On Sunday, May 15, the national dailies carried an IDBI Bank name and shame - Public Notice About Defaulting Borrower/ Guarantors - against Tulip Telecom and its promoters lt Col (Retd) Hardeep Singh Bedi, Deepinder Singh Bedi and Sukhmani Bedi as personal guarantors for non payment of outstanding dues amounting to Rs61.95 crore. The companies named as corporate guarantors include Iron Traders Pvt ltd, Cedar Infonet Pvt ltd, Sharad Enterprises Pvt ltd, Sukhani Financial Advisors, Firepro Wireless & Technologies Pvt ltd. These are obviously very desperate times for banks saddled with stressed and non performing assets. Recalcitrant companies having swallowed whole monies from banks to fuel their expansion plans are now under the cosh. Banks have no other recourse but to go after errant defaulters and naming and shaming them with their pictures is not a bad way of going about things, so that there is societal disrepute. The Public Notice went on to say - It is hereby notified to the public at large that the above mentioned borrower and the guarantors failed and neglected to pay the installments of principal , interest and other monies to IDBI Bank with respect to the financial assistance granted to the borrower. They are supposed to pay Rs61.95 crore by 15.7.2016 as per the suit filed in DRT II, Delhi together with interest. Tulip mania had just seen a major implosion.
Chairman and managing director HS Bedi is no stranger to controversy. In March 2014, investigations by Delhi Service Tax Commissionerate found that the firm, which was engaged in providing internet services among others, was not filing its mandatory returns of the central levy from 2012-13. Service Tax Commissionerate officials then proceeded to arrest lt Col (Retd) HS Bedi, CMD of Tulip Telecom limited on charges of non-payment of tax even after collecting it from its consumers. The estimated alleged service tax evasion by the company was Rs32.16 crore. Bedi, who was produced before Patiala House Court was sent to judicial custody for 14-days. It must be mentioned that an evasion of service tax of Rs50 lakh and above was made a cognizable offence after the passage of 2013-14 Finance Bill on May 10, 2013. Then Finance Minister P Chidambaram had proposed provisions of Criminal Procedure Code (CrPC) to arrest such offenders in 2013-14 budget, in line with customs and central excise laws.
The precipitous fall of Tulip Telecom in next to no time, once a darling of the bourses, has been a shocker. During its hey days, say in November 2009, when its market price was in the stratosphere at Rs909, brokerages like Edelweiss give it a ‘sector outperformer’ rating on a relative return basis. By December 2011, the squeeze had begun - Bedi pledged 23 lakh equity shares to three different finance companies over a period of two days. Bedi pledged total of 12 lakh shares with ECl Finance, six lakh with Religare Finvest on December 27 and 28 respectively, The downward spiral accentuated in February 2012 when Chief Executive Officer Sanjay Jain resigned from the company citing personal reasons. “Sanjay Jain, CEO of the company has resigned from the services of the company due to his personal reason,” said Tulip Telecom in a filing with BSE.
The rapidity of the fall was so severe and painful that by May 31, 2013 the enterprise data services provider reported a consolidated net loss of Rs656.59 crore for the quarter ended March 31, 2013, sending its shares southwards by over 4.8 per cent. The company had reported a net profit of Rs66.03 crore in the corresponding quarter previous fiscal. The same month it got a formal approval to restructure its debt from the Empowered Group of the Corporate Debt Restructuring Cell, it said in a statement. The company’s domestic lenders, a consortium of 13 banks and financial institutions, approved the company’s corporate debt restructuring package that included a 30-month moratorium on principal and 18-month moratorium on interest. Soon Tulip was servicing a debt of more than Rs3000 crore (Rs3009 crore). By March 31, 2013, total liabilities were Rs3667 crore. lurching from one crisis to another, the company found itself in serious strife. By November 2013, the wheels had begin to come off the bus - Tulip Telecom’s clients were exiting its data centres, including its flagship facility in Bangalore, due to increasing services disruptions or fear of it. Two of the largest clients, HP and NTT, moved to rivals Reliance Communication and Netmagic respectively. Another client IBM was also said to be in talks with rival service providers for a possible exit.
Since June 2013 quarter, there is no financial news of the company when it declared a net loss of Rs153 crore on a total income of Rs253 crore. By October the same year, the staff had intensified its protest for non payment of salaries. The company accumulated short-term debt due to heavy investments in data centres coupled with working capital requirements. When these flawed investments did not bring in the expected revenues, its fortunes began to dip. Tulip had defaulted on redemption of foreign currency convertible bonds worth $140 million due in August 2013. Ultimately, it used proceeds from the sale of its stake in the joint venture with Qualcomm to repay this debt. In many ways this FCCB was the tipping point between order and chaos.
With push having come to shove, IDBI Bank has chosen this path to caution people from doing any kind of business with either its promoters or its private limited companies. Tulip, which was expected to be a $1-billion company by 2014 in 2012 saw a spate of winding up petitions filed against it by different entities like Deutsch Trustee Company and ANZ Banking Group in the Delhi High Court. Finally, on February 18 this year, the Delhi High Court wound up the company and appointed official provisional liquidator-Office of Official liquidator, High Court of Delhi, Ministry of Company Affairs announced that Tulip Telecom was ordered to be wound up on 12 February 2015 & 30 April 2015 & Official liquidator attached to Hon’ble High Court of Delhi was appointed as Provisional liquidator. Game, set and match was lost by the banks. This process of winding up and liquidation proceedings can be best explained -winding up of a company is the process whereby its life is ended and its property is administered for the benefit of its members & creditors. An Administrator, called a liquidator is appointed and he takes control of the company, collects its assets, pays its debts and finally distributes any surplus among the members in accordance with their rights.
Pertinently, Tulip Telecom was hailed as a sector outperformed and given a buy rating by several brokerages. Investment decisions were made by individuals and institutions based on these buy calls and a few years later, the company stands defunct with crores lost by banks, individuals, vendors, institutions. This process of naming and shaming should have been done earlier.