Defaulters rush to BIFR before new
rules get implemented
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Large defaulters like Rei Agro, RP Infosystems and Hindustan
Motors have all got themselves under the protective umbrella
of BIFR thereby scuttling efforts of creditors from getting
remedial measures from the court
Defaulting
companies are making a beeline for getting registered with
the Board for Industrial and Financial Restructuring (BIFR)
to get protection from being hauled up by aggrieved
creditors before new norm for dealing with corporate
sickness takes over.
In recent days, large defaulters like Rei Agro, RP
Infosystems and Hindustan Motors have all got themselves
under the protective umbrella of BIFR thereby scuttling
efforts of creditors from getting remedial measures from the
court.
Take the case of Rei Agro, once country's largest basmati
exporter but now termed as a fraud company. Calcutta High
Court on Tuesday, while responding to Mashreq Bank of UAE's
appeal against Rei Agro getting registered with BIFR under
the Sick Industrial Companies (Special Provisions) Act,
1985, court observed: "Since the petitioning-creditor is not
in a position to dispute that the reference is pending, the
creditor's winding-up petition cannot be carried forward in
view of Section 22(1) of the said Act of 1985."
Earlier on August 6, the court while hearing a winding up
petition of Jet Roadlines against Hindustan Motors, said:
"The reference (to BIFR) was made by the company on February
21, 2014. This petition was filed by the creditor on
February 3, 2014. Thus, the petition has to remain in
abeyance till the reference is disposed of."
Similar observation has been made by the same court this
month on a petition filed bySyndicate Bank against computer
maker RP Infosystem. CBI in June registered a case against
its promoter Shibaji Panja for allegedly cheating IDBI Bank
of Rs 180 crore.
Oriental Bank has an exposure of Rs 2,468 crore into this
company. Under SICA section 22, a company gets protection
from all creditors while a revival process is on.
"SICA provides for an automatic stay and suspension of all
kind of recovery and distressed proceedings (including debt
recovery), once the reference filed by the company is
registered in the BIFR. This could act as a huge impediment
in debt recovery as the aforesaid provision could lead the
BIFR to become a safe haven for defaulting companies.
The companies could easily file reference with the BIFR,
sometimes by manipulating their accounts to reflect net
worth erosion, resulting in attracting this immunity against
the recovery action by the creditors." a recent research
report, Regulatory Impact Assessment in the Indian Financial
Sector done by Consumer Unity and Trust Society points out.
Not just protection from creditors, remaining with BIFR also
help companies to ward off even Income Tax benefits,
corporate watchers said. Public sector Andrew Yule in fact
had tried till recently to stay within the BIFR despite
staging a turnaround some time back.
The purpose, according to its officials, was to ward off an
Income Tax demand of Rs 13 crore on account of capital gain
tax arising out of disinvestment of Andrew Yule's stake in
group companies like industrial conveyor belt maker Phoenix
Yule and power producer DPSC Ltd.
Andrew Yule's luck ran with on July 8 when BIFR placed the
company out of its ambit setting the stage for IT department
to recover its claim.
The new Company Act has proposed the formation of a National
Company Law Tribunal India (NCLT), which will replace the
Company Law Board and the BIFR. The government has just
begun the process to constitute the NCLT.
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January 11, 2011, Magnolia, India Habitat Centre,
New Delhi, India
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February 15-17, 2011,
Hotel Jaipur Palace, Jaipur, India
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