It has been a challenging year for corporate governance in India, which also saw the downfall of multiple giants in their respective industries. From revelations of fraud to shortage of funds and whistle-blower allegations, many skeletons tumbled out of the closet.
Making matters worse, the slowdown in the economy led to many large companies collapsing like a pack of cards. Here are some of the companies which saw the biggest downfalls in the last year:
Jet Airways
One of India’s most loved and oldest private airlines, Jet Airways is currently undergoing the process of insolvency, which will continue for three more months. The beleaguered airline suspended operations in April this year after facing acute shortage of funds, leading to a string of cancelled flights, unpaid salaries for months and irate customers. The airline was desperately scouting for funds, but to no avail. The resignations of Jet’s founder Naresh Goyal and his wife, Anitha, from the Board did little to keep the airline afloat.
As of March 2019, Jet owed banks Rs 8,414 crore. While banks were trying to work out a resolution plan with the airline, its lessors began repossessing aircraft due to unpaid dues.
Towards the end of February, Jet had cancelled over 300 flights for February and March as more flights started to get grounded.
After running out of cash and failing to raise interim loans from banks, the airline suspended all operations on April 17, 2019. Although Jet said that it was temporarily suspending operations, the airline is currently undergoing the process of insolvency.
Damage at Jet began in March 2018, when it first reported a loss of Rs 1,036 crore in that quarter, and the company deferred paying salaries amidst mounting costs.
Prior to shutting operations in April 2019, it hadn’t paid salaries since January to many of its senior employees and left a large number of people without jobs overnight.
Two operational creditors of Jet Airways, Shaman Wheels Pvt. Ltd and Gaggar Enterprises Pvt. Ltd, had on June 10 filed separate insolvency pleas against Jet Airways at the National Company Law Tribunal, Mumbai, for recovery of their dues. And thus began the insolvency process.
While multiple people were said to be interested in Jet, most bidders backed out. According to reports, South America's Synergy Group emerged as the sole bidder for the company. However, the insolvency process has been extended as two new entities reportedly showed interested in bidding for Jet.
PMC Bank
Thousands of customers of the Punjab and Maharashtra Co-operative Bank (PMC) woke up to a rude shock on September 24, 2019 when the bank informed them that they cannot withdraw more than Rs 1000 from their accounts, irrespective of account balance.
The Reserve Bank of India restricted depositor withdrawals to Rs 1,000, leading to panic from depositors, traders and others.
PMC Bank fraudulently extended loans to the Housing Development and Infrastructure Ltd (HDIL). PMC’s MD Joy Thomas admitted that they had deceived auditors and Board of the bank, and hid loan defaults to the tune of Rs 6,500 crore.
According to reports, officials of PMC Bank created 44 hidden accounts, all with fake credentials in order to help HDIL.
These fraudulently extended loans, which were then defaulted on, turned into non-performing assets (NPAs), which is what led to the scam being exposed.
The bank’s exposure to HDIL was four times more than what is permitted. PMC bank’s exposure was 73% of its total assets.
The Economic Offences Wing (EoW) of Mumbai Police then registered an FIR against senior officials of HDIL and PMC Bank over allegedly causing losses to the tune of Rs 4,355.43 crore to the bank.
As per the complaint filed, the bank officials, between 2008 and 2019, deliberately violated banking norms and showed false profits to mislead the authorities, although the bank was actually incurring losses.
It also said that the bank veiled the group's large exposure and non-performing assets (NPAs) from the Reserve Bank of India (RBI) by creating dummy accounts.
DHFL
The Dewan Housing Finance Limited, widely known as DHFL is a non-banking financial company (NBFC), the second one to go bust after the IL&FS did. Known primarily for providing home loans in India’s tier 2 and tier 3 cities, DHFL is currently undergoing the process of corporate insolvency. Cracks in DHFL began to appear towards the end of December 2018 when rumours of a liquidity crisis at the company began doing the rounds, but DHFL denied the same at the time.
There have also been allegations of the company siphoning off funds to shell companies.
