Thirupathi Reddy Bheemuni (TRB), instrumental in this story now surfacing, unfortunately, disappears after the first scene, not to reappear anytime later, a mishap that the readers may overlook!
TRB, a chartered accountant and a company secretary by qualification, was elected as an independent director (ID) of Bartronics India Ltd in May 2023 and resigned on 6 December 2023.
The reasons for his resignation, duly communicated by the company, can, by no means, be cast aside like many other resignations of IDs that have happened in the past. Ideally, this should be widely publicised for its transparency and humour, the two traits rarely observed in corporate functioning!
“Mr. Thirupathi Reddy Bheemuni has tendered his resignation as an Independent Director of the Company with Immediate effect due to the reasons mentioned in his resignation letter. It 1s clarified by the Company that there was a misunderstanding about time of Board Meeting held on 14 November 2023. The Company had sent notice of Board meeting to the Stock Exchanges on 8 November 2023 stating that the said meeting is scheduled on 14 November 2023 at 4.00pm and the same intimation was sent to the Directors, as required under SEBI (LODR) Regulations 2015. The meeting was conducted at scheduled time as intimated to the Stock Exchanges and outcome of the meeting was shared with Stock Exchanges within stipulated time. Mr. Thirupathi Reddy Bheemuni came at 11:00AM thinking the meeting was at 11:30AM and did not attend the meeting at the scheduled time. The Company has recorded his leave of absence. However, the incident made Mr. Thirupathi Reddy Bheemuni tender his resignation.”
It was but natural that the very unusual and quirky nature of the above communication created an urge to know more about this stellar organisation and dig a little deeper into its past!
The effort was anything but futile. In fact, it is quite enriching!
To help set the context for what follows, a portion of the notes figuring in the audited annual report of the FY22-23 of the company is extracted below-
“The Financial Statements have been prepared on a going concern basis. The financial statement captures the transactions contemplated in the approved resolution plan in accordance with applicable accounting standards and legal framework. Following are the certain significant transactions contemplated in the resolution plan which have been considered in preparation of this financial statement:
1. The resolution plan envisages extinguishment of the stake held by erstwhile Promoters and reduction of share capital by reducing the face value from Rs. 10/- to Re. 1/-. The necessary disclosures have been made in accordance with approved resolution plan. Further, the resolution plan envisaged allotment of 27,41,19,066 equity shares of face value Re. 1/- to Antanium India Pvt Ltd.
2. Difference in the admitted liability of operational and employees dues and the proposed settlement has been credited to the statement of profit and loss.
3. The admitted liability of the Financial Creditors have been proposed to be settled with Rs. 2,500 Lakhs as principal and Interest of Rs. 54.53 Lakhs for the delayed period which was paid as full and final settlement of the admitted claim of Rs. 1,04,194.79 Lakhs. The Resolution Applicant has effected remittance of payments to Financial Creditors in accordance with approved Resolution Plan. This payment passed through the statement of profit and loss. Pursuant to implementation of the Resolution Plan, the Company has written off/derecognised or provided for impairment of its assets, based on management’s estimate, to the extent not receivable/recoverable and written back/derecognised its liabilities, based on management’s estimate, to the extent not payable/extinguished/waived/ cancelled to the Statement of Profit and Loss amounting to Rs. 45,970.18 Lakhs.”
This company was admitted to the insolvency resolution process by the national company law tribunal (NCLT) in December 2019 based on an application filed by one of the lenders.
The total liabilities admitted in the proceedings were Rs1,042 crore of which the claims of the banks and Life Insurance Corporation of India Ltd (LIC) was about Rs800 crore. Except a small amount that pertained to a foreign bank, the rest was due to the public sector banks (PSBs) and asset reconstruction companies (ARCs) which took over the loans from two PSBs.
The other claimants were the unsecured and other operational creditors, including the government.
The resolution was successfully accomplished when a resolution applicant offered to settle the entire dues for Rs27.41 crore, as against the liquidation value of Rs24.59 crore!
This case will add to the statistics of successful Insolvency and Bankruptcy Code (IBC) resolutions, and the banks will record an income through the recovery of bad debts, with 3.02% of their claims settled! At an overall level, including the significant government dues, the recovery was 2.29%!
An item that was not reckoned in the math above is the claim of Rs605 crore of the foreign currency convertible bond (FCCB)-holders which was rejected on technical grounds. Considering this in the total will make the overall recovery even more abysmal.
Bartronics deserves its place in the sun. Quite perversely, the media has not considered a collective loss of more than Rs800 crore to a few PSBs and the LIC as meriting due publicity!
To take the discussion to the next level, it will be necessary to peel off some key numbers.
In FY11-12, by which time the company had fallen into arrears on the bank loans, the dues totalled Rs560 crore. While the group turnover was Rs1,164 crore, the book debts were Rs1,117 crore.
