,200 crore bid by ArcelorMittal India Pvt.
Ltd. Then, Essar Steel submitted a bid which was about Rs. 12,000 crore more
than ArcelorMittal’s offer. However, the National Company Law Appellate
Tribunal (NCLAT) has now asked the NCLT to complete the hearing by February 19
and decide thereafter. The matter has been listed for hearing on February 28 at
the NCLAT.
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ALLAHABAD BANK DRAWS A ROAD MAP TO COME OUT OF PCA LIST BY JUNE
Allahabad Bank hopes to come
out of the Prompt Corrective Action (PCA) list by June after returning to
profitability said S S Mallikarjuna Rao. Allahabad Bank expects fresh capital
infusion from the government by the end of this month or early next month,
which will help it come out of PCA framework in terms of two parameters —
capital to risk-weighted assets ratio (CRAR) and common equity tier-1 (CET1). But,
with the government shareholding in the bank currently at about 83 per cent, it
will need to raise in excess of Rs 3,000 crore through markets to meet Securities
and Exchange Board (Sebi) norms. The norms stipulate the government
shareholding to be brought down to 75 per cent, and the bank has time till
October 2020 to do it. After March we would not like to seek any fresh capital
from the government. The requirement to reduce capital is around Rs 3,800
crore, which we cannot raise in one tranche. After PCA is over, we need plan
and strategies to take it forward. That is why the work has started. We are
utilising the opportunity of PCA in advantageous manner and correct whatever is
required, said Mallikarjuna Rao. As of December 2018, the CRAR of the bank was
10.42 per cent, against the regulatory requirement of 10.875 per cent, while
the CET1 was 7.06 per cent, against the requirement of 7.375 per cent. We have
already reduced about Rs 5,600 crore advances. The average risk weight was
around 33 per cent. Even if we rebalance it at 20 per cent, the opportunity to
lend at a higher level is more. Also, by closing the Hong Kong branch, we will
have the advantage to increase our operating profit. NIM in Hong Kong is less
than 1 per cent. Whereas in India it runs at 2.65 per cent, said Mallikarjuna
Rao. To come out of PCA list, the bank needs to qualify on the parameters of
CRAR, CET 1, net non-performing assets (NNPA), leverage ratio and return on
assets (ROA).
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COGNIZANT TO SETTLE TAMIL NADU GRAFT CASE IN US WITH $28
MILLION
Cognizant Technology said
on Friday it has agreed to pay $28 million (about Rs 200 crore) to the US stock
market regulator Securities Exchange Commission (SEC) and its justice
department to settle a graft case. It relates to alleged bribing of Tamil Nadu
government officials with $3.6 million in 2014 to build development centres. Cognizant
said in a statement that it had resolved all disputes with US regulators
pertaining to violations of Foreign Corrupt Practices Act as its top management
allegedly facilitating bribes to government officials The tech company,
incubated in Chennai, and with nearly a third of its global workforce in India,
told the regulator that it was seeking permanent injunctions against its former
president Gordon Coburn and former chief legal officer Steven E Schwartz for
directing a building contractor to conceal the bribe by doctoring orders. While
Cognizant settled all US government proceedings against it, the TN government
on Friday announced actions against the two former executives. These cases are
a matter between the government and these individuals and the charges against
them will be addressed by the court system, said Francisco D’Souza,
vice-chairman and CEO of Cognizant. Both the officials have since quit the
company.
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A YEAR AFTER ANDROID DEBUT, 'WHATSAPP BUSINESS' IS ALL SET FOR
IOS LAUNCH
The beta version of
WhatsApp Business -- a free-to-download communication tool specifically
designed for small businesses -- has been made available for iOS users. After
the launch of the official WhatsApp Business for Android, which is a compatible
version for iOS and a lot of users had asked, it is finally available in beta,
WABetaInfo, a fan site that tests new WhatsApp features reported on Friday. Launched
in January 2018, WhatsApp Business had only been made available on Android
devices until now. In a tint colour of darker blue, the beta app for iOS
includes Messaging Tools for businesses like automated greeting and away
messages, quick replies and the Recipients feature was also set to allow users
to choose specific recipients for a particular message. Along with the option
allowing users to migrate their existing WhatsApp accounts and contacts to a
WhatsApp Business account, the app also enables users to customise their
business profiles and configure business hours with options in the Edit menu.
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EMAILS, HASHED PASSWORDS OF 18 MILLION IXIGO USERS STOLEN
User data of 18 million,
largely email IDs and hashed passwords, were allegedly stolen from online
travel aggregation platform Ixigo. This is part of a broader data steal that
saw user information being leaked from seven other global sites including home
improvement website Houzz. Ixigo founder and CEO Aloke Bajpai told the company
will issue a notification to its users to reset their passwords as a safety
measure. British news platform The Register first reported the data leak.
Backed by China’s Fosun, Ixigo had over 20 million monthly active users in
November last year. A company spokesperson said it had nearly 100 million users
in total. Ixigo is currently investigating this alleged security breach. We are
a travel marketplace and we take our users’ data and privacy seriously. We do
not store payment, cards or financial information for any of our users. We
encrypt and hash our passwords with a one-way hashing algorithm. While we have
already taken pre-emptive security measures, such as two-factor authentication,
we will also, as a precaution, reset passwords and security tokens of our
users, Bajpai said in a statement. Earlier, online food delivery platforms like
Zomato and FreshMenu faced similar incidents of data leaks in the country.
Zomato, too, had issued notifications to affected users to change their
passwords.
#For Source of Information copy and paste the heading in google.
Thanks & Regards,
CS Meetesh Shiroya
Thanks & Regards,
CS Meetesh Shiroya
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