By June 2019, the company defaulted on Rs 900 crore in interest payments. In a bid to recover their dues, Reliance Nippon AMC approached the Bombay High Court, which passed an interim order in September restraining the company from making payments or disbursements to any secured or unsecured creditors until further notice.
In July, DHFL reported a net loss of Rs 2,223 crore in Q4FY19, as against a profit of Rs 134 crore in the same period last year.
Of this, it owed Rs 83,873 crore to all creditors, including FD holders who are owed around Rs 6,000 crore. With the company halting disbursements after the Bombay HC’s interim order, over one lakh FD holders have been left in the lurch. While the court allowed DHFL to make payments to secured depositors, there has been no respite yet to FD holders, who have now approached the Supreme Court in a bid to recover their dues.
Karvy Stock Broking
In one of the biggest cases of misappropriation of funds by a stock brokerage, Hyderabad-based Karvy Stock Broking was banned by SEBI from accepting new clients and executing trades in November. The stock broker has been accused of swindling nearly Rs 2,000 crore over three years, up until September 2019. It also allegedly misused the shares of its clients, which it transferred to its own account without running it through the stock exchange, to fund its real estate arm.
This is one of the biggest cases of broker defaults in the equity segment and despite numerous regulations, clients' money and securities were brazenly misused for its own purposes by Karvy Stock Broking.
Karvy, a stockbroker, is the middleman between an investor and the stock exchange to buy and sell shares. It communicates to Bombay Stock Exchange or National Stock Exchange on behalf of an investor to execute buying or selling of a share. Investors give Karvy the power of attorney to debit the shares directly from the client's Demat account, which are held either in the NSDL or CDSL. SEBI told CDSL and NSDL not to honour instructions given by Karvy — Karvy could not execute transactions on behalf of its clients.
The matter came to light after investors wrote to the office of the Prime Minister earlier this year after the firm defaulted on its payments.
Like a normal brokerage operation, Karvy took money from clients for any buy order and transferred shares to them upon making payment to the bourses. Similarly, for share sale, the scrip moved from client's Demat account to the pool account of the broker from where it was transferred to the exchanges and the money received in return was deposited back into the client's account.
It all seemed fair till the broker started using client shares received into its pool account for pledging and raising loans. The client shares were then pledged for raising loans without authorisation for personal gains.
Karvy's modus operandi involved transferring of shares from demat accounts of its clients, which were inactive, to demat accounts controlled by the broking house. It then pledged those shares with lenders and raised funds. These funds were transferred to Karvy Realty.
On instructions of SEBI, securities worth about Rs 2,013.77 crore to 82,559 clients of Karvy Stock Broking whose shares were illegally pledged with these lenders were transferred back. With this 87% of affected clients were returned their securities.
The BSE and NSE too suspended Karvy Stock Broking Limited due to non-compliance of regulatory provisions of the stock exchange with effect from December 02, 2019. NSE said in a circular at the time Karvy’s licence had been suspended in the capital market, futures and options, currency derivatives, debt, MFSS and commodity derivatives segments.
SEBI is now working on tightening norms to protect investors of mutual funds from being victims to such frauds.
Reliance Communications
The company officially began bankruptcy proceedings this year, with chief Anil Ambani escaping going to jail by a whisker, thanks to brother Mukesh Ambani bailing him out. Things had almost nearly hit rock bottom in 2017, when RCom ceased operations, in no small way affected by the entry of Jio, Mukesh Ambani’s company.
RCom was first pushed for insolvency proceedings in 2017, when Ericsson went to the National Company Law Tribunal over Rs 1,100 crore in unpaid dues.
This year, the Supreme Court said the company had disobeyed its ruling about the money owed to Ericsson, and if it didn’t pay within four weeks, Anil Ambani would have to go to jail. It was for this that Mukesh Ambani helped bail Anil out.
After many twists and turns, NCLT admitted RCom for bankruptcy proceedings, making it the first Anil Ambani firm to officially be declared bankrupt.