Five years later, in FY16-17 the bank dues were Rs840 crore, the book debts Rs1,142 crore and the turnover Rs88 crore!
While the ageing details of the book debts are unavailable, it is reasonable to assume it was many years (decade) old. Also, there was little evidence of any tangible assets beyond computers and software expenses capitalised.
Despite such tell-tale evidence of the company being saddled with liabilities that were many multiples of the assets in possession, the reference under IBC happened only by December 2019. The banks had filed suits under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act.
The Bartronics story from 2008 has all the typical ingredients of many failed corporates that conned the banks, cheated the investors, pulled the wool over the eyes of the regulators, most likely laundered money, found friendly accountants to certify, and the promoter escaped unscathed.
In 2008, this company’s stock was on the recommendation list of leading brokerages like HDFC Securities!
Around the same time, the company raised US$50mn (million) in FCCB, a huge amount by that day’s standards that even larger corporates could not pull off then!
Interestingly, the default on the FCCB happened in 2012, but there has been little evidence of any litigation by the investors over the years. Even during the IBC process, they seem to have bungled by which the claim for Rs605 crore was disqualified on technical grounds!
It is difficult not to suspect that the FCCB proceeds were slush money stacked overseas that surfaced in the hope of legitimising it somehow!
It is not clear if any of the regulatory agencies took notice of this at any stage. Anyway, this is academic now as no past proceedings survive, after the dip in the IBC washing machine!
Since exports were a key ingredient in those days for better market valuation, Bartronics had its subsidiaries in Hong Kong and the United Arab Emirates (UAE), ideal locations with little local scrutiny. A big part of the topline accrued by virtue of high sea sales, quite probably invoice trading or plain manipulation
Their resounding topline in those years appears to be mostly fictional and the countervailing figure was shown as book debts. Similar to the Satyam model!
Since Satyam Computer Services Ltd (Satyam) exploded in 2009, where homemade bank fixed deposit (FD) receipts showed up to be a childish idea of evidencing assets on the balance sheet, the Bartronics promoter stuck with the traditional strategy of leaving the surplus in the ballooning book debts!
This, perhaps, saved the auditor a jail sentence and only visited him with a 10-year ban!
Top PSBs like Bank of Baroda and Bank of India, with the mighty LIC in tow, lent money to a business whose basics are difficult to understand even in hindsight, much less could have been effectively appraised on an Excel sheet of projections! It is anybody’s guess if the lenders revisited this account after the initial sanction.
The only major regulatory action seen in the public domain appears to be an order from the national financial reporting authority (NFRA) in August 2023 to debar, for 10 years, chartered accountant (CA) T Raghavendra, the statutory auditor, who, between the years 2012 and 2017, signed the accounts with little regard to the facts and figures but relying entirely on the fiction presented by the management!
The current auditor NG Rao and Associates, holding charge for the past five years (FY18-19 to FY22-23), has consistently taken the line that the management’s assertion on the recoverability of the book debts formed the basis for the audit opinion!
The company showed a book debt of Rs330 crore even as of 31 March 2023, though the IBC process, which concluded in March 2022, assessed the value of the company to be around Rs25 crore!
Brahmayya & Co, CA has replaced, post the annual general meeting (AGM), the earlier auditor. The results for the second quarter (Q2) of FY23-24 indicate that all the book debts have been written off!
Interestingly, they signed the audit report in Singapore on 14 November 2023, while the board meeting took place in Hyderabad on the same day!
The credit for managing the show so successfully, till the IBC took over in 2019, belongs to the promoter AB Satyavas Reddy.
While there is no evidence readily available of the awards and trophies bestowed on him by international consultancy firms or by the leading business newspapers, his sole claim to fame appears to be a fine of Rs2 lakh levied by the Securities and Exchange Board of India (SEBI) for some violation in not intimating a share pledge!
However, it would be unfair to deny him a due niche in the Indian corporate pantheon that has illustrious names like the Wadhawans of Dewan Housing Finance Ltd (DHFL), Nirav Modi and Jatin Mehta, the diamantaires; the Sandesaras of Sterling Biotech Ltd; the airline honchos, Naresh Goyal and Vijay Mallya; the banking wizard, Rana Kapoor, and many others whose names were much feted in the past by various organisations showering awards on them!
Footnote: The resolution applicant infused Rs27 crore around July/ August 2023 to acquire a 90% ownership which is currently valued at Rs490 crore as per the recent BSE quote! The company continues its listed status, a rare one in an IBC proceeding.
(Ranganathan V is a CA and CS. He has over 43 years of experience in the corporate sector and in consultancy. For 17 years, he worked as Director and Partner in Ernst & Young LLP and three years as senior advisor post-retirement handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies.)
