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Venugopal Dhoot, 69, who built India’s first homegrown consumer durables business, Videocon Industries Ltd (VIL), appeared distressed as he walked out of a PMLA (Prevention of Money Laundering Act) court in Mumbai during the second week of March. VIL is a subsidiary of Videocon Industries. The judge released him on bail but required him to turn in his passport as collateral.
In 2015, Dhoot had a personal fortune of more than one billion dollars; however, he has since seen all of his major businesses fail, including consumer durables, telecom, and oil exploration. The resolution procedures for all 13 group businesses, which had a combined total of Rs 64,838 crore in admitted claims, were consolidated by the National Company Law Tribunal (NCLT) in the month of August in 2019. In October of 2020, the Dhoot family made an offer to the creditors to withdraw the bankruptcy proceedings in exchange for a payment of Rs 30,000 crore. However, the creditors made the decision to take a haircut of more than 95 percent in order to transfer the assets to a company that is part of the Vedanta group. This company is Twin Star Technologies. Notwithstanding this, the offer was halted by the National Company Law Appellate Tribunal (NCLAT).
Following the implementation of India’s new Insolvency and Bankruptcy Code (IBC) in 2016, Dhoot is one of the hundreds of Indian businessmen who have been forced to sell their businesses. The code eliminated the need for complicated corporate insolvency statutes and mandated stringent timelines for resolution. Over 4,300 businesses have already been brought before the NCLT for defaulting on their loans.
Although diversification into unrelated markets was one of the primary contributors to the failure of the majority of these corporations, high-cost development that was financed by debt was by far the most significant factor. An analysis of the factors that led to their demise can teach lessons about good corporate governance. The most important of these lessons is that being able to add capacity at the appropriate moment, having the ability to sense the dynamics of the market, and having a good understanding of technology are essential for running a successful business. Additionally, although debt is necessary for expansion, it must be carefully monitored so that it does not become unmanageable.
Take Brij Bhushan Singal’s sons, Sanjay and Neeraj, for example. They were in charge of distinct divisions of the family business, Bhushan Steel (BSL) and Bhushan Power and Steel (BPSL). Both have suffered a loss of fortune of approximately 55,000 billion rupees. After the two businesses’ debts became unmanageable, the Reserve Bank of India (RBI) included them on the first list of 12 major defaulters that were referred to the Indian Business Corporation (IBC). BSL was purchased by Tata Steel for a total of Rs 35,200 crore in 2018, while JSW Steel obtained BPSL for a total of Rs 19,350 crore in March of 2021. The investigation also includes the brothers’ possible involvement in money laundering and fraud.
In 2008, Anil Ambani was the sixth richest individual in the world with a wealth of $42 billion, but in September of 2020, he pleaded bankruptcy in front of a court in London. He was responsible for the loss of the principal company, Reliance Communications Ltd. (RCom), as well as Reliance Naval and Engineering. Reliance Infrastructure, Reliance Power, Reliance Capital and Reliance Home Finance were the other four businesses that were in default on their loans prior to the Covid-19 outbreak. However, they were granted relief for a period of time as a result of the pandemic, which caused the government to suspend IBC until March 2021.
Since the IBC was put into place, BT takes a detailed look at the dozen most powerful business families that have seen the majority of their wealth, businesses, or flagship corporations evaporate as a result.
Heavy Damage, According to the Reliance Group
Anil Ambani, the younger son of Dhirubhai Ambani, was well-known for living a lavish lifestyle, which included socializing with prominent politicians and entertainers, traveling on private jets, and making public appearances with famous people. When Anil Ambani’s older sibling Mukesh presented his wife Nita with a corporate jet worth Rs 250 crore in 2007/2008, he countered the gesture by purchasing a super luxury yacht for Tina that cost Rs 400 crore.
After all of that… In September of 2020, while virtually appearing before the High Court in London in connection with a debt repayment case, he stated that he did not own any significant assets and that his wife Tina and his family were responsible for covering his expenditures. When the judge asked him to declare his personal assets and credit card information, he responded by saying that he had already paid his legal costs by selling all of his jewelry. He made an effort to persuade the judge that he lives a straightforward life, owns only one vehicle, and is financially responsible for his relatives. Earlier, in May 2020, the court had ruled in favor of the appellants, which were three Chinese banks that had lent to RCom; however, Ambani had failed to pay the $716 million that RCom had purportedly taken on the basis of his personal guarantee. This was despite the fact that the court had ruled in favor of the appellants. The banks are attempting to seize control of the assets that Ambani has located in other countries.
