Deccan Chronicle Holdings can contest BIFR’s decision. Photo: Mint
Live Mint ;26 Dec 2013
DCHL may have to consider selling parts of the business after BIFR refused to declared it a sick company
DCHL may have to consider selling parts of the business after BIFR refused to declared it a sick company
Hyderabad: Debt-laden publisher Deccan Chronicle Holdings Ltd (DCHL) received a setback after the Board for Industrial and Financial Reconstruction (BIFR) rejected its application to be declared a sick company, saying it withheld crucial information and misrepresented itself as an industrial entity, leading once again to uncertainty about its future.
BIFR declined DCHL’s application under the Sick Industrial Companies (Special Provisions) Act, 1985, as the company is primarily engaged in publishing newspapers, which is not considered a manufacturing activity under the Industries (Development and Regulation) Act.
“Although the company is primarily in the business of newspaper, it had filed the reference showing its business to be that of printing, which was completely misleading and factually incorrect,” V.P. Bhardwaj, secretary, BIFR, said in an order dated 21 November. Financial news website Moneylife reported the development on Saturday.
The decision means DCHL is running out of options to keep its lenders at bay and may have to consider selling parts of the business. Being declared a sick company would have given it protection from the creditors while it tried to revive itself. Several creditors have asked for DCHL to be wound up so they can recover their dues.
DCHL can contest BIFR’s decision, but it wasn’t immediately clear if it plans to do so. Aides at the offices of chairman Venkattram Reddy and vice-chairman P.K. Iyer said they were out of town. An email sent to Iyer on Tuesday did not elicit a response till the time of going to press.
BIFR also said DCHL in its application concealed an ongoing probe by the Central Bureau of Investigation (CBI) against its chairman, and did not disclose an inquiry by the ministry of corporate affairs for alleged violations of the Companies Act.
It also pulled up DCHL for misrepresenting the quantum of its securities seized under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act.
BIFR said it found that a “large number” of secured creditors and asset reconstruction companies—India Bulls Financial Services Ltd, Canara Bank, Kotak Mahindra Bank Ltd, State Bank of India, JM Financial Asset Reconstruction Co. Pvt. Ltd, Pegasus Assets Reconstruction Pvt. Ltd andIDFC Ltd—had initiated steps to recover their dues under the Sarfaesi Act, contrary to DCHL’s claim that action had been taken only on 9.78% of its securities.
A company cannot refer itself to BIFR once its financial assets have been acquired by a securitization or a reconstruction company under the Sarfaesi Act.
“By going to BIFR you are getting shelter from all creditors. That’s the principal benefit…For the board to make a decision, to make up its mind, it has to have all the relevant information,” said Sujjain Talwar, partner at legal firm Economic Laws Practice.
Analysts say the rejection of DCHL’s application bodes well for its secured lenders.
“Now the pressure from the lenders would resume and might even increase,” said Satish Kantheti, head of equity research at Hyderabad-based broker Zen Securities Ltd. “Secured lenders are relatively better placed than unsecured lenders. Those who have security will be able to act and get some possession. The others have a problem.”
An official with a private bank with exposure to DCHL said the publisher’s loans were taken out of the lender’s books two quarters ago. “Some of it has been given for asset restructuring. A significant amount was also recovered,” this official said.
Hyderabad-based Andhra Bank, which lent Rs.200 crore, refused to comment on the implications of BIFR’s ruling. An official of the bank, on condition of anonymity, said the bank has started taking possession of properties pledged to it as collateral under the Sarfaesi Act.
Talwar said DCHL can appeal against the BIFR order with an appellate body, or contest the order by filing a writ petition in a high court and then a special leave petition in the Supreme Court.
DCHL, which has Rs.3,777 crore of debt on its books, had already suffered setbacks in debt recovery tribunals and other legal forums. An earlier option to explore corporate debt restructuring also failed.
Kotak Mahindra Bank recently secured permission from the Andhra Pradesh high court to sell DCHL’s Kondapur press if the management fails to settle dues to it by 28 February. Last week, the Supreme Court refused to entertain a plea by DCHL against the high court order, PTI reported.
“They need to reach some sort of compromise with lenders. Whether the lenders will agree for a compromise is another big question,” said Kantheti of Zen Securities.
The promoters of DCHL re-mortgaged the same assets with different banks to avail loans, leading to legal contests between some lenders. IDBI Bank Ltd and Axis Bank Ltd, for instance, are sparring over who has ownership to DCHL’s titles—Deccan Chronicle, Financial Chronicle, Asian Age andAndhra Bhoomi.
HT Media Ltd, publisher of Mint and Hindustan Times, competes with DCHL in some markets.
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