Defaulters and Second Innings

The recent cases of promoters seeking second innings in their companies, after massive
defaults on bank loans etc. are those of DHFL, Videocon and Jet Airways too.

Defaulters and violators, often seek a second chance to own and manage the companies
that they looted and mismanaged. NPAs abound in India, and so do defaulters.
Defaulters/violators can be broadly categorized as willful and non-wilful. The non-wilful
defaulters are generally those who have been victims of unforeseen circumstances. They
failed/lost, due to circumstances beyond their control, such as sudden changes in-laws,
being cheated by customers, natural calamities, victims of political vendetta, defaults by
banks in disbursing promised loans etc. These are entrepreneurs who took the risk of
being in business, invested their life savings and lost out with circumstances not favouring them.

Their companies became poor and so did they. Their failures were bonafide and
they should not be criminally prosecuted or punished for their failures and if their units
are found to be viable in the changed situation, then they deserve a second chance and
support to own and manage their companies.

The willful defaulters/violators are on the opposite side of the table. They defrauded their
company, lenders, depositors, vendors, suppliers and the government deliberately and in
a cold-blooded manner. Apart from cheating banks, they would have cheated on tax, PF,
ESIC and other payments too. Unlike the non-willful defaulters, these are not victims, but
the predators who systematically victimised others and enriched themselves. They
become billionaires, at the cost of all others who dealt with them, who lost money to
them. Their failures were utterly wilful and malafide and they must thus be
punished/prosecuted. And the bigger the size of the loot, the more accomplices they had,
in the form of independent directors, auditors etc. and therefore they too must be
prosecuted/punished.

In the matter of wilful defaulters of banks, if we look at the situation in the past, then one
realises that these criminal wilful defaulters used to get away with the loot and their
misdeeds and had a great time. The laws were such that recovery from them was
extremely difficult and uncertain. The bigger the loot/default, the easier it was for them to
get away with their crimes, because they had all the money to battle and game the system.

Under the then laws, you could cheat banks, then settle the loans at a huge discount and
continue to own/manage your company and perhaps later repeat the scam. That was
possible even when the DRT laws came into being. You could engage an ARC, settle
with banks at a huge haircut and then through a stealthy backdoor entry regain the ownership and control of your own company. That amounted to condoning the criminal
and also perpetrating the crime.

The IBC, as one of its objectives, was meant to prevent such a situation, where a robber
billionaire robs the banks, settles the loan for a fraction and continues to own/manage the
company. The classic case here was of the powerful Ruias, who were unable to retain the
ownership of their flagship entity Essar Steel, even when they were finally willing to
repay every rupee to the banks after they lost all their court cases.

They initially offered to settle the bank loans of Essar Steel at a massive discount, but when formidable competitors like Arcelor Mittal jumped into the game, they agreed to repay every rupee of the bank loans and more if needed, in order to retain control of Essar Steel. They approached every possible court including the Supreme Court but failed. In other words, they failed to secure a second innings in their own company after having defaulted on their bank loans.

The recent cases of promoters seeking second innings in their companies, after massive
defaults on bank loans etc. are those of DHFL, Videocon and Jet Airways too. Kapil
Wadhwan of DHFL has offered to repay the bank loans of DHFL, through his personal
assets claimed to be worth Rs.44000 cr. and regain his company. It is worth noting that
DHFL owes over Rs. 90000 cr. to banks and another few thousands of crores to depositors etc. and there are direct allegations against its promoters of having siphoned
away about Rs. 30000 crores from the company, having defrauded banks and indulged in
massive money laundering, including transactions with the underworld. All the agencies
including SFIO, SEBI, ITD, ED and CBI are investigating the grave charges against the
DHFL promoters and now they seek to regain their company, the cash cow where they
milked and looted public money on a large and shocking scale.

The other case is that of Videocon, whose promoter wishes to get back the company
management and ownership and offers to repay loans to banks by 2035. There are charges of cheating, corruption and criminal conspiracy against the promoter of Videocon, but that does not prevent him from making an offer to take back his company which has cheated banks on a humongous scale.

Something similar is being done by Naresh Goyal too, the deposed/dethroned promoter of Jet Airways, who has been seeking to take control of the airline, through various front entities, including one from India, Brazil, UAE, UK, Russia etc. Even the present offer made to take over the airline looks to be an attempt to make a backdoor entry into the company that looted the public, including thousands of crores due to banks.

The fact is that if such shady/dubious promoters are given a second innings in their own
company, then it is a total mockery of the law. It amounts to condoning serious, shocking,
large scale financial crimes and erodes the authority and trust in the law. They need to be
severely prosecuted for their crimes together with their accomplices and should be given
no second chance. Imagine pardoning the likes of Mallya, Nirav Modi, Chokshi, Ravi
Parthasarathy, Singhals, Sandesaras etc. in this manner and also the likes of Chanda
Kochhar, Rana Kapoor etc. by giving them a second chance to run their companies, of
course, to defraud again.