That is not the end of it. Anil Ambani is also being sued by the State Bank of India (SBI), which has begun the personal insolvency process against him. The resolution procedure that had been started in the NCLT was put on hold by the Delhi High Court in August of 2020. After further consideration, the Supreme Court decided not to lift the injunction. Ambani submitted a petition to the High Court of Delhi requesting that Chinese banks be allowed to participate in his judicial challenge to SBI’s proceedings in India.
The group’s frenetic efforts to raise debt capital in order to construct capital-intensive projects in the electricity, defense, and infrastructure sectors were the initial cause of the crisis. From March 2008 until March 2018, the group’s debt increased from Rs. 41,892 crore to Rs. 1.61 lakh crore. This represents a more than threefold increase. When Mukesh Ambani’s Reliance Industries introduced free voice and low-cost data services under the Jio brand in September 2016, the once-flagship telecom business, RCom, which was also heavily indebted, faced a major disruption. RCom made some attempts to sell off its assets in 2019, but ultimately defaulted on its obligations. It was brought to the IBC. The price of the share, which reached its all-time high of approximately Rs 800 in March 2006, has since dropped to less than Rs 1 as of 2019. In addition, Reliance Naval and Engineering was unable to make their debt payments and consequently filed for bankruptcy. Defaults on debts were also made by Reliance Home Finance and Reliance Commercial Finance, both of which are subsidiaries of Reliance Capital. According to a circular published by the Reserve Bank of India on June 7, 2019, titled “Prudential Framework for Resolution of Stressed Assets Directions 2019,” banks in India have begun the process of resolving debts for both of the businesses. These businesses will shortly be taken over by new owners. Cash-strapped On October 31, 2020, Reliance Capital defaulted on the term debts that it had with both HDFC Ltd. and Axis Bank. In March of 2020, the entire amount of debt held by Reliance Capital was Rs 26,906 crore.
Reliance Power and Reliance Infrastructure are two additional companies that are part of the company. Midway through the year 2020, Reliance Infrastructure announced that it had accumulated financial obligations totaling Rs 17,065 crore. There was a breach of contract between Reliance Power and Axis Bank, Yes Bank, and Lakshmi Vilas Bank regarding reparations that were due on January 31, 2020. As of the 31st of March in 2020, the entire amount that it had borrowed was Rs. 28,803 crore.
Yes Bank began taking the necessary measures in October 2020 to attach the Reliance Centre, which is the group’s headquarters in Mumbai. The company has a loan from Yes Bank that is worth 12,000 crore, making it one of the bank’s largest borrowers. In March of 2020, Ambani had been called in for questioning by the Enforcement Directorate (ED) in association with the investigation into Yes Bank founder Rana Kapoor.
Ambani is giving it his all in an attempt to remain relevant in the defense industry’s competitive landscape. At the Mihan facility in Maharashtra, the joint ventures with Dassault Aviation and Thales of France are currently in existence. The strategy calls for the production of components that can be used in radars and Falcon 2000 jets. Reliance Armament, a subsidiary of Reliance Defense, has put in a request for proposals to produce small weapons worth more than Rs 6,000 crore. These proposals include manufacturing light machine guns, sniper rifles, and other types of small arms. According to some sources, the government has not made much headway in displaying these weapons or shipping them to the military for testing.
BT’s communications were ignored by the group’s representatives.
The Jaypee Group’s Worsening Predicament
The Jaypee Group, which is being headed by its founder, Jaiprakash Gaur, who is now 90 years old, is fighting for its very existence. The construction of two enormous dams in the 1980s brought the Gaurs to widespread notoriety. These dams were named Sardar Sarovar and Tehri. Between the years 2000 and 2010, the company experienced phenomenal growth thanks to the surge in the real estate and infrastructure industries. It put 60,000 billion rupees into investments in cement, electricity, and real estate. In the seven years leading up to FY2015, the combined revenues of three businesses, namely Jaiprakash Associates (JAL), Jaiprakash Power Ventures (JPVL), and Jaypee Infratech, increased by 476 percent to 27,925 crore.
