The Siva Industries and Holdings case has gained the limelight in wake of some serious allegations that have been raised against the company after public sector banks agreed to settle with the company’s promoters a loan of Rs 4,863 crore for just Rs 323 crores with a recovery of 6.5%.
The proposed amount is said to be even lower than the liquidation value of Siva Industries and Holdings. This will result in a loss of approximately Rs. 4,700 crore public money.
The proposal did not go down well with the State Bank of India and the CoC member. Additionally, the case becomes even more important when the lenders are withdrawing the bankruptcy process of Siva Industries and Holdings.
As per Zee Business, Canara Bank privately sold its exposure of Rs. 1,148 crore to International Asset Reconstruction Company Private Limited (IARC).
बैंक, NPA और सेटलमेंट का खेल…₹5000 करोड़ के लोन का ₹323 करोड़ में सेटलमेंट? किसको फायदा पहुंचाने की कोशिश कर रहे हैं बैंक?#NPAKaKhel @FinMinIndia @nsitharamanoffc @PMOIndia @BrajeshKMZee pic.twitter.com/m68zDATIAG
— Zee Business (@ZeeBusiness) June 16, 2021
The case is feared to set a bad precedent and defeat the purpose of the Insolvency and Bankruptcy Code, 2016.
It is also important to note that IDBI Bank as the lead banker is settling the case with the same promoter who was earlier charged by CBI for defrauding the same lender to the tune of Rs 600 crore along with then posted senior officials of the bank.
The application for withdrawing insolvency proceedings is currently pending before the Chennai Branch of NCLT and listed on June 18 for further hearing. The application was heard partly on Friday, 11 June by NCLT. The bench asked the applicants to file clear copies of the voting pattern/result and adjourned the matter for further hearing.
What is the whole matter?
Lenders of Siva Industries and Holdings Limited, founded by C. Sivasankaran who is the former promoter of Aircel, have filed applications under Section 12A of Insolvency and Bankruptcy Code 2016 (IBC) in National Company Law Tribunal (NCLT), Chennai Bench for withdrawing the insolvency proceedings against company. Siva Industries and Holding owes Lenders approximately Rs 4863 crore.
A majority of lenders, mainly IDBI Bank as the lead lender, Central Bank of India, LIC, PNB, etc. have agreed to settle the said debt of Rs. 4863 crore for Rs. 323 crore by accepting the one-time settlement (OTS) offer from Promoters’ of Siva Industries.
The lead banker of CoC IDBI Bank claims that the OTS route is adopted because there was no successful resolution applicant. However, reports claim that the bidder Royal Partners Investment Fund alleged the bid was deliberately ignored.
Take a look at the chronology of events
– Siva Industries was admitted to Corporate Insolvency Resolution Process (CIRP) vide NCLT, Chennai order dated July 5, 2019.
– The CoC/Lenders didn’t approve the resolution plan which was received from “Royal Partners Investment Fund Ltd.” As a result, the CIRP of Siva Industries hasn’t been successful.
– The Resolution Professional has filed the liquidation petition before the Registry which was yet to be numbered as of October 5, 2020.
– Vallal RCK, a shareholder of Siva Industries filed an application before NCLT, Chennai, on August 31, 2020, under Sec. 60(5) of the IBC seeking necessary directions for consideration by the CoC on OTS. – NCLT, Chennai vide its order dated October 5, 2020, directed the Resolution Professional to convene a meeting of CoC to consider the OTS.
– CoC in its meeting held in April 2021 approved the OTS and the Resolution Professional was authorized by IDBI Bank to file an application under Sec. 12A of IBC for withdrawal application filed under Sec 7 of IBC by IDBI Bank.
– The Resolution Professional filed the application under Section 12A of IBC before NCLT, Chennai on April 8, 2021.
Payment schedule: To receive the Rs 323 crore settlement amount, banks may have to wait for up to six months. The upfront amount that has been agreed is just Rs 5 crore. This schedule explains how the lendes are going an extra mile for this settlement.
The lenders will get the entire settlement within a committed time frame, which is 180 working days from the dale of receipt of approval from NCLT.
It may also be noted that under the settlement, the amount will be paid from the funds/debt raised by the Promoter either on its own or out of the proceeds from either sale of assets, raising debt or external capital raise using the assets offered as security to lenders.
Pending legal proceedings: The lenders have agreed to withdraw all pending legal proceedings against Sivasankaran’s Companies.
Binding effect: On the date of NCLT approval, the existing board of directors of Siva Industries shall be restated and full control over Siva Industries shall vest with Promoters. Moreover, the deal mentions that upon receipt of the entire settlement amount, all accounts of Siva Industries shall stand regularised and their assets classification shall be made as “standard” for all purposes.
OTS is binding on the Promoters, Siva Industries, majority shareholders of Siva Industries and such members of CoC, who have approved the withdrawal application on the basis of OTS.
New loan: The Promoters of Siva Industries can avail new loan in Siva Industries.
The settlement will prompt banks to continue pushing for more such acts outside the IBC court, thus undermining the law. This in tun will encourage more willful defaulters to pressurize banks to retain their ownership by repaying a small portion of the loan taken.
Current status of Application for withdrawing insolvency application:
Zee Business tried to contact the banks on the whole matter. Here is the status of response from them.
The top lender IDBI Bank neither replied to an email nor the senior management of the bank responded to calls and messages. However, in a social media post last month, the bank claimed that the settlement value is higher than the liquidation value but it was not clarified on what amount the CoC approved the plan.
SBI, which is part of the CoC, has opposed the settlement plan and moved the NCLT against it. In a detailed response to Zee Business clarified, it clarified that “SBI is not a lender to Siva Industries, hence these queries may be addressed to the Lead Lender or COC for the company. Incidentally, SBI was a lender to one of the group companies that was guaranteed by Siva Industries. As part of CIRP process of Siva Industries, SBI’s claim on invocation of this corporate guarantee was included in the claims admitted, which amounts to 5.77% of the total claims. SBI has voted against the proposed compromise offer and has already filed its motion before NCLT to protect its interests.”
Central Bank of India, Union Bank of India, PNB IARCL and Siva Industries & Holdings have not responded to the mails till the time of publishing this story.