[aaykarbhavan] Business standard and Business line updates 9-12-2013

Deccan Chronicle uses BIFR to play hide & seek with lenders

DASARATH REDDY Hyderabad, 8 December In 2009, when Deccan Chargers, owned by Deccan Chronicle Holdings, lifted the cup in the second season of Indian Premier League ( IPL) under its Australian captain, Adam Gilchrist, in South Africa, no one could imagine the company would go bust within three years. A well- known media brand, Deccan Chronicle's fall was quick and took its lenders by surprise. The IPL team was terminated in 2012 by the Board of Control for Cricket in India after the company breached contract norms. Company blames bankers In a recent filing, the Hyderabad media company, now under the Central Bureau of Investigation ( CBI)' s scanner, said it had applied to the Board of Industrial and Financial Reconstruction ( BIFR) in September, seeking protection from lenders. This was after the company said it had not accounted for interest on the borrowings and blamed its lenders as they had neither confirmed the balances nor provided the basis for appropriation of noncash assets. However, the company said it had calculated the interest on the dues for the quarter ended September, at ₹ 130 crore based on simple interest rate. Its total income for the quarter stood at ₹ 81 crore, far less than the interest liability for the period, and a net loss of ₹ 4.74 crore. This comes against the backdrop of a₹ 4,300 crore in loans the company had taken from 24 lenders. The slide The company's slide began in 2012, after it started defaulting on loans. It did not give any details on what went wrong with its business as bankers turned uneasy with increasing defaults. It was only when the company defaulted on redemption of unsecured non- convertible debentures to IFCI in June 2012 that the lenders swung into action. On February 22 this year, eight months after the first signs of the crisis came to light, the management finally admitted it had current liabilities of ₹ 4,217 crore as in September 2012. In addition, it reported a ₹ 1,040- crore net loss for the 18 months ended September 2012, sending shock waves across the lending community and the company's investors. It's still a mystery how banks lent such huge sums to Deccan Holdings. " Normally, a second lender has to obtain a no- objection certificate ( NOC) from the first lender before sanctioning a loan to the same client. This was not followed by any of these banks for reasons best known to them," an industry observer said on condition of anonymity. Among Deccan Holdings' lenders, ICICI Bank has the largest exposure at ₹ 490 crore, followed by Axis Bank at ₹ 400 crore and Canara Bank at ₹ 360 crore. Canara Bank commissioned a forensic audit of the company's books to ascertain how much money had been borrowed and for what purpose. The bank later filed a complaint with the CBI. Since the default has come to light, the lenders have used various means to secure their money. Says State Bank of Hyderabad's managing director, M Bhagavanth Rao, " We had to do this because the loan was not backed by any security." Andhra Bank, with an exposure of ₹ 200 crore, recently seized the company's properties under the The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. SK Kalra, executive director of Andhra Bank, said, " We could do it because the bank had exclusive charge over these properties, unlike in other cases where several lenders have been claiming the first charge over the same set of assets." Meanwhile, the good news is the company's core media business is still running. Sources say the management has been operating new accounts in a new set of banks to run the business. Employees have got a salary hike, too. Tomorrow: SKNL RISING DEFAULTS PART 4 THE GREAT FALL 2004: Deccan Chronicle Holdings goes public to raise ₹ 160 crore 2008: Enters Indian Premier League with Deccan Chargers team 2011: Net profit falls by 37 per cent to ₹ 162 crore adding to cash flow issues JULY 27, 2012: Informs BSE about pledging of 54 per cent of the promoters stake with Future Capital. IFCI files winding- up petition against the company in Andhra Pradesh High Court on loan default JULY 31: Karvy files complain against Deccan Chronicle promoters for alleged cheating and forgery SEPTEMBER: Losses mount to ₹ 1, 040 crore for 18 months ending September 2012 SEPTEMBER: Canara Bank commissions forensic audit 2013 May 17: Canara Bank files complaints with CBI, alleges financial irregularities AUGUST 1: The company share touches an all- time low of ₹ 1. 87 SEPTEMBER 18: Company seeks relief under the sick company status from BIFR DC HOLDINGS Quarter ended (₹ cr) 400 300 200 100 0 -100 -200 2011 Dec 10 MarJunSepDecMarJunSep Dec 2013 Mar Jun Sep 2012 9 7 5 3 1 5.68 3.16 Dec 5 Jan 1, 2013 Share price on BSE in ₹ [1]Net sales [1] Net profit Source: Capitaline Compiled by BS Research Bureau

 

