Introduction
Debt-ridden digital education firm Educomp’s final resolution plan was expected to come up at the National Company Law Tribunal (NCLT) and be dealt by it under the IBC.
In two separate cases, stakeholders have complained of promoters abusing the Insolvency and Bankruptcy Code (IBC) to regain control of their lost assets even as government is proactively making changes to the law to plug loopholes.
The US-based distressed fund Eight Capital has filed its objection in the National Company Law Tribunal against the insolvency proceedings of Delhi-based Tecpro. In another matter, coaching institute FIITJEE has written to the government making similar allegations against Educomp Solutions, which has been battling controversy following allegations of fund diversion and fudging of books.
Both Tecpro and Educomp have received an adverse audit report from external auditors.
What has led to the situation?
The resolution professional for Tecpro has filed a complaint with the Delhi bench of NCLT, alleging the company entered into transactions with a design to cancel them to defraud creditors.
Eight Capital has alleged that the winning bid of Kridhan Infra Pvt Ltd flouts Section 29A of the Insolvency and Bankruptcy Code and is a promoter-backed entity in its objection filed in the NCLT.
FIITJEE has told the NCLT that the insolvency proceedings in case of Educomp had been initiated fraudulently.
Only two companies participated in the final bid. FIITJEE has alleged that EBIX Singapore, the winner of the bid is an old business partner of the original promoter of Educomp Solutions. Its bid of Rs 400 crore against the debt of Rs 3,000 crore poses a loss of 87% for the banks, FIITJEE has said.
The company, while calling for a Serious Fraud Investigation Office probe, also said that the “friendly bidder has been stooged and selected because a genuine buyer could later discover balance sheet numbers that don’t represent real assets on ground”.
The US-based Eight Capital meanwhile has told the NCLT that Kridhan Infra in its various versions of the resolution plans sought to include the promoters in the new management or in the implementation of the plan or have provided some comfort and safeguards to them.
It has said that the final resolution plan by KIPL seems to give an equity share of about 11% to the promoters (included in the category of ‘others’) in the corporate debtor post the implementation of the resolution plan, which is against Section 29A of the IBC.
Kridhan Infra’s offer of Rs 50 crore payment up front and transfer of Rs 400 crore debt payable in three years got 86% votes by the committee of creditors. Of this, 85% votes belonged to EARC. Only two out of six lenders voted in favour of Kridhan’s resolution plan.
Conclusion
The IBC in section 29A bars promoters to take part in bidding process thus making them ineligible for representation in the committee of creditors. This is well established hence the promoters of Educomp are simply abusing the legislation by trying to bid for it. The law was enacted with a vision to protect the rights of lenders and help them retract their monies due. But the misuse has already begun and the board needs to relook into the provisions to make it more compliant and stringent.
Disclaimer – The above summary is based on the personal interpretation of the revised regulations, which may differ person to person. Hence, the readers are expected to take expert opinion before placing reliance on this article.
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