Mr Ambani resigned as a director, but his resignation was rejected by its committee of creditors
Despite decades of a corporate legal structure in India and very well developed banking, finance and capital markets, corporate India continues to be largely owner-driven and owner centred, such that the owner is always bigger than the company that he promoted, even if it be listed. The promoters of Indian companies are ‘sethji’ first and managers later. Thus, the fortunes of their companies are deeply interlinked with them. They remain the defacto owners and managers of their entities, with a dominant or rather domineering role in all the crucial business and financial decisions of their companies.
There are just a handful of promoters, who have managed to set up companies that are managed and driven by non-owner professionals, whose decisions override those of the owners. Thus while most of the small and medium Indian corporates are completely owner-driven, that applies to most of our large listed corporates too.
The Mahindra Group is synonymous with Anand Mahindra, Raymond with Gautam Singhania, Essar with the Ruias and the biggest of them all Reliance Industries with Mukeshbhai. Even in the case of Infosys, the shadow of its promoters like Narayanmurthy looms large even though no longer on the saddle. It is well known that the Reliance Group of Anil Ambani has been completely dominated and controlled by him. Whether in prosperity or in adversity the company’s reins are in promoters hands and thus by default the entity can do little without him, even in case of its liquidation/winding up.
That’s just what happened recently in the case of RCom, which is under bankruptcy proceedings, wherein Mr Ambani resigned as a director, but his resignation was rejected by its committee of creditors (CoC). To mention briefly, RCom used to be India’s second-largest telecom company, with a turnover of over Rs.40000 crores. It is a bankrupt entity today, with a reported turnover of fewer than Rs.400 crores in the last quarter, quarterly losses of over Rs.30000 crores and which owes over Rs.50000 crores to various lenders.
RCom is undergoing bankruptcy proceedings under the NCLT and its board of directors headed by Anil Ambani has been superseded by an insolvency resolution professional (RP) since May last year, as he reviews options to either revive the company or liquidate it. Its lenders and vendors face a bleak situation and if they are lucky they might recover a mere fraction of their dues. With RCom liquidation imminent Mr Anil Ambani and four of his colleagues recently resigned as directors of RCom, subject to their acceptance by the CoC, which refused to do so. They asked him to continue to perform their duties and responsibilities as a director until the insolvency process is resolved.
The CoC’s refusal to accept the resignations of Mr Ambani is understandable. They cannot let him desert the sinking ship at this crucial juncture. He is its promoter who presided over its business and financial policies that have led to its downfall, lenders and vendors gave it loans and credit on his then reputation of being a billionaire tycoon with proximity to the power centre, the investors too invested in the company due to his then image and involvement and since he dominated its affairs, he had played a crucial role in its downfall too.
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The company’s history and future are intertwined with him and at a time when the company’s liquidation looks imminent, he will be needed by the CoC and the RP for various reasons, hence their refusal to accept his resignation.
- To examine the veracity of the liability claims received.
- To explain related party and extraordinary transactions.
- To assist in the investigation of its finances and affairs, and particularly explain charges of siphoning off funds if any.
- To explain the end-use of its huge borrowings.
- To explain his repayment promises to lenders/vendors.
- To assist in negotiations for sale of its assets and get the best prices.
- To explain all issues where the auditors have expressed reservations.
To us, it looks like that Mr Ambani will remain with his flagship entity till its insolvency is not resolved, and that is needed.
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