There is English saying “A Banker Lends Umbrella When It’s Sunny and Wants it Back When Rains”. Banks gives loan rather in race when an enterprise is doing well / making profits. It call backs the loan when it is in loss. Banks do not make proper analysis of the potential of the industry, historical position of the industry, global factors, internal factors, government policies, external factors, etc. As advised by the regulator Reserve Bank of India, they want to keep their Balance Sheet clean and show high profit. To maintain a clean image, they go through insolvency and bankruptcy process in case of delays and temporary default in payments instead of restructuring and giving moratorium. They take haircuts about 70-80% and in some cases upto 95%. The troubled enterprise often ends up getting sold at rock bottom price. Administrator, consultant, auditors and legal employees / staff professional / luminaries get 70 – 90 % fees / salaries more than what they have been getting or what they would get. All enjoy and have a merry time. Till June 30th, 2022 creditors had realised Rs.2.35 lakh crore through resolution plans in 517 cases of the total claims of Rs. 7.67 lakh crore as per IBBI data i.e. just about 30% and many cases Banks got 10% of loan amount.
Fraud is the buzzword. The Insolvency & Bankruptcy Code was introduced by the government with the intent to improve the ease of doing business and it was expected to ensure better and faster debt recovery mechanism. Enterprises, with consistent track record of making profits, when adversely affected by external factors, are being pushed to insolvency instead of being provided some support to come to tide over the temporary problems. They are even charged of mismanagement and fraud though auditors and others have been approving the accounts and giving good reports. IBC has been hitting at the very idea of welfare state. Corporate houses usually have one or two flagship companies with abundant profit. With the passion to grow and diversify the business the flagship companies invest in the group companies / subsidiaries / associate companies, but these transactions are termed as ‘related party transactions’ and a negative connotation is given to that. This can do irreparable damage to the investment climate and risk-taking. For economic growth and employment, related party definition should be modified to restore the trust between government and corporate sector.A Supreme Court ruling allowed NCLT not to consider default in payment for IBC trial. The objective of the IBC is not to penalise the companies, temporary defaulting in repayment due to the initiation of CIRP (Corporate Insolvency Resolution Process). Press also spread message as to fraud without having report of court trial. Almost all the start-ups have been hungry for funds. Several had to close. Some are facing IBC process with charges of fraud in some cases, without trial.
PSU: Governments do not make payments and go on for more than 3 to 6 months sometimes even for a year. Prefer to go to court without accepting arbitration leading to default.