The new law, Insolvency and Bankruptcy Code made with excellent intention by the Narender Modi government, as he has the vision and the guts to change the country. Still, the law’s implementation is full of flaws, regulations keep changing every six months, and the intention with which they were made was never achieved. Instead, it became the tool for the destruction of existing Indian companies, as the companies that the Indian entrepreneurs built through blood and sweat were ruined with a single stroke of admission into the NCLT. The banks also lose their investment. The primary intent of making this law was to revive the companies and make them run if they were in trouble, then preserve their value and run them so that employment is not lost, banks can make their investments safe, and suppliers and other stakeholders can get the value. Still, if we see the data until today, most companies admitted to the NCLT have gone into liquidation, where entrepreneurs, banks, employees, suppliers, distributors, and customers suffer huge losses.
The Domino Effect That Harms Everyone.
One big company going into liquidation creates a situation where a few suppliers and distributors also go bankrupt, which no one notices.
This law was enacted with the right intention by the BJP government, but who were the people involved in making these laws? Were they entrepreneurs, politicians, bureaucrats, advocates or academicians or bankers? In India, when the rules are being made, generally some people are chosen to make the committees who have hardly any knowledge about those subjects, or people who are celebrities in these fields are made members and don’t have time to look into the nitty gritty of that particular law point. So this law was imported from the United Kingdom and enacted, and then Indian thought was mixed with this law.
If we see the complete history of this law, we know that it keeps changing every six months. Changes were made randomly, and still, more lacunae are found out later, and changes keep happening, but a lot of money from banks is already lost. Entrepreneurs are also ruined, and so many people are suffering. However, even today, the mess is still there, courts pinpoint the areas where lawmakers did not clear so many aspects of the law, and the grey areas are left. The ultimate objective of this law didn’t achieve its purpose, and the destruction was rampant. Initially, banks were also very enthusiastic about quick recovery from this law but also realized it was a destruction of their loan amounts. As the law progressed, bankers were also punished by being put behind bars, and the bankers stopped disbursing loans. Now another challenge started for the government: bankers were not ready to give loans, and the government tried to convince them that no action would be taken against them. Most entrepreneurs were put behind bars, and the CBI, ED, and SFIO all started the harassment for the same cases. First, CBI came, then ED, and then SFIO, asking the same questions repeatedly.
Who were to decide that the loans they classified as bad loans were bad because, one day, the RBI changed the definition of bad loans to put a spanner in the running economy, which used to have easy money available? Businesses were growing fast, and maybe a few entrepreneurs and bankers were taking advantage of the systems that could have been improved by an alternative method. Implementing this law at a large scale without due diligence was a big goof-up. Still, one fine day, everything is changed without adequately considering what will happen if we restructure the system overnight. What will happen to Make in India companies that could be destroyed with this law? Are we prepared because there were many agencies for implementation, and they were not prepared and trained to handle such a situation?
The major challenge was determining who would run the company during the moratorium period. Their things were taken very lightly, which became one of the primary reasons for failure. The government created a post for a resolution professional and made an exam for the professionals to come and clear the exam and become the RP. All professionals who were not settled in life or people who were young and inexperienced cleared the exams and became RPs.
Big 4 And the Corruption
The next big goof was when those big four jumped into the arena, seeing the massive potential of making money, and they put these RPs on their rosters, or some other agencies that were doing similar businesses came to the fore and hired these RPs.
The corruption started significantly as the RPs gained experience, and they never ran companies. Even the big four never ran the companies and lacked the entrepreneurial skills and expertise to run the companies. Even the lawmakers who enacted the laws did not know how the companies were run. In the company changing management is not possible, and if done overnight, the company can be finished; this is a very tricky situation. That’s why entrepreneurs are struggling to keep their flock together who know their job, and everything is not black and white and governed by the laws that happen wherever the government functions runs on the system and processes whether they are being adhered to or not.
So when they enacted the law, the first thing was to publish an advertisement in the newspapers that the company had gone into liquidation, so please file claims against whoever had to take money from the company.
Now, people running the companies know that one day the company’s valuation will take a big dip as soon as this announcement is made in the media because all the stakeholders will stop investing money, time and effort as they become insecure about the company. The company will take a big hit. All the stakeholders or customers get a jolt about what will happen next to the company.
The customers are swayed away by the competitors with bad stories. Employees become insecure, and suppliers worry about what will happen next.
