Before the current government, Indian businesses and corporate houses had the unwritten assurance that if they failed or defaulted on their loans, the government of India would step in and provide relief or support. Companies borrowing excessively or gave loan guarantees to enable other companies to borrow. With Indian parliament passing the Bankruptcy law, companies get no special favours either written or unwritten. If a company defaults on a loan or a loan it provided a guarantee, then it could end up in bankruptcy proceedings with creditors making claims against the remaining value or assets of the company. In fact legal collection proceedings have been started against more than 400 companies with the list expected to balloon. Based on recent experiences of Ruia losing control Essar Oil and Essar Steel and Vijay Mallaya losing his ownership, promoters could lose big. While there is going to be lot of pain, the longer-term benefits are likely to be end of reckless borrowing, more equity by promoters and tax payers – which is all of us sharing and future losses and not taking 100% of the losses.
- 9 Nov 2017