SIX Swiss Exchange lures India to the Alps

SAMIE MODAK Mumbai, 8 December SIX Swiss Exchange, Switzerland's principal stock exchange, is vying with Indian companies and investment bankers to raise capital through its platform. The Zurich- based exchange, Europe's third- biggest, wants to cash in on Switzerland's nearzero interest rates, stable currency, friendly regulatory regime and large pool of investment capital. Last week, officials of SIX Swiss Exchange met several potential issuers and advisors in Mumbai to gauge their appetite for listing their securities abroad. "Currently, there aren't a lot of Asian issuers who are actively using Swiss market for capital raising. We want to increase awareness of SIX Swiss Exchange as a potential alternative to some of the more established exchanges in the US or Singapore," said Marco Estermann, executive director and head issuer relations, SIX Swiss Exchange. Switzerland offers a rich pool of capital thanks to its large pension fund and private banking industry, Estermann added. Switzerland has over 2,000 pension funds managing assets of about $ 1 trillion, while the assets of its private banking industry are pegged at $ 2 trillion. The regulatory regime in the country is such that bulk of these assets have to be invested only in Swiss franc- denominated securities. At least 70 per cent of pension fund assets in Switzerland have to be invested in Swiss franc- denominated securities and have to achieve a minimum of two per cent returns. For full report, visit www. business- standard. com

 

Claims cannot be rejected for breach of policy conditions

Baljeet Singh's Bolero jeep was insured with United India Insurance for ₹ 4.70 lakh from January 20, 2010 to January 19, 2011. It was stolen on June 27, 2010, while parked near Noida. A First Information Report ( FIR) was lodged with the police the same day and the insurance company was intimated. The claim was repudiated by the insurance company on three counts. First, that the vehicle was parked in the street ' without any safety'. Second, that the intimation of theft was given to the insurance company after a gap of three months. Finally, that the vehicle was being hired out for commercial purposes, even though it was insured as a private vehicle. Singh challenged the rejection of his claim by filing a complaint before the Hisar District Forum. After considering the rival contentions, the forum held that there was deficiency in service as the claim had been wrongly rejected. It relied on the judgment of the Supreme Court in Amalendu Sahoo v/ s Oriental Insurance, where it had been observed that in the event of a private vehicle being used for a commercial purpose, the claim was considered non- standard and settled at 75 per cent of the insured value. Accordingly, the forum directed the insurance company to pay ₹ 3.52 lakh along with nine per cent interest from the date the complaint was filed. The company went in appeal to the Haryana State Commission, which concluded the claim was not payable as Singh had violated the policy terms and conditions by letting out the vehicle for hire. Singh approached the National Commission for a revision. He pointed out that there was no nexus between the cause of the loss and the breach of the policy terms. Since the use of the vehicle for hire had not resulted in its theft, Singh argued his claim ought to be settled. On the other hand, the insurance company argued the FIR revealed the theft occurred while the vehicle had been hired out for a commercial purpose and the complaint was lodged after three months. The National Commission observed the records showed the FIR was immediately registered but there was a typographical error in the date. The Commission refused to allow the insurance company to capitalise on a typing mistake to repudiate the claim. The Commission noted the only issue was whether the claim was payable despite there being a violation of the policy conditions. The law on this subject had been settled by the Supreme Court in National Insurance v/ s Nitin Khandelwal, where the court had taken a view that the breach of the policy condition regarding the hire of the vehicle for a commercial purpose has no bearing on the its theft and, hence, would be irrelevant. Nevertheless, the entire amount would not be payable and it would have to be settled at 75 per cent of the insured value by treating it as a non- standard claim. Accordingly, the National Commission held the outright rejection of the claim was unjustified. It set aside the order of the State Commission and restored the order of the District Forum holding the insurance company liable to pay ₹ 3.52 lakh, along with interest. The conclusion is that a claim cannot be rejected for breach of a policy condition unless such breach is the cause of the loss. When there is no nexus between the breach and the loss, the claim has to be settled on anon- standard basis. The writer is a consumer activist CONSUMER IS KING JEHANGIR GAI

 