The IBBI guidelines do not mention the handover of the company or employees or procedures for dealing with an existing entrepreneur and the employees, suppliers, distributors, or customers. How to run the current concern as a going concern, and everything is left to the RP and his team, supported by the team provided by the companies that have hired the employees, and now the loot maar starts. Banks generally do not want to invest, and now the company that is at this stage and having cash flow issues and other issues is paying the bills of RP and his team, which can’t contribute to running the company. They only try to scare the promoter and employees with their powers. Most good employees leave the company, and a significant portion of expenses are done in the name of following processes and procedures. The company becomes broke in no time. The company which goes into the NCLT already has a very tight fund flow position, and the moment they enter, they start charging the company for various people and processes, which becomes an enormous burden on the company, which is already stressed and most of the time banks don’t invest money to save the cash crunched company. These big four make fat bills in the name of processes, people and legal expenses, which become the sure-shot recipe for a company closing down and going for liquidation. Once the running company closes down, its value is eroded completely. This has happened to most of the companies which went into the NCLT. First, the running companies are closed down by these people and then sold to buyers at 5% to 20% of the company’s value on the valuation they took over. The valuation of the company is a standard procedure in which they have to get it done by two valuers; one should get the data from the IBBI on how many companies are sold at the same valuation or more when these big fours entered the company if they have eroded the valuation than who is responsible that. Is the entrepreneur responsible for that destruction as he is kept out of the company from the day these firms take over? The RP and these big fours don’t involve the entrepreneur even in the valuation process and don’t give him valuation reports in the name of the law. Still, once everything is sold at throw-away prices, they demand the rest from the entrepreneur.
Why keep the promoter out of the valuation is a big question mark, so his company is taken over. He doesn’t get a chance to show the valuer what he has created as the promoter is the first and the last person in the small and mid-size company to tell the valuer what is lying where and how much it can be valued and to whom can be sold but that not the valuer’s concern. But not involving the promoter in the valuation and not telling him the valuation after it is done is a fundamental right being denied to the entrepreneur.
How Are Suppliers Affected?
Even the suppliers face the next significant brunt as the law stipulates that the supplier can’t get the money for his previous supplies. He can get only new money against the new supplies, which makes him pissed off and not ready to cooperate with the management, and the administration is unique. It can’t give him any commitment or assurance. So the supplier is insecure, employees get insecure, and the promoter is put in a legal tangle where he is a defaulter. He is answerable to every government agency in this world. He is accountable to RP, the banks, forensic auditors, and later to the CBI, ED, and SFIO. Now he will become old, answering to all these agencies, and will be harassed till his death.
Is IBBI Fulfilling Its Purpose?
The purpose of the law was to run the companies, which are stressed by the promoters, and give another chance to the champion to make another company and add value to society, but what came out was that the promoter was fighting his legal battles and lost his reputation. The agencies and banks also didn’t get their dues. These same agencies and countries also harassed bankers as a whole. Once the CBI raid is done, the promoter’s name and company names tell how much money he has embezzled and not what he has created, such as what brand or what kind of factories and human resources he has trained, how much tax revenues he has created for the country, how much exports he has created, or how many establishments with knowledgeable people he has built around him.
Let us take the case of Su-Kam, and when they entered the company, RP got the valuation done, which was the process part, he got the value done from two valuers, and it was approximately 300 Cr which was higher than the loan amount of that time. This valuation was done by the RP, keeping me in the dark and repeatedly, they didn’t disclose the valuation to me, which is a big question mark for the IBBI process as the banks and IBBI for the RP and the agency which ran the process whether these people sold the company more than its valuation or not. If not, then it’s a significant loss they have done to the exchequer as they could not do the right job. We are losing on a critical point as this should become the assessment point for the banks and IBBI. The bank was overdue on the day of the company going to NCLT at approximately 260 Cr, and the banks filed a complaint with the CBI that I owed them 260 Cr, and CBI filed an FIR against me and started proceedings against me. I have a question to ask from the banks and IBBI why didn’t they file the same complaint against the RP and agency handling the liquidation about how much loss they created for the exchequer by selling the company at such a low price and so many people lost the jobs and suppliers got ruined. Dealer distributors lost money in warranties, and a few closed their shutters. Where is the company valuation they took over from me and valued at Rs 300 Cr? If the company’s valuation was 300 Cr after the advertisement of liquidation, imagine they had done the valuation before the ad in the newspapers. It would have been 500 Cr plus. This has no significance in the whole process while the company is in the NCLT, as valuation is only done as a formality. In contrast, it should be seen as an entrepreneur’s honesty.
