IBC Updates_ IP Rajnish

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Update from NCLT/IBC Cases
by INSOLVENCY PROFESSIONAL RAJNISH BANSAL

👉 The National Company Law Tribunal (NCLT), Bengaluru, has ordered the winding up of Super Royal Holidays India Pvt. Ltd., Bengaluru, by declaring that the incorporation and conduct of business of the company was for “fraudulent objects” of ponzi scheme in the guise of offering holiday tour packages by collecting membership fees.

The Ministry of Corporate Affairs (MCA) sought the winding up of the company following the outcome of an investigation carried out after noticing that the company had deposited and withdrawn around ₹10 crore during the period of demonetisation in 2016.

“On perusing the financial statements of the company, it is clear that the money they collected by way of membership fees etc. was largely being pocketed by agents and director-cum-shareholders by way of commission, awards, dividends for directors, etc., leaving paltry remains for the so-called service [tour packages] for their members. Therefore, it is established that the company is running a ponzi scheme, as rightly contended by the MCA,” the tribunal held.

The tribunal also said that the company was “established exclusively for the benefit of the three promoters-cum-directors-cum-shareholders and their agents” and hardly any service was provided to most its customers.

The company enrolled members by collecting ₹11,000 for single membership, ₹22,000 for triple membership, and ₹33,000 for family membership. This life membership fee carried an offer of free tour packages for two nights/three days, to be availed within the next three years by paying a package cost ranging ₹375 to ₹4,800, depending upon location. The company claimed that it had around two lakh members, but could not produce the complete membership details before the authorities.

On examination of the company’s business model, the MCA found that the company was running “nothing but a ponzi scheme by collecting deposits under the guise of membership fee/enrolment fee from the general public”.

👉 The last quarter (January-March) of financial year 2019-20 was quite fruitful for banks in terms of stressed asset resolution and recovery under the Insolvency and Bankruptcy Code (IBC), realising 64% of their dues. This was primarily led by ₹23,223 crore coming from the resolution of Jaypee Infratech Ltd.

While Jaypee's insolvency proceedings began in August 2017, the resolution plan was approved just two months ago, state-owned NBCC emerging as the successful buyer of the troubled company. The resolution plan approved in Jaypee Infratech has been challenged before the National Company Law Appellate Tribunal (NCLAT).

The realisation ratio (realisation as a percentage of dues) in the March quarter is higher than the total realisation ratio since the beginning of IBC at 46% and also higher than that of the December quarter of FY20, showed data from the Insolvency and Bankruptcy Board of India (IBBI). It was at 12.16% in the December quarter. These realisation numbers are based on resolution plans approved by bankruptcy tribunals and do not necessarily mean that banks have recovered the dues.

The average time taken for competition of the resolution process is 375 days, showed IBBI data. But last-minute litigations have plagued the system. Take the instance of Essar Steel. While IBC prescribes for asset resolution to happen within 330 days, Essar Steel’s resolution and sale to Arcelor Mittal took 866 days.

This resolution plan of Jaypee Infratech has almost single-handedly increased the aggregate realisation for financial creditors or lenders. Then there were assets resolutions that have led to frugal recovery for banks. For instance, in the case of Zion Steel Ltd, banks will recover ₹15 crore of the outstanding debt of ₹5,367 crore.

Since finance minister Nirmala Sitharaman announced that there will be no fresh cases in the IBC for the next one year, bankers have been worried about drop in resolutions. Mint reported on 18 May that lenders are concerned over deteriorating asset quality post covid-19 and also hamstrung with regard to resolution in the absence of IBC.

👉 You may send me any queries related to: [email protected].

IP CA. RAJNISH BANSAL
B.Com, FCA, DISA, CISA, I.P.
INSOLVENCY PROFESSIONAL
FORENSIC AUDITOR &
SYSTEM AUDITOR
M. 9999925301, 9899400108
E: [email protected]
Add: B-4/281-282,
Sector-7, Rohini
New Delhi- 110085
Date – 21/05/2020