Rebuilding trust in the system

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“If you are in trouble you should show that you care by cutting down your expenses”

Sensible advice from the governor of India’s central bank, Raghuram Rajan, directed at errant borrowers across the country who have been rightly receiving flak as India’s banks are forced to clean up their bad-debt laden books. Rajan also advised them against “flaunting their yachts” and indulging in “massive” birthday bashes while dodging repayments to banks.

LeaderEasy-to-understand advice, but will it put a stop to the arm-twisting that these heavy-weight borrowers indulge in when obtaining loans from the banks? India’s banking sector faces an unprecedented crisis and it is time for a cleanup if trust in the system is to be rebuilt.

In this month’s Vantage point (page 24), Debanshu Mukherjee of the Vidhi Centre for Legal Policy analyses a bill that gives the banks much-needed clout against debtors. The Insolvency and Bankruptcy Code, 2015, proposes the wholesale reform of India’s insolvency regime. Among other things, it will result in a suspension of management’s powers during the insolvency resolution process. This is a key change as management currently stays at the helm during bankruptcy proceedings and promoters, who often dominate management, enjoy what Rajan has scathingly referred to as a “divine right to stay in control”.

Another jurisdiction where debtors remain in control is Brazil, where a subsidiary of an Indian listed company, Shree Renuka Sugars, recently filed for bankruptcy protection in an attempt to shield itself from action by its creditors. The company, which prides itself on being one of the largest sugar producers in the world, went to Brazil in 2010 in what was then India’s largest investment in the country. However, the region’s economic woes hit the company hard. In The bitter end? (page 29) we take a close look at how the restructuring process – a version of Chapter 11 proceedings in the US – is being conducted and what it will mean for the future of Shree Renuka Sugars.

In Funds in flux (page 25) we turn our attention from bankruptcy to some of the challenges facing private equity investors. India is a tough environment for private equity, and as we detail, this is only in part due to the uncertainties of the regulatory regime. Additional challenges, as Vaishali Sharma at Agram Legal Consultants explains, include the likelihood of deals falling through because of valuations. The lack of exit options is yet another cause for concern as India’s stock markets usually cannot support the big flotations necessary for funds to make an orderly exit. As a result, companies have recently been contemplating listing on stock exchanges outside India, often through entities set up in offshore jurisdictions.

This month’s Cover story (page 15) takes an in-depth look at the world of offshore opportunities for India-related business, which as we detail, is undergoing a transformation that may set tried and tested relationships adrift.

Mauritius and Cyprus have long been the dominant offshore jurisdictions through which India investments – both inbound and outbound – had been channelled. But all this has changed with the emergence of Singapore, which according to Azmul Haque, the managing director of Singapore-based Collyer Law, “strikes the right balance between a flexible and conducive atmosphere for conducting business and having the appropriate regulatory checks relating to anti-money laundering and other activities required by international regulators”. This in turn provides investors with much-needed certainty and comfort.

But for how long? With investors constantly on the lookout for the most efficient structure for their investments, it may only be a matter of time before Singapore finds it is not necessarily the most attractive jurisdiction.

Rounding off this month’s line-up is a special report revealing the winners of India Business Law Journal’s 2015 Indian Law Firm Awards (page 33).

On account of the implosion of what was India’s largest firm, Amarchand Mangaldas, in May 2015, the year gone by was unlike any other for corporate law firms across India.

To find out which firms finished the year ahead of the pack, our editorial team sought the opinions of in-house counsel and other qualified observers of India’s legal profession. Thousands of in-house counsel, lawyers at international law firms and other India-focused professionals were invited to vote using a voting form posted on our website between November 2015 and early January 2016. At the same time, Indian law firms were invited to make submissions in support of their candidacy for the awards. All Indian law firms were automatically included in the awards process and, as always, there were no fees or any other requirements for inclusion.

Our top award of law firm of the year goes to AZB & Partners, which also receives seven practice area awards. Feedback from the firm’s clients suggests that a large part of the credit for this goes to managing partner Zia Mody, who is widely seen as the face of AZB & Partners.

“[AZB & Partners is] one of the most responsive, cost-effective and intelligent firms we have ever worked with,” says V Srinivasa Rangan, the executive director at HDFC, a leading provider of housing finance in India. High praise for a firm that has been in operation for just over a decade and in that time has won the trust of a large number of clients both inside and outside India.

Our sincere congratulations to all the winning firms.