How Rolta's creditors were stonewalled against insolvency proceedings
- Rommel Rodrigues
- May 27, 2021
MUMBAI: Information technology company Rolta India Ltd (RIL)
now faces insolvency proceedings along with two of its fully owned subsidiaries
Rolta Bi & Big Data Analytics P Ltd (RBBDA) and Rolta Defence Technology
Systems P Ltd (RDTS) in case of unpaid dues of a former employee which includes
wages, perks and statuary payments
like TDS, EPF, gratuity etc.
The National Company Law Tribunal’s (NCLT) Mumbai ordered the insolvency proceedings against RIL on 13 May, and appointed interim resolution professional (IRP) Vandana Garg to initiate the insolvency resolution process, who has now through a public notice on 25 May, has called on creditors of the three companies to submit their claims within 15 days (by June 9, 2021).
The first step the IRP would be doing is superseding the present management led by founder, chairman and managing director, Kamal K Singh and taking charge of the operations, post which she will have to set the ball rolling as the process of insolvency resolution which needs to be completed within 180 days.
The initial job of Garg as the IRP would be to form a committee of creditors (COC), post which the appointment of the administrator will be done, following which a team of professionals who can manage the business and affairs of the company will have to appointed, COC will then try to determine a fair value for the company, call for bids if anyone is interested in whatever is left and try to approve a resolution plan.
The good thing is the creditors of the company which include bond-holders with an outstanding due of Rs 3,762 crore and domestic PSU banks like Union Bank of India, Bank of India, Bank of Baroda, Central Bank of India and Syndicate Bank with dues of Rs 4,308.27 crore in debt (As on end March 2020), former employees who have not been paid wages, suppliers, contractors and others will get to present their claims and hope to receive their dues in whatever package is approved in the final insolvency resolution plan.
The flip side however is, this is not the first time RIL faces insolvency proceedings, in the past too, it has been dragged to the insolvency court, however, it has managed to stonewall all such attempts.
RIL which was already into geospatially powered software and geographic information system (GIS) for capturing and analysing data related to positions on the earth's surface entered the defence business in a big way post the Kargil war in 1999.
The defence administration of the country under the erstwhile Congress-led UPA government was considering investing big time into technology for the wings of the armed forces.
Considering it was a niche area RIL entered the GIS and geospatial services in a big way and created a separate business division for defence and went under a recruitment spree hiring retired colonels and brigadiers and other consultants.
The company had formed a consortium with Bharat Electronics Ltd (BEL) a Navratna PSU as a development agency for the ambitious defence project of the battlefield management system (BMS) which was to be worth more than Rs 50,000 crore and was assured that it was the top contender.
Envisaging huge returns from the defence business, RIL started investing heavily by borrowing, first from the bond market through its international subsidiaries then from banks and domestic institutions. However with the change of regime, the defence project was junked, taking with it the company's humongous growth targets that it had built up over the years.
With a slowing enterprise business and sunken investments in the defence project RIL tried to capitalise on some of its core software products and proprietary IP businesses by trying to sell them out. But it could not and began defaulting on interest payments on loans, principal and interests.
It had already defaulted in dollar term bonds interest payment in 2016 and defaulting in paying interest and principal, most of its borrowings from banks turned NPAs.
In the balance sheet as of end March 2020, the company had a borrowing of Rs 4308 crore, which included Rs 1,456 crores from Union Bank of India (UBI), Rs 1045 crores from Central Bank of India, Rs 809 crores from Bank of India, Rs 635 crores from Bank of Baroda and Rs 363 crores from Syndicate Bank.
It has an outstanding of over Rs 3,800 crore against Senior Notes (Bonds) which it had issued in 2013 and 2014 at 10.75 % interest. The interest keeps piling up.
In September of 2018, UBI the largest lender filed insolvency plea against RIL, however, it got out of bankruptcy as the case was dismissed by the NCLT in May 2019.
The company took a reprieve from the Supreme Court, which had declared a February 12, 2018, dated circular of the Reserve Bank of India (under which UBI had approached the tribunal) as ultra vires meaning it now beyond the legal power or authority of NCLT.
