How to thwart loan recovery move, the Bakemans way

For banks and financial institutions—saddled with non-performing assets (NPAs) of over Rs 1,10,000 crore—recovery of loans continu...

For banks and financial institutions—saddled with non-performing assets (NPAs) of over Rs 1,10,000 crore—recovery of loans continues to be a big headache. Banks and FIs have demanded an investigation into the move by Bakemans Industries and a finance firm NRI Lead Bank — which was banned by the RBI— to thwart the move by FIs to recover loans extended to the Patiala-based Bakemans group.

The company owes over Rs 52 crore (including principal and interest) to FIs led by IDBI, IFCI and Sicom. “Bakemans and NRI Lead Bank set up an ‘arbitration panel’ without our concurrence to scuttle our plans to take over the assets,” said the chief of an institution, adding, “the involvement of the so-called NRI Bank which was banned by the RBI is shocking. This bank’s promoter M. L. Maitra was recently arrested by the Haryana police.”

What the company says

MUMBAI: Bakemans admitted that it defaulted on its repayment schedule. However, the debt is less than the figure quoted (by FIs). “In the current year, the group invited all lenders to negotiate a one-time settlement of its debt. Some of the FIs have already agreed to this negotiated settlement. Barring one, all other institutions are in the settlement mode,” the company said in a letter. “At no point, the group has held any assets illegally. Under an award given by an arbitral panel, the company has been given possession of its assets. The matter is sub-judice,” it said, adding, “As conveyed to us by NRI Bank, it’s registered as a ‘public settlement trust’ with the Registrar of Kolkata.” (ENS)

Story continues below this ad

Bakemans’ problems started after a division in the promoters’ family in 1997. “We supported the promoters with waivers, concessions, re-phasing, additional assistance etc. Despite institutional support and repeated opportunities over the years, the promoters failed to manage the business leading to closure of its units over the last two years,” the FI chief said.

“After the company repeatedly failed to keep any of the commitments made, we were left with no option but to initiate action for takeover of assets to safeguard our interest,” he says.

In the third week of August 2003, FIs received a notice in respect of arbitration proceedings initiated by the company about an alleged dispute with NRI Lead Bank. The arbitration was referred to an entity calling itself ‘ADR Arbitral Tribunal’.

This ‘bank’ apparently offered to provide the company (Bakemans) with a large sum in foreign currency to settle the lenders dues. “Though lenders did not consent to any arbitration in any form, the matter referred for arbitration all pertained to the takeover of company’s assets by lenders, refusal by lenders for OTS (one-time settlement) offer by company and damages worth Rs 500 crore etc,” sources said.

Story continues below this ad

“At the very first hearing of the arbitration, of three arbitration panel members, two, including the presiding arbitrator, were convinced that the lenders had not consented to the arbitration and therefore could not be parties to the arbitration. Accordingly, the arbitration proceeding were ordered to be dropped by two of the three arbitrators,” FI officials said.

“The third arbitrator reserved his order claiming need to go through documents, if any, relating to the consent from all the parties for arbitration. The company’s attempt at getting the takeover declared illegal, fraudulently, was thus unsuccessful,” FIs said.

The company got the arbitration panel changed with two of the members (including the presiding member) who had ordered dropping of the proceedings, replaced by two other consenting advocates. “The new panel, without anybody’s knowledge and without taking into account the earlier order dropping the proceedings, gave a ex-parte interim award dated September 3, 2003 declaring the takeover of assets by lender Sicom as illegal and ordered it to hand over possession,” said an institution which is fighting for recovery of loan.

The award also covered appointment of an advocate in Patiala as ‘Receiver’ to open the factory within 3 days by taking police help, if necessary. The company and the ‘NRI Lead Bank’ simultaneously approached the District Court and the Delhi High Court for confirmation of the arbitral awards. On September 14, 2003, the ‘receiver’ appointed by the ADR Tribunal, accompanied by the promoters and about 70-80 others forcefully entered the factory premises at Patiala, despite the efforts of the security personnel deputed by lenders to safeguard the premises.