Banks can vote against NBCC's Jaypee Infra bid: NCLAT
The National Company Law Appellate Tribunal (NCLAT) on Monday clarified that the lenders of Jaypee Infratech (JIL) can vote against the NBCC's bid to acquire the insolvent real estate company.
 
The Delhi-based appellate also directed for the completion of the ongoing voting process, which ends later in the day.
 
IDBI Bank, the lead banker to JIL had approached NCLAT seeking permission to vote against public sector construction major's bid.
 
"We have not said don't vote against NBCC," the bench said implying that the lenders could vote against the bid.
 
The three member bench headed by NCLAT Chairman Justice S.J. Mukhopadhaya has also directed the resolution professional Anuj Jain to report the appellate tribunal about the outcome of the voting.
 
The bench further clarified that the votes of the absentees would not be counted in the total voting percentage.
 
IDBI Bank is against NBCC's resolution plan on the grounds of the bid being conditional.
 
The NBCC's bid seeks the cancellation of an estimated income tax liability of Rs 33,000 crore due over a period of 30 years under the concession agreement for the transfer of land from the Yamuna Expressway Industrial Development Authority (YEIDA) to Jaypee Infratech Limited (JIL). 
 
The PSU also sought relief from taking consent of the YEIDA for any business transfer between JIL and Yamuna Expressway SPV for transfer of assets as well as land parcels from JIL to the land bank "special purpose vehicle" (SPV). 
 
The CoC had asked the state-run construction major to clarify on the conditions and also sought their removal from the plan. The NBCC made some minor changes to its bid, including reducing the quantity of unsold inventory it plans to give out to the lenders, but did not do away with the contentious clauses related to income tax liability and taking approval of YEIDA for any business transfer between YEIDA and JIL.
 
Following this, although the CoC put the bid to vote, IDBI Bank eventually approached the National Company Law Appellate Tribunal (NCLAT) seeking permission to reject the bid.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  
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    RBI's revised NPA circular credit positive: Moody's
    Moody's Investors Service has termed the RBI's revised framework for the resolution of stressed assets a credit positive move while suggesting the country's insolvency code mechanism to speed up resolution process.
     
    It has also given thumbs up to the RBI's move to extend the circular to NBFC firms on provisioning for NPAs. 
     
    "The Reserve Bank of India's (RBI) revised framework for the resolution of stressed assets is credit positive because it brings back the focus on the need for the timely resolution of such assets, and the build up of loan loss provisioning against those assets," Alka Anbarasu, Vice President, Financial Institutions Group, Moody's Investors Service said. 
     
    Extension of the circular to non-bank finance companies (NBFCs) will help align the loan-loss provisioning norms for the large stressed accounts of NBFCs with commercial banks, she said. 
     
    But she also added that the IBC still has to overcome the timely resolution of the stressed assets.
     
    "Nevertheless, the slower-than-expected progress under the Insolvency and Bankruptcy Code remains the key hurdle to the timely resolution of stressed assets. The cleanup of the bank's balance sheets could therefore still take another two to three years," noted the credit rating agency.
     
    The RBI on June 7 issued a new prudential framework for resolution of stressed assets, effectively replacing its controversial February 12, 2018 circular with a mixed bag of norms applying to a wider class of lenders. 
     
    Three major changes mark the new circular: The central bank has now made it voluntary for lenders to take defaulters to the NCLT and the framework now applies to a larger gamut of lenders, including small banks and non-banking finance companies, and penal provisions have been introduced for lenders. 
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    DHFL and Reliance Capital Used the ‘Box System’ to Avoid Disclosure, says REDD Report
    Over the past one year, the corporate world has been rocked by bankruptcies and huge liquidity crisis. This includes one of the country’s largest airline suspending operations, Rs10 lakh crore of bad loans, the disintegration of the Infrastructure Leasing & Financial Services (IL&FS) group and the Anil Ambani group and rapid demise of Dewan Housing and Finance Corp Ltd (DHFL). This had badly shaken the confidence in non-banking finance companies (NBFCs). How bad is the situation? A just released report by Risk Event-Driven and Distressed Intelligence (REDD) throws some light on the shenanigans of few very large NBFCs have been up to.
     