The said RBI circular which classified an NPA of over Rs 2000 crore to be referred to NCLT after 6 months was struck down by the apex court on April 2, 2019 on a plea by a clutch of power producers, textile and sugar manufacturers and the shipping industry in the apex court. RIL was able to ride on this judgement to gets UBI’s insolvency proceedings stalled.
In November 2019, NCLT admitted the plea of Value Partner Greater China High Yield Income Fund and Pinpoint Multi-Strategy Fund both based in the tax haven the Cayman Islands, who claimed a default of around Rs 1,060 crore and ordered insolvency proceedings against RIL, an IRP from consultancy firm E&Y was also appointed.
RIL, the parent company of Rolta LLC and Rolta Americas LLC, had given a corporate guarantee for these step-down firm, who was the principal borrowers. The creditors including former employees were once again relieved that they could now file their claims, and it looked very plausible, however this was not to be.
Almost immediately after the NCLT order was pronounced, in his personal capacity, Kamal K Singh, the chairman & managing director of RIL petitioned the Bombay High Court on a very peculiar technical ground that the NCLT did not pronounce the judgement against RIL in an open court.
The matter was heard expeditiously and within days in November 2019, the High Court in a landmark judgement ordered setting aside NCLT's insolvency proceedings considering the procedural lapse in delivering the judgement.
Normally a company aggrieved by an NCLT order would challenge it in the appellate tribunal the NCLAT and then the Supreme Court, but Singh had managed to contest and win in the High Court. The company was again out of insolvency proceedings.
In between, there were some NCLT orders approving insolvency proceedings in case of the company's subsidiaries on the petitions of some employees for dues not paid (like the latest one) and an IRP was also appointed, however, Singh again moved swiftly and as provided under the IBC he entered into a settlement with the petitioners after which the NCLT then withdrew the insolvency proceedings.
While the petitions of several former employees to recover their dues were still pending before the NCLT, in early 2020 the COVID-19 pandemic hit the world and as is known the country went under lockdown.
In March 2020 the Central government issued a notification under which it increased the minimum amount of default for initiating insolvency proceedings in NCLT from Rs 1 lakh to Rs 1 crore.
So effectively all who had their dues below Rs 1 crore could not approach the NCLT, the status quo on that remains to date. Former employees and other creditors who had a lower demand amount for dues will not be able to take any recourse in NCLT for the time being.
Meanwhile, RIL struggling to remain afloat had to deal with its creditors the bond-holders in the United States, its subsidiaries had presence in several states.
On September 02, 2020 Supreme Court of The State of New York passed an order in favour of bond-holders for an amount of US $ 183 million against the company and six of its international subsidiaries.
In order to get this judgement stayed on a technical ground the subsidiaries filed voluntary Chapter 11 proceedings in the United States Bankruptcy Court for the Northern District of Alabama on October 29, 2020.
This chapter of the US Bankruptcy Code provides for a proposed plan of reorganization to keep its business alive and pay creditors over time. However on January 28, 2021 the court tossed out this bid by RIL's international subsidiaries saying, the company 'did not have a realistic ability to effectively reorganize.'
They then went in to appeal against this dismissal on February 9, 2021. In a board meeting of RBI held on February 12, 2021, it noted that pending the appeal, the international subsidiary companies continue to function normally.
In the meantime, for the past two years, RIL has been repeatedly saying in all its communications that it plans to come out of the debt trap by 'repayment and restructuring its liabilities' under a Definitive Restructuring Services Agreement (RSA) with the 'Streamcast Group' which it signed on August 6, 2019.
The whole business with the 'Streamcast Group' as per one of our reports (Click to read about 'Streamcast Group' its promoters, history inMalta and affairs in India) was never going to happen. The whole thing is turning out to be one of the biggest corporate ‘Hoaxes’ pulled up by the promoters of the so-called 'Streamcast Group' in which the distressed creditors of RIL had pinned their hope on.
So this is by and large the chronology of events where Singh and his companies are effectively tackling any bids of creditors trying to get any legal avenue to recover their dues, several IRPs were appointed and then they had to be dismissed before doing any work. So it remains to be seen if the current insolvency proceedings are stonewalled or it goes through.