Seven years after promising a clean, corruption-free government, some Indians are again drawing low hopes from two court orders this week. Are these orders a harbinger of change? Will fear of legal action prevent wrongdoing? Or will these ordinances lose their meaning as they weave their way through repeated appeals and court challenges?
The National Company Law Tribunal’s (NCLT) final order of August 30 to freeze the assets of Videocon’s Dhoot family has dealt a blow to large failing companies complicit in corrupt bankers and dubious resolution professions. He asked Venugopal Dhoot for an affidavit listing the family’s movable and immovable property in India and abroad, ordered custodians to freeze their shares, and called on all banks and tax authorities to disclose and freeze accounts family banking, lockers, etc., including joint operations. If implemented correctly, it could potentially unlock stolen wealth and hidden assets from the business.
But it will probably be necessary to wait before the Videocon command is implemented in the mind. Remember, only on June 8, the same NCLT (Mumbai) approved a resolution by the banks to accept the Vedanta group’s offer (via Twin Star Technologies) on 13 Videocon companies at a 95.85% discount. Operational creditors were to get next to nothing in the Rs 2,962 crore offer against an admitted outstanding debt of Rs 64,838 crore from this group of petroleum and consumer products. Fortunately, a dissent and appeal from small banks led to a suspension of the National Company Law Appeals Tribunal (NCALT).
The NCLAT order came shortly after nationwide fury over collusive deals between banks and bidders to accept haircuts of 90% or more in several bankruptcy resolutions. In addition, like the Wadhawans of Dewan Housing Finance Ltd, Ruias of Essar Steel and Sandesaras of the Sterling Biotch group, the Dhoot family approached NCLAT with an offer to pay around 50% of their dues (settlement of 31,789 crore rupees ) to withdraw their businesses from bankruptcy proceedings.
When large failing companies dare to make last-minute offers to pay, it only exposes bank recovery efforts and pokes fun at bankruptcy law. Where will the Dhoots get the Rs32,000 crore from? As with the Ruias, Sandesaras and Wadhawans, this question of establishing a willful default is neither asked nor answered.
NCLT’s command last week has the potential to change drastically, if implemented in mind. An industrialist responded by saying, “It is high time we saw such action in companies where the outstanding amount is over Rs 1,000 crore and the banks are willing to accept a 50% haircut. That alone will instill real fear among the defaulters. Currently, promoters come to an agreement with the resolution professional and withdraw their money from the business even for the two or three years it takes for the bankruptcy process to be completed. Will it happen? After all, complicit and corrupt bankers are unscathed because every political regime is actively involved in these decisions.
On the same day as the Videocon order, the Supreme Court of India (SC) ordered the demolition of Supertech’s 40-story twin towers. Criticizing the rampant unauthorized construction in collusion with planning authorities, a bench of judges DY Chandrachud and MR Shah said it should be treated severely. Supertech Limited will have to demolish the towers at its own expense within three months, reimburse buyers for their reservation amount with 12% interest, and pay Rs2 crore to the residents’ welfare association for harassment.
It should be noted that the SC essentially upheld a seven-year-old order of the Allahabad High Court (ordering the demolition) which was suspended by the Supreme Court in April 2014. In addition, the authority NOIDA was responsible for supervising the demolition; so maybe the same corrupt officials who colluded with Supertech may be involved. Since the illegal revision of plans authorized by the planning authority NOIDA was revealed in 2009, it has to be questioned whether the SC ordinance compensates for a decade of uncertainty and trauma for residents or covers the increase in costs. real estate during this period.
And what happens next? Will Supertech hire legal experts who find ways to delay implementation through appeals to reconsider the seriousness of the order? Powerful companies, with expensive lawyers, do this all the time! It also remains to be seen whether Supertech has the resources to make the court-ordered payments or would prefer to file for bankruptcy. Tens of thousands of homeowners have been left behind by a wave of bankruptcies among real estate companies. In most cases, no solution is in sight; some pay equal monthly installments (EMI) on lightless loans at the end of the tunnel. The SC has made them financial creditors, which does not make sense when collection is only a fraction of what these companies owe and most of it will go to secured creditors.
The judgment has again raised hope among people and is called a “historic decision” and a “wake-up call” for corrupt builders and officials. Past experience suggests that this is completely illusory. In 1984, a chic 36-story residential building, Pratibha Apartments, in Mumbai hit the headlines when nine of its floors were ordered to be demolished, illegally built by tampering with the area. The demolition of these floors took place a decade later, after multiple legal challenges, and the entire building was finally destroyed in 2019.
This left no dent in the rampant corruption, collusion and brazen illegality in Mumbai, the country’s most expensive real estate market. The Tony Adarsh Housing Society scam (built on land illegally taken from the Indian Navy to build houses for war widows), largely owned by bureaucrats, politicians and defense personnel) , which was revealed in 2010, is an example. Huge public funds have been spent on multiple investigations by different authorities, arrests, judicial commissions, etc. And yet, after a stay of the Supreme Court in 2018, the Adarsh company, whose demolition was ordered, is still in place.
The Composed of Campa Cola the illegality was occurring even as the demolition of Pratibha was making headlines. Between 1984 and 1989, builders built 35 illegal floors in collusion with city officials which became controversial 20 years later. Residents bought illegally constructed buildings, probably expecting the builder to be able to “regularize” them, as was the norm. The SC ordered the illegal buildings demolished, but public sympathy was clearly with the residents who were duped by the corrupt builder-official link and ordered to leave their homes after living there for more than two decades. The court eventually authorized a compromise, but various cases continued to be heard until 2018, when the media lost interest.
Politicians and bureaucrats were quick to take advantage of the Campa Cola Compound episode to formally “regularize” illegal construction and disregard for land use rules, etc., by paying a fee. Even in the Supertech case, the Supreme Court did not punish NOIDA officials who colluded with the builder. Scam after scam, whether in the stock market, real estate or bad bank loans, the singular reason corruption remains unchecked is that officials, failed supervisors, corrupt police officers, private organizations fiduciary responsibility (rating agencies and auditors) and politicians, who endorse questionable policies, are rarely held accountable or punished.
Public records would show that all punitive actions against litigants who can afford expensive legal representation drag through the court system and are ultimately watered down or rendered unnecessary. A recent report said that “212 corruption cases examined by the CBI have been awaiting trial for more than 20 years as of December 2020”. Is there a significant chance of action after this time? Would that even be fair?
In July 2019, I wrote that the cleaning companies in India may have started in earnest during the second term of the NDA government. Two years later, there is very little progress in any of the cases I have mentioned. Instead, actions against auditors and rating agencies have been diluted. There are more broker failures and losses for investors and none of the business fugitives who fled India have returned or appear likely to do so anytime soon.
As long as anonymous and anonymous official facilitators are not punished quickly and litigation dragged on for decades with multiple dilutions, new laws or drastic amendments will remain political gadgets to harass those who follow the rules. It will not make a dent in the monumental corruption that is dragging India down.