IBC regime unearthing many scams in India

Over the past seven years, corporate India has seen more fraud than in the past 70 years. After the excesses post the GFC - where credit was loose and corporate India ambitions ran faster than their business acumen - it took years to absorb the fall-out from defaults, NPLs and recovery proceedings.

However, the rise in corporate fraud was somewhat perplexing as it was disappointing. Since the IBC was implemented, many such discoveries unearthed as independent resolution professionals take charge of the company's affairs. Additionally, banks and financial institutions have no incentive to compromise or gloss over transgressions, which in the era before the Insolvency and Bankruptcy Code (IBC), would have either gone undiscovered or covertly allowed to exist without acknowledgement of its existence.

Promoters have an unquestionable grip on their companies, lenders and minority shareholders. Even professional employees get the wrong end of that stick. It also depends on how one defines management conduct. Frauds and misdeeds at financial institutions (such as banks and NBFCs) have tremendous ramification given the inherent leveraging of driven business models. The demise of Yes Bank, Religare, Laxmi Vilas Bank, IL&FS and DHFL all have been mired with fraud, corruption and siphoning - showing that the misconduct of whether promoters or professionals has been laid bare.

In contrast, there are the likes of BR Shetty (promoter of NMR Health and Finbar) blaming their professional management for the intricate fraud in their company. Avantha Group (led by promoter Gautam Thapar) received similar blame with the promoter claiming ignorance, delaying the resolution process. Meanwhile, the case of Cox and Kings is more like a thriller movie than a corporate process where the promoter (Peter Kerkar) claims he was duped by collusion between his management, banks and investors. It's hard to believe that promoters helmed affairs for over two decades in each of these companies and yet don't know what the company's true affairs look like.

Anyone who's interacted with senior management in promoter-owned Indian companies (including the likes of SEBI and RBI) can tell you that the finances of every Indian company are controlled by the promoter's family with an iron grip. That's one reason bankers in India always want personal guarantee of promoters, because they are implicitly acknowledging that promoters treat the companies as their own wealth, so transferring between the promoter's wealth and company assets cannot be prevented.

Hence, bankers should be able to go after the promoter's assets if the company's assets are insufficient for debt repayments. Undoubtedly, promoters have the power, authority, ability and opportunity to know if there were rogue employees or if this is a crafty scheme to benefit from perceptions of high performance and stock prices as well as deflecting risk on the way down.

The list of corporate frauds keeps growing, showing corporate India's underbelly. While there's hope of startups achieving 'unicorn' status, there's also a grave reminder that corporate India has many dark corners that must be cleansed. Measures must be implemented to deter such behaviour - whether by promoters or professionals. Only when such bad behaviour dissipates that banks can resume lending to corporates and have minority investors investing again - regaining the trust within corporate India.

(Jacob Puthenparambil, a

Singapore-based communications person and head of Red Hill)