    NBFCs & housing finance companies (HFCs) together constitute 19.20% of total credit extended by the Indian financial system. Typically, the NBFC sector services borrowers deemed too risky for commercial banks. However, there is an inherent flaw in the system; the NBFC sector gets majority of its funding from commercial banks and mutual funds. So something that was not doable directly by the banks, the same is being done through NBFCs as a vehicle.
     
    (Source: REDD Report)
     
    To add to inherent instability, what is of greater concern is the malpractices as highlighted in the case DHFL, wherein the company was accused of being a vehicle to divert funds. The company used a new structure called as ‘box companies’, says REDD, to evade reporting of funds given to related entities. Using, the box system these companies have found an alternative way to rollover or ever-greening of loans. This is how the Box system works-
     
    1. Say X owns an NBFC XYZ and wants to source funds from it. But the NBFC cannot give funds to X without disclosing the same as a related party transaction.
     
    2. So X promotes three other companies- A, B and C, each with a capital of Rs1 crore. Company A, B and C have Rs1 crore in capital and Rs1 crore in cash each and are owned by X; thus are the related party for the NBFC XYZ.
     
    3. Now, Company A buys 50% of company B and 50% of company C from X. The same is repeated by company B and company C. The end result of this is that, all the 3 companies A, B and C are now owned by each other and X has no ownership of any of these companies and has received back his initial Rs3 crore invested.
     
    4. The company A, B and C now have Rs1 crore of capital and Rs1 crore in investments each.
     
    5.  Now company A, B and C approach the NBFC XYZ for a loan. XYZ does not have to report these loans as related party transactions, as none of these companies is owned by X. But, in reality the real beneficiary of these companies is still X.
     
    6. This way X has extracted money from the NBFC XYZ without having the NBFC to report the same. 
     
    7. Next time, when these loans falls due, another box of companies will be created to fund the companies A, B and C loan repayment; thus effectively rolling over the loans.
     
     
    Take the case of DHFL, on which a report by Cobrapost highlighted how the company using the box system avoided reporting to the exchanges on the sale of a 9.97% stake in the company. The companies forming the box in this case were Hemisphere, Galaxy and Silicon. The three box companies owned 31.1 million shares in DHFL as of March 2018.
     
    All through the year, they sold the stock, disposing four million shares by the end of June and by September; their holdings had come down by another 7.65 million shares and did not appear in the register by March 2019.
     
     
    REDD points out that Reliance Capital and its two affiliates, Reliance Home Finance and Reliance Commercial Finance, have engaged in similar kind of funding through box companies. The report indicates that the amount of loan outstanding to these box companies totals around Rs137 billion. REDD also provides details of three box structures of the Reliance ADAG.
     
     
     
     
     
    The report further points out that, apart from using the box structure for pulling out funds for themselves by the promoters, some NBFCs may be using the same structure to ever-green the loans of each other.
     
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    COMMENTS

    Abc

    1 year ago

    Can Anyone Please Explain the DHFL box structure(Graphic)?

    Simply I understand that 3 companies collectively owned 9.97% of DHFL and had owned stakes in each other and then offloaded their investments to outsiders without DHFL having to report it as a stake sale.

    What do the curved legend entries signify in the graphic?
    (35.7% in Hemisphere,13.1% in galaxy and 28.7% in silicon)

    Why don't the inter company stakes of the 3 companies along with their stakes in DHFL not add up to 100% as per the graphic?

    Thanks in advance for any answers

    sachchidanand

    1 year ago

    Box System must STOP forthwith..SEBI & RBI must issue Guidelines to NBFC's to plug loopholes in the system..

    Veeresh

    1 year ago

    Box or khoka companies came into their own in the years of huge PPP entities and more. Airport privatisation was just one example. https://www.moneylife.in/article/khoka-companiesempty-corporates-make-no-noise/22300.html

    REPLY

    SURAJIT SOM

    In Reply to Veeresh 1 year ago

    Let somebody google " top tax rates" in different countries. In UK -before Thatcher-it was 83%. In US, it was 94 % in 1944 , India it used to be 97.75% !!!! The thing is bad law devours good law. Honestly , how many individuals will be willing to pay 97.75% of the income ? Why not 100% , by the way ? So tax avoidance is encouraged and then it becomes more and more entrenched. Now US President is suspected of dodging taxes for decades !!! Make-believe laws are framed by some govt servants and then passed be venal politicians. When these absurd and often contradictory laws are enforced , they generate grotesque outcomes( think of narcotic laws). The same politicians spend trillions of dollar for wars in the name of "democracy", "national self interests" -US for example-and kill millions of people all over the world. Chanakya once invited a foreign dignitary to his house. The foreigner was astonished to see the powerful minister was living almost in a hut . When asked why, Chanakya replied when " when rulers live palaces, people become poor". Look at Donald Trump , Africa, yes India, etc. I am no way condoning the loot by people like mama-bhanja but let us not miss the other side of the coin.

