Thinkpad: The Looooong Road

Vehicles travel along a mountain road near the Nathula Pass. (Photographer: Prashanth Vishwanathan/Bloomberg)

Thinkpad: The Looooong Road

It’s not news to anyone that the Indian judicial system mostly takes the long, slow, winding road. Anyone who ever thought India’s young insolvency law will be any different got a rude reminder this week.

Two cases dominated the headlines.

The insolvency proceedings of Dewan Housing Finance Corp.—the first of its kind in India—had reached close to the finish line in reasonable time. DHFL was referred for insolvency in November 2019. Fourteen months later, by January 2021, the Piramal Group had won a well-contested bid to take over the housing financier.

It wasn’t to be. The Mumbai bench of the NCLT, this week, said that process wasn’t followed to a ‘t’ and asked lenders to go back and vote on an offer made by the promoter. Wadhwan, in case you’re wondering, is in jail. While not commenting on the “feasibility, viability” of the settlement proposal, the NCLT did say the offer must be duly considered.

There is a legal view on this, which you can listen to here. And then there is a common-sense view. Let us give you the latter.

The settlement proposal comes from a promoter who was not seen as fit and proper. The regulator had to supersede the board of DHFL—a power it doesn’t wield lightly. That promoter is now in jail facing numerous investigations with many of his assets frozen. Where will he pay somewhere close to Rs 90,000 crore from? Even if he can pay, what will he achieve by paying? Does he expect to come back and run the company, from which he was ousted? The Reserve Bank of India’s broad fit and proper rules won’t allow it. If not, then what does he gain by settling and who will run the lender after the settlement?

Apart from dragging out the process, it is unclear what the NCLT’s intervention will achieve.

Then there is the Jaypee Infratech Ltd. case.

Government-owned NBCC India Ltd. had been nudged into the resolution process to protect thousands of homebuyers. The creditors had voted in favour of NBCC taking over the company. The Supreme Court asked for a re-bid, taking the bidding into its fourth round. This time, NBCC’s bid has been rejected by creditors. They now plan to vote on Suraksha Asset Reconstruction Company’s plan.

The result is that four years after the RBI sent Jaypee Infratech into insolvency, the process is going round in circles.

That brings back memories. It was a Friday (June 16, 2017) when the RBI did the unthinkable and asked banks to report twelve large companies to insolvency. We worried about a central bank and banking regulator getting its hands dirty. But we knew it may have been the best of bad options. A few months later another 26 companies were earmarked for insolvency.

Did the RBI’s gamble work?

It got the lenders to stop dilly-dallying, yes. Some resolutions from the first list, notably Essar Steel, led to strong recoveries for banks. But even the first list of twelve isn’t fully resolved yet. Much of the second list remains stuck at some turn or the other. We can’t pin the blame on the RBI for this one, though. They tried.

Before we go, we must mention the crypto meltdown this week. The Bloomberg Galaxy crypto index fell by a quarter. In crypotverse, this was the equivalent of the skies falling. Wild swings were reported. In prices. And in the moods of crypto believers and skeptics.

For those, still wrapping their head around this thing called crypto, this piece by Paul Krugman in the New York Times is a must-read. “Because Bitcoin and its relatives haven’t managed to achieve any meaningful economic role, what happens to their value is basically irrelevant to those of us not playing the crypto game,” he writes.

Put differently, for crypto atheists (due credit to fellow journalist Nikhil Inamdar for coining that term), it was just a fun meme-fest.

Stay safe.

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