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VIEW: IBC-led rehabilitation must be followed up with disgorgement where applicable

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In the IBC scheme of things, the focus is so much on rehabilitation that recovery of the loot is invariably given short shrift.

VIEW: IBC-led rehabilitation must be followed up with disgorgement where applicable
Operation successful but patient dead is old hat. It can be however tweaked to give a whole new meaning to what our rescue process under the Insolvency and Bankruptcy Code (IBC) results in—company rescued but lenders sunk. It is in this light that the government consider the plaintive plea of the Union Bank of India which has written to the Central Bureau of Investigation (CBI) to probe the erstwhile promoters and management of Dewan Housing Finance Corporation Ltd (DHFL) for allegedly causing a loss of Rs 40,623.36 crores (as on July 30, 2020) crores to the consortium of banks led by Union Bank of India. A few months ago, the Piramal group acquired the sinking DHFL, one of the large home loan companies in India, for Rs 34,250 crore thus inflicting a huge haircut on lenders who had an exposure of a whopping Rs 91,000 crore to the dubious group at the last count.
The bank is however knocking at the wrong door because CBI after all cannot act on its own unless the concerned state government gives its general consent for its stepping in when a crime happens within a state. Maharashtra like so many other opposition ruled states that do not see eye to eye with the ruling BJP at the center but rather are daggers drawn with it had upped the ante and withdrawn its general consent thus halting the central government and the CBI on their tracks despite DHFL promoters’ alleged financial crimes having multi-state ramifications. CBI like the USA’s FBI was formed to investigate crimes transcending state borders.
In its complaint, the lead bank has affixed the findings of the audit firm, KPMG engaged by the consortium which has prima facie found, “deviation of laid down norms and procedures, manipulation of accounts, concealments, undisclosed bank accounts and misrepresentation”. The audit firm’s findings reiterate and reinforce the common perception, by no means cynical, that while companies in India routinely fall sick but their promoters become stinkingly opulent at their expense thus spawning yet another banking joke and conundrum: sick-companies-rich-promoters syndrome. Two of the KPMG findings reveal how crooked promoters in India never tire of the same ideas from their wide repertoire to divert funds:
1. DHFL disbursed loans and advances totaling Rs19,754 crores to 35 entities with commonalities to DHFL promoter. “...of these 25 entities had reported minimal operations and were disbursed loans and issued ICDs amounting to Rs14.632
2. Advances to the tune of Rs 25,595 crores were disbursed to 65 entities having various deficiencies such as borrowers had minimal operations, inadequate loan documentation, mortgage security valuation and others.
There is nothing earthshaking in these findings given the fact that these practices are de rigueur in India with audit trail often leading to foreign shores to the dismay of investigative agencies who are often stymied within their country what to talk of foreign shores where their writ doesn’t run. The former DHFL promoters
seem to have stuck to two simple expedients which are helplessly condoned in our country as being par for the course. The other fecund tricks in the armor of crooks are fictitious agency commission and consultancy fees to family members and close friends in the charmed circle. In Tamil, there is an apt saying—thehn ha arukaravan purankaiya nakkamattana—which loosely and roughly translated means the one who prises open the honey hive would of course lick the honey cruising profusely through his arm. True but what some Indian promoters do is to drink up a substantial part of the harvest of honey instead of contentedly licking the waste and residue.
When a natural disaster strikes, the emphasis is on rescue first and then rehabilitation. In the IBC scheme of things, the focus is so much on rehabilitation that recovery of the loot is invariably given short shrift. That is the burden of the United Bank of India’s song. Disgorgement order is what the doctor has ordered for financial or white-collar crimes. But it must be preceded by foolproof forensic investigations and cooption of foreign governments where the loot has been stashed.
The OECD which has woken up to the tax gimmicks of MNCs should also wake up to the immense damage caused by tax havens with banking secrecy thrown in. The fugitive economic offences law the Modi government had minted in 2018 applies to foreign assets of fugitives. It must be amended to enable the Indian government to reach out to foreign properties of Indian crooks staying put in India albeit cooling their heels behind the bars.
— S. Murlidharan is a CA by qualification and writes on economic issues, fiscal and commercial laws. The views expressed in the article are his own.
Read his other columns here
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