    Vijay Parekh

    1 year ago

    Well. This is a systemic failure. These are possible only and only when regularity authorities becomes hand and gloves. Audits etc is just a eyewash. Everyone is interested in giving funny suggestions and get fat fees. Why no action so far far big defaults by adag group. Nothing would change.
    A good eye opener article.

    Ajeya S

    1 year ago

    Good article, keep up the good work . . .

    Mohan Krishnan

    1 year ago

    If you have investible surplus then invest in Govt Schemes, Sovereign Bonds or Bond Funds and Nifty or Sensex funds. This way you can cut out incompetent fund managers. But return of Capital with decent return will be assured.
    However if you get caught by a broker you will be taken to the cleaners in the guise of higher return. You become your own enemy.

    SURAJIT SOM

    1 year ago

    The naked truth that comes out is that with bad or corrupt promoters , investors have little chance. Regulations, regulators,auditors etc are of no use. Mostly, they are hand-in-glove. It is frightening that in IL&FS, DHFL ,..top MF, DII, FII HNIs, ...were involved and not only "rookie retail investors". In this, India is no exception, though the degree may vary in other countries. The losers are millions of sincere investors. Also corporate India . All of them are not bad. We have people like Premji of Wipro. On one hand savers are trying desperately to find return -at least-that can beat inflation . On the other hand ,good promoters are unable to get money from the market by bad sentiment created by companies like IL&FS, DHFL , ADAG group etc. Just think of the euphoria when ADAG floated Reliance Power IPO in Jan,2008. What did the investors get ?

    REPLY

    SUDHAKAR OJHA

    In Reply to SURAJIT SOM 1 year ago

    In adequate control on corporate governance by regulators.

    SUDHAKAR OJHA

    In Reply to SURAJIT SOM 1 year ago

    I have for a long time being saying that mutual funds are a systemic risk. Proved correct now.

    SURAJIT SOM

    In Reply to SUDHAKAR OJHA 1 year ago

    Can you suggest where a saver can put his money ? FD ? Or stop saving altogether ? Thar's what has happened in rich countries.

    SUDHAKAR OJHA

    In Reply to SURAJIT SOM 1 year ago

    Equity funds are safer than debt funds. Equity is safety than equity funds but we need to know how to select and give long time. So nothing is totally Safe.

    SUDHAKAR OJHA

    In Reply to SUDHAKAR OJHA 1 year ago

    Sorry for typos.
    I was saved by adhering strictly to MoneyLife Advisories.

    SUDHAKAR OJHA

    In Reply to SURAJIT SOM 1 year ago

    O was saved strictly sticking to Advisory from Monochrome foundation

    SUDHAKAR OJHA

    1 year ago

    With aforesight and intent ! No thought on creditworthiness of the new box cos that have no business !

    Apurva

    1 year ago

    Good explanation. But could not understand the holes in our accounting policies / laws / auditors role. In any case X owns all three box companies even though indirect one which can be easily understood by looking at share holding pattern of these companies so what does auditors varify during internal / statutaory audits? And why does our company law / corporate laws allow such manipulation?

    I believe money life should take some initiative to find out the cause for such manipulation and role of involved agencies. You people are voice of minority investors, so please do something for robust financial reporting and audit standard.

    Regards

    Savitha KL

    1 year ago

    Why SEBI does not unearth this, why market regulators sleep

    PM

    1 year ago

    Excellent Article! Could you clarify whether DHFL lent any money to any promoter entities? That was part of Cobrapost's allegations but was denied vehemently by the company and the independent audit report.

    Subhash Chand Garg

    1 year ago

    This is the actual modus operandi of all private sector companies hailed by media for solutions of all the problems of India

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