DHFL promoters come smelling of roses vis-a-vis Jet Airways' by cleaning up the mess themselves

That the home loan major DHFL’s promoters are busy sewing up a deal with a private equity firm to offload 20 percent of their 40 percent equity stake so as to pay off the whopping dues of the company to banks and others is heartening. The Dewan Housing Finance Corporation Ltd (DHFL) group was in the spotlight after the collapse of IL&FS as it was finding it difficult to raise money and had a huge exposure of banks and mutual funds. News portal Cobrapost had estimated the total dues of the company at a whopping Rs 97,000 crore with the banks’ exposure being Rs 50,000 crore. State Bank of India (SBI) has an exposure of Rs 11,500 crore more than it has in Jet Airways and Kingfisher Airlines. [caption id=“attachment_6023581” align=“alignleft” width=“380”] Representational image. Reuters.[/caption] Despite being one up dubiously in the matter of outstanding over IL&FS whose dues are estimated to be Rs 91,000 crore, DHFL has agreed to set its house in order. Jet Airways’ promoters have deemed it fit too to leave the SBI-led consortium to carry the can — banks are owed more than Rs 8,500 crore and are nursing dud shares of Jet Airways which they got on the conversion of some of their outstanding into equity. Jet Airways’ strategic partner Etihad Airways has also been behaving as if it has no role as a promoter to come forward and clear up the mess. Polluter pays is an excellent principle in the environmental laws of advanced countries. You cannot create a mess and leave it blithely as it is. It is time this laudable principle is extended to the financial world also. Banks cannot be expected to be the beast of burden or latter-day rescue capitalists if not venture capitalists. To be sure, the DHFL promoters have been alleged to have diverted funds. The _Cobrapost’_s portal said its investigation identified 45 companies which were used by DHFL promoters Wadhawans to divert funds. It goes on to say these shell companies received loans of Rs 14,282 crore. Within this, 34 companies received close to Rs 10,500 crore unsecured loans of which 11 companies belonged to the Sahara Group that received Rs 3,800 crore. This is a separate matter of investigation by the Serious Fraud Investigative Office (SFIO). This is not the first time the company has come forward to set its house in order without asking for any bank or the government to bail it out. A few days earlier, it paid off the interest of Rs 850 crore on bonds thus scotching speculation that default was imminent. Incidentally, the Narendra Modi government bars the existing promoters from bidding for controlling stakes under the IBC. This should be relaxed subject to the condition no creditor is willy-nilly called upon to take a haircut. Let the money be raised by them from any source including private equity which people in the know perceive as money laundering through the process of round-tripping. This is not to suggest that their financial crimes should be condoned. But top priority should be to protect the creditors. While the IBC has definitely put the fear of God in the minds of promoters with the fear of losing control giving them sleepless nights, the bottom-line so far is it has imposed huge haircuts on the banks and other creditors. Shaming the promoters and denuding them of control is one thing but that should not happen in the manner of cutting off the nose to spite the face. Promoters should not be let off so easily. More often than not a business failure is occasioned by a combination of self-aggrandisement and genuine business reasons including fierce competition. Auditors and the SFIO should work overtime to unearth diversion before the IBC through NCLT throws up the towel and resigns itself to banks and other creditors taking a huge haircut. (The writer is a senior columnist and tweets @smurlidharan)