Lenders back government takeover of Nirav Modi & Gitanjali companies
, TNN|
Feb 26, 2018, 10.48 AM IST
Mumbai: A set of lenders wants the government to take over the Nirav Modi and Gitanjali group of companies rather than have banks initiate bankruptcy proceedings. Banks said a precedent was set in the case of Satyam Computers, where the government appointed a board of directors to run the company and protect its assets.
However, sources in the corporate affairs ministry said that the government was not keen on taking over the companies as this would result in the Centre being responsible for all liabilities.
Those opposed to insolvency proceedings are banks that have an indirect exposure to the Nirav Modi and Gitanjali fraud through their loans against unauthorised guarantees issued by Punjab National Bank (PNB). A government takeover would, therefore, help in unwinding some of the liabilities in over Rs 11,300-crore worth letters of undertaking (LoUs) fraudulently obtained by the two groups.
If bankruptcy proceedings are initiated, it would mean that the resolution process has to be completed within 270 days from the date of admission. If there is no resolution plan, which is very likely given the fraud, the companies would have to be liquidated.
Besides, insolvency would also adversely impact over 1,000 employees. Around 700 employees working in Hyderabad Gems SEZ — a 100% subsidiary of Gitanjali — have found themselves without a job after the SEZ was attached in the wake of the fraud. Over 250 of those employees in the SEZ were people with disabilities.
Overall, there are 34 banks with exposure to the two groups. The largest exposure by far is of PNB through LoUs. Additionally, the bank has sanctioned limits of over Rs 900 crore. Gitanjali and Nirav Modi groups together have sanctioned limits of Rs 8,000-9,000 crore.
However, sources in the corporate affairs ministry said that the government was not keen on taking over the companies as this would result in the Centre being responsible for all liabilities.
Those opposed to insolvency proceedings are banks that have an indirect exposure to the Nirav Modi and Gitanjali fraud through their loans against unauthorised guarantees issued by Punjab National Bank (PNB). A government takeover would, therefore, help in unwinding some of the liabilities in over Rs 11,300-crore worth letters of undertaking (LoUs) fraudulently obtained by the two groups.
If bankruptcy proceedings are initiated, it would mean that the resolution process has to be completed within 270 days from the date of admission. If there is no resolution plan, which is very likely given the fraud, the companies would have to be liquidated.
Besides, insolvency would also adversely impact over 1,000 employees. Around 700 employees working in Hyderabad Gems SEZ — a 100% subsidiary of Gitanjali — have found themselves without a job after the SEZ was attached in the wake of the fraud. Over 250 of those employees in the SEZ were people with disabilities.
Overall, there are 34 banks with exposure to the two groups. The largest exposure by far is of PNB through LoUs. Additionally, the bank has sanctioned limits of over Rs 900 crore. Gitanjali and Nirav Modi groups together have sanctioned limits of Rs 8,000-9,000 crore.
(This article was originally published in The Times of India)
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