BRIEF CASEN [1] M J ANTONY Liquidator barred from selling plot The Supreme Court has ruled that possession of a plot given to a company for a limited purpose would not create any interest or right in its favour. The Andhra Pradesh High Court view to the contrary was set aside in the appeal, APII Corporation Ltd vs Team- Asia Lakhi Semiconductors Ltd. Government- owned APII Corporation allotted plots for setting up industries to different persons on certain conditions. Team- Asia got a plot for which an amount had to be paid to the corporation. It was given possession for a limited purpose and allowed possession. The company could not pay the amount within the prescribed time and therefore the part amount already paid was forfeited. The company later went into liquidation and the official liquidator wanted to take back possession of the plot and sell it. The government corporation moved the company court against it, but its petition was dismissed. It appealed to the Supreme Court. While quashing the high court order, the Supreme Court stated that the plot in question did not belong to the company in liquidation and the official liquidator had no right to deal with it or dispose of it. The corporation can deal with the plot according to its own policy, the judgment said. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Petrol pump can't replace park An urban site earmarked for civic amenities like public park or playground cannot be changed and given to run a petrol pump in a crowded residential area, the Supreme Court stated while dismissing the appeal of Bharat Petroleum Corporation Ltd ( BPCL) against a judgment of the Karnataka High Court. The high court had quashed allotment of a site in Bangalore for a BPCL outlet allowing a public interest petition by some residents. The government company appealed to the Supreme Court arguing, among other things, that petrol pump is a civic amenity, according to a notification. The Supreme Court rejected all the arguments and said that the state law did not allow the Bangalore Development Authority to convert areas reserved for civic amenities for activities which did not fall within the definition of civic amenities. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> National Consumer Commission powers Once the finding of facts by a district consumer forum is accepted by the National Commission, it cannot change the order of compensation, the Supreme Court stated in the appeal Momna vs regional manager. In this case, a handicapped woman bought a three- wheeler which continually broke down despite repairs to the chassis. The district forum asked the manufacturer to replace the vehicle. On appeal, the national commission changed the order to replacing the chassis only. The Supreme Court ruled that the national commission transgressed its jurisdiction. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>  Correction An item published in Business Standard on November 25 (Bank fraud not a civil dispute in the column Brief Case) wrongly summarised the judgment in the appeal of Tamilnad Mercantile Bank against a Madras High Court decision. The item had erroneously mentioned that the Supreme Court had ordered " prosecution of former directors of a bank who were accused of fraud". The Supreme Court ordered prosecution of directors of various companies who had borrowed money from the bank fraudulently. The directors of the bank were not before the Supreme Court. The error is regretted. A weekly selection of key court orders Rising legal costs stump pharma companies REGHU BALAKRISHNAN & SUDIPTO DEY New Delhi, Mumbai, 8 December During the past couple of years, the ₹ 72,000crore Indian pharmaceutical industry has been at the receiving end of a backlash from global and Indian regulators. Apart from damage control to its brand image, the legal expenditure of major Indian drug makers has seen a steep hike. According to data from company annual reports, the legal expenditure of the top 10 drug makers in India has gone up on an average anywhere from 30 to 300 per cent in the past three years. In a double- whammy of sorts, this comes at a time the industry is experiencing a slowdown in growth, largely attributed to the new drug pricing policy and the regulatory interventions. Legal experts feel that the globe- trotting pharma industry's legal expenses are set to balloon further, if it does not set its house in order when it comes to meeting regulatory compliances and manage its Intellectual Property better. Trouble at home "The IPR regimes are very litigious. The foreign MNCs employ a battery of in- house lawyers. To this extent, the Indian companies are inadequately staffed," says D G Shah, secretary- general, Indian Pharma Alliance. Industry players point out that most of the litigation costs relate to the United States market. " It has become almost impossible to launch a new generic without inviting a lawsuit in the US," says Shah. The regulatory challenges relate mainly to drug registration and approvals in India and abroad. Increased scrutiny and stringent norms by the US Food and Drug Administration and other regulators and non- compliance issues are forcing Indian companies to spend more on legal advice, says Milind Antani, head of pharma and life sciences practice at law firm Nishith Desai Associates. In- house legal teams have not proved adequate to take on the rising legal challenges. Indian regulators recently changed norms over pricing regulations creating a furore among the drug makers. Top Indian drug makers, including Cipla, Cadila Healthcare, Glenmark, Ranbaxy and Dr. Reddy's Labs are under the scanner of the National Pharmaceutical Pricing Authority ( NPPA) for allegedly selling anti- asthma drug Doxofylline without prior price approval. The Ministry of Chemicals and Fertilisers had issued a notification to implement the order demanding pharma companies to reduce prices of 348 medicines. Dealing with such regulatory activism at home has added to the industry's headache. In the recent past, the Indian companies have shown strong aggression over challenging patents of global pharma majors. " Pre and post grant oppositions and following compulsory licences are becoming common in India, causing increased expenditure for court procedures," says Sujay Shetty, leader — pharma and life sciences, PwC