DNA, August 21, 2015
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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