The government spent so many crores on skilling but couldn’t get jobs for the people, but here, entrepreneurs hired people without any skills and made them talented. So many people went abroad with the help of the entrepreneur’s professional setup. Now that the kids of entrepreneurs are watching their parents go through these uncertainties and bad times where all the agencies are after you, CBI, ED, SFIO, and legal cases in DRT, NCLT, high courts, or local courts being harassed by cheque bounce cases by the customers and suppliers that the company bounced. All the customers are filing cases in local courts against the company and the entrepreneur, and the company has a moratorium, but the entrepreneur has no moratorium. So, we keep going from one court to the other, fight our endless cases, and die fighting these cases, and people who are close to us will never dare to do business in this country. This law has created fear among the entrepreneurial community, as the question is not whether companies will prosper or fail but whether your business will fail in India. If you have taken a loan from the bank, then the failure of your business will become a battle for an entrepreneur, as his case will be classified as a fraud account by the banks, and his case will be handed over to the CBI for investigation. The same harassment will continue by the other agencies. Since these agencies don’t have the time to investigate such a massive load of cases, the investigation continues, and maybe till our deaths, these cases will not be decided. So, this is the real story of a failed business entrepreneur. I will die with the blame that I made a significant loss for this country by taking loans from the banks, and I’m a fraudster in the eyes of the common public. Every day such news appears in the newspaper that the entrepreneur made losses to the bank to the tune of 1000 crore or 2000 crore, and the ordinary person does not understand the meaning of this news. But there is not a small column in the news that states that when banks take over the company, then what was the company’s market value, and the rest of the amount is a loss to the banks and not the complete loan taken from the banks is a loss. The banks and the system make the rest of the loss.
How IBBI Affected Companies- A Personal Experience.
Many companies that were examples of Make in India got perished and went into liquidation, and the expertise that the entrepreneurs had created went down the drain. It is a significant loss for the nation as a whole. Su-Kam is one example of the destruction done by this law, as it went to the NCLT in April 2018, and Kotak Bank was ready to give me an investment in 2019. They committed 250 crores as an investment into the company, which was refused by the bankers sitting in various courts, and the su-kam case went on in different courts. The ultimate banks received eight crores in principal out of 260 crores, and the company was sold for 50 crores. Out of 50 CR banks, while running the company, PWC already had loans from the supplier and made bills for running the company, which they couldn’t run for more than one year, and for legal expenses and salaries due to the employees, etc.
So the result is that the company was valued by them when they entered after RP loved NCLT by two valuers at Rs 300 cr, and the banks got only eight cr, for which probably the legal cost incurred by them will be more than that. I’m sure. The entrepreneur destroyed suppliers and got nothing; employees lost their jobs, dealer distributors suffered losses financially and reputationally, and the customers didn’t get service for the product they bought. Then who got benefit out of this saga?
The Supreme Court has set aside the fraud declaration by the banks as a wrong step, and we have already lost reputation, health, and confidence because of the fraud declaration. CBI registered a case against me and harassed suppliers, dealers, distributor employees and me for more than two years, and CBI also spent resources investigating the case. They called at least 100 distributors and suppliers employees, and so many were connected to the company that they were harassed. So this one case is study material for the nation, showing that a small wrong can destroy so much for so many. How will I get my pride back that I’m not a fraudster and I had a role in building the nation by creating a company which provided direct employment to 3000 people and made technology patents, kept China away from the Inverter Industry, created exports against China created RnD in the industry. They built world-class factories in India worth visiting with all the latest machinery and infrastructure sold at a meagre amount of 50 Cr. My one battery factory was constructed at an investment of 80 Cr. All my factories’ brand and distribution network was sold in Corona Times, and the buyer deposited money for two years when the properties alone could be valued at 200 Cr. Is this the fair system, and I’m asked to pay for the rest of the amount where the interest amount continues every day, and my loan of 260 Cr has become 550 Cr and will continue to add every day?
Can the Supreme Court or any other court in India get me back my five years of fighting my battle rather than decorating myself for creating an industry where I developed export of inverters rather than importing the inverters? I stopped China from entering India’s inverter industry. In the last five years, all Chinese solar inverters are ruling the market, for which my R&D had already developed the technology, which has gone to waste.
The recent development is that my RP and liquidator were found guilty in the Su-kam Power Systems Ltd. case, barred from the practice, and imposed a fine. My concern of Sharing concerns about IBBI law is not my issue only. Many companies and entrepreneurs have faced the same fate but are silent.
I thought I had the right to ask these questions and write for many entrepreneurs facing similar challenges.