Thread by @RURALINDIA

Let's talk about the disproportionate costs / consequences that await an entrepreneur, if his business is classified as NPA.

Let's also throw light on a chaotic aspect of proliferation of shadow banks aka NBFCs.

Let's focus on how the NBFCs are ruining lives & businesses

An industrialist client - a manufacturer of transformers & other electrical items - a 50+ year old, well established unit - a technocrat, a successful businessman - by all the standards that we have developed for classification of a human - as successful - he ticked all boxes

His unit was what we call - Gold.

His customers were what we call - giants.

Siemens, BHEL etc all.

Post GST he started facing liquidity crunch. His Banker was reluctant to extend a helping hand.

He borrowed short term funds from unorganized lenders - Pedhis, Seths etc.

The ROI was from 24-36 % p.a. with advance interest deduction for the entire tenure of the loans.

Still his requirements were NOT met.

His young CA introduced him to an easy fountain of credit - NBFCs.
His business wasn't able to service the debts.

His CA wouldn't let him declare the real position to the banker.

So money was borrowed from NBFCs for meeting interest obligations of the Banker & private lenders.

Here's a fun fact - u may call it disturbing fact - the NBFC funds came at a huge cost - nearly 15-20%

Let me explain - 15-20% comprised of processing charges, documentation charges, commission to the agents, underhand bribes to the NBFC officers & maybe, his CA's cut too.

So when he borrowed Rs. 40 lacs. He got only Rs.32-34 lacs.

Over the year i.e 2017 - 18 - he borrowed from nearly 15 NBFCs.

Sum ranging from Rs. 25 lacs to Rs. 50 Lacs.

He did it in the hope that his regular payments to the Bank would enable him for an enhancement & that will solve his liquidity crisis.

Enhancement did not come.

What came were the due dates for NBFC's repayments. Installments & interest.

He borrowed from a few more NBFCs to pay the earlier NBFCs.

Vicious cycle.

He even borrowed in MUDRA scheme in the names of females in the family.

When the credit fountain dried up, he panicked.

His unit came to a standstill. Workers began troubling him. GST folks raided him. NBFCs sent goons & Thugs for recovery. EMIs Cheques started bouncing.

Recovery actions started.

His main Banker with an exposure of Rs.35 Crores invoked only 1 remedy - Sarfaesi action.

That's only a civil proceeding.

BUT, The shadow bankers i.e. NBFCs - 17 of them - with a combined exposure of Rs. 3 - 4 Crores - invoked simultaneous & multiple actions.

Civil, as well as criminal.

Now comes the shocking part & the blatant & brutal abuse of due process of law

A typical example :

Actions initiated by one NBFC :-

1. Arbitration before a stooge Arbitrator at Mumbai.

2. Criminal case for Cheque dishonor in Delhi.

3. Criminal case u/s 406 & 420 of IPC at Kolkata.

4. Sec 9 petition at HC.

5. IBC action b4 NCLT.

So what the entrepreneur is facing today ?

Total 39 cases. Civil & Criminal.

Places : 16+ (Mumbai, Delhi, Chennai, Ahmedabad, Kolkata, Bengaluru, Chandigarh, Nashik, Bhopal etc.)

Courts - HC, NCLT, DRT, MM Courts, Arbitration etc.

Now, this gentleman has to be traveling all 30 days of the month and appear before Courts - every day of the month. Just to avoid any adverse order which may restrict his personal liberty.

When will the gentleman find time to revive his industry ?

From where will he manage to raise the finance for the litigation ?

Why would he want to live ?

There's no recourse under the existing laws for this gentleman to club the cases filed by a single NBFC in 4 different cities, under 4 different Statutes.

So say for one NBFC, say, Magma - the gentleman has to appear before Magistrate Court in Kolkata to get the Non-bailable Warrant cancelled & before the Kolkata HC to get the unfounded criminal case quashed.

He has to appear before TisHazari Court in Delhi in chequ bounce case

He has also to appear before the Madras HC to answer Sec 9 petition.

And also to appear before a stooge Arbitrator in Chennai.

Then start counter proceedings for each of the above.

Now multiply that with 16-18 NBFCs.

Banda mar nahi jaayega kya ?