HC moved against insolvency applications of corporate defaulters

The Madras High Court on Wednesday issued a notice to the Insolvency and Bankruptcy Board of India (IDBI) on a petition which sought to restrain it from proceeding with insolvency applications of corporate bank loan defaulters.

Justice R Mahadevan also impleaded the Reserve Bank of India as a respondent.

The court observed that when farmers are dying due to inability to repay loans, the attitude of bankers towards such corporate defaulters has to be viewed seriously.

Petitioner Siddarth Govind, an advocate, submitted that five major corporate bank loan defaulters alone owed around Rs 78,000 crore to various banks.

He sought a direction restraining the IDBI from proceeding with the insolvency applications till disposal of other litigations and ongoing investigations initiated by government agencies against such companies.

The petition also sought a direction to the Centre to amalgamate subsidiary companies which have defaulted on bank loan repayments with their promoters under Section 237 of the Companies Act so that the dues become their liability.

The central government has the power to merge two or more corporate entities in public interest, the petitioner said.

"It is shocking that such large-scale corporate defaulters are allowed to go scot-free when they owe such huge monies to the banks," he said.

The government can ensure that promoter and holding companies are merged with the subsidiaries which have become non-performing assets and have defaulted in bank loans and statutory dues, the petitioner said.

Thereby, the liability of the subsidiaries becomes the liability of the holding companies, he said.

Counsel for the petitioner listed the five major defaulters, including Essar Steels India Limited, Videocon Industries, Kingfisher Airlines.

Referring to a case which had earlier come up before him in connection with the default of a loan of Rs 853 crore by Kanishk Gold, Mahadevan said the State Bank of India had sanctioned such a huge loan when the assets of the company were only worth about Rs 123 crore.

He posted the petition to November 15 for further hearing.