India. In March last year, India had granted its first compulsory licence, by ordering Natco Pharma to sell Bayer's cancer drug, Nexavar, after Natco challenged Bayer's patent in India. Natco's success has motivated many mid- sized Indian companies to take on global companies in court while challenging their patents at India. Local drug maker BDR Pharmaceuticals had challenged Bristol- Myers Squibb's patented blood cancer drug Dasatinib for allowing a compulsory licence in India. According to experts, Indian companies' eagerness to tap fast- growing generic drugs market in the US, also force these to spend on large fee for US attorneys. Seema Singh, head, legal &intellectual property management at Macleods Pharma, notes: " Many of Indian mid- sized companies are ready to challenge US patents through paragraph IV litigations, which adds to their legal expenditure." The cost of filing paragraph IV abbreviated new drugs applications ( ANDAs) can range from $ 5,000- 10,000 for attorney's plain opinion writing for one patent to $ 2 million till the time of litigation gets concluded. This is set to go up again as the US FDA has decided to charge $60,000- 70,000 as filing fee for each ANDA submission from October onwards. Indian companies hold about 10 per cent share of the $ 30- billion US generic drug market. The way forward According to Sarabjit Kour Nangra, vice- president, research, pharma, at Angel Research, Indian companies need to spruce up their documentation capacity as these enter newer markets. Pravin Anand, managing partner, Anand & Anand, feels if the pharma industry harbours dreams of being a global player, it must be seen to be ethical in its practices first. On ways to contain rising legal expenses, his advice to pharma companies is — " be strategic in your legal fights". However, there is no alternative to keeping one's house in order when it comes to compliance- related issues for goods manufacturing, laboratory or clinical practices. The way forward for the domestic industry, feels Shah, is to start dialogue with key regulators, such as the US FDA, and work jointly towards capacity building and training. Industry has to spruce up its legal armament, while driving ethical business practices, say experts PHARMA: RISING LEGAL SPENDS Legal expenses of top 10 pharma companies have doubled in the past three years ( Legal expenses in ₹ crore) Legal expenses of most top 10 companies vary between 2- 4% of sales in FY 13 against sub- 2% of sales in FY 10 How does pharma sector stack up in legal spend vis- a- vis other sectors ( Top 10 companies) ( in ₹ crore) Financial Year Ended 2010 2011 2012 2013 Ranbaxy Labs. 231.55 157.95 219.58 304.80 Lupin 63.82 97.51 141.16 259.22 Cipla 47.80 65.56 93.63 220.35 Dr. Reddys Labs 77.30 141.20 154.50 210.70 Sun Pharma. Inds. 17.70 36.57 55.84 118.25 Cadila Health. 12.70 40.50 74.10 79.10 Pfizer 11.73 20.97 44.58 41.44 Piramal Enterp. 30.82 29.89 31.12 37.14 Abbott India 2.53 6.70 31.01 28.85 Aurobindo Pharma 24.70 27.43 27.37 26.78 Compiled by BS Research Bureau Source : Capitaline PHARMA BANK FINANCE IT OIL & GAS 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 872.89 1,326.63 500.55 594.26 343.20 465.02 915.01 1,421.67 1,066.56 1,289.51 51.98% 18.72% 35.50% 55.37% 20.90%     Source Business line   How staff engineers drive innovation at Maruti Suzuki S. RONENDRA SINGH     NEW DELHI, DEC. 8:   To get the best output, employees at the senior and top management levels should be thoroughly involved in the process — this is Maruti Suzuki India's mantra. The carmaker believes in an open door policy to boost the spirit of innovation among young recruits. Maruti, which launched operations in the early 1980s, completes 30 years on December 14. It has 110 patents (around 20 in the production line alone), and most of these have been developed by its young engineers. Many more patents are on the way. The company has over 1,000 engineers, several of whom are working on such projects. "The idea behind such initiatives is to encourage engineers to go for innovation and encourage out-of-the-box thinking," M.M. Singh, COO-Production, told Business Line. "Many engineers nowadays do not want to join a manufacturing company thinking they will end up doing the same thing every day. But, we have bust that myth." Trip to Japan Singh, who joined Maruti as a technician in the painting department, said one of his biggest achievements is the involvement of young engineers in the company. For example, labour union leaders are being sent to Japan for a week, where they get to meet Suzuki Motor Chairman Osamu Suzuki. Once in a while new recruits are sent to Japan (to the parent company) for idea exchange and to learn new processes that can be adopted here. Singh said engineers are being given the freedom to innovate on the shop floor or the assembly lines or to apply "anything they have learnt from their colleges" that could be new for the company or the industry. "The result has been good, and many products, such as robotics that are used in our plants, are made by the engineers and are patented. We just provide these young engineers with materials and whatever investment is required," he added. The machines at Maruti's plants include automated multi-level parking for the produced cars, welded planks for eliminating operator fatigue and automation, such as host casting, vehicle testing and calibration. "Technology upgradation is one subject that has given us a lot of mileage. Setting an example Even Ratan Tata (in the early 1990s) once came to see our plant to see how the Japanese culture (in terms of production) can be adopted in India," Singh recalled, adding that many companies in India and globally have started to follow the Total Quality Management system, better known as TQM. But, Maruti follows its own (Suzuki's) system, which is different from others, he added. As part of its sustainability programmes, factories of the company follow a 'zero exit' programme, which means there is no wastage. "It is not only environment-friendly, but also ensures that waste from our factories go to different industries, such as cement and steel," Singh explained. ronendrasingh.s@thehindu.co.in

 

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CS A Rengarajan

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