From Prominence To Bankruptcy: A Look At Five Major Corporate Failures In India

After the tumultuous journey of past several months, edutech firm Byju’s seems to be nearing its endgame. On July 16, the National Company Law Tribunal’s (NCLT) Bengaluru bench admitted a petition by the Board of Control for Cricket in India (BCCI), seeking insolvency proceedings against the Byju Raveendran-promoted company.

This follows a petition against Byju’s over alleged unpaid dues of Rs 158 crore to the BCCI related to a sponsorship contract that Byju’s had with the top cricket body for the Indian cricket team.

A number of companies/individuals have faced financial implications and had undergone bankrupcy in the past. Here’s a look back to 5 of them:

1. Dewan Housing Finance Ltd. (DHFL)

Founded in 1984 by Rajesh Kumar Wadhawan, Dewan Housing Finance Ltd. (DHFL) aimed to provide housing finance to lower and middle-income groups in India’s tier 2 and tier 3 cities. For over 30 years, DHFL demonstrated significant growth and even acquired Deutsche Postbank Home Finance.

However, the company faced serious issues when it diverted Rs. 31,000 crores from loans into various shell companies for the personal gain of its promoters, including Kapil Wadhawan, Aruna Wadhawan, and Dheeraj Wadhawan. DHFL also made substantial donations to political parties, possibly to maintain their protection. For example, Rs. 14,282 crores were diverted to shell companies under the guise of slum development rehabilitation.

In 2019, DHFL defaulted on bond payments and Rs 900 crore in interest payments, leading to a drastic drop in stock prices by over 97%. The Reserve Bank of India (RBI) intervened, superseding DHFL’s board and initiating a resolution under the Insolvency and Bankruptcy Code, with the Piramal Group eventually taking over the company.

2. Bhushan Power and Steel Ltd. (BPSL)

Established in 1970, Bhushan Power and Steel Ltd. (BPSL) rose to prominence as a major steel manufacturer in India. Between 2007 and 2014, the company raised over Rs. 47,204 crores from 33 banks and financial institutions to support its expansion. Despite maintaining growth and profitability, BPSL continuously missed payment deadlines.

By April 2019, the Central Bureau of Investigation (CBI) found that funds were being funneled into 200 shell companies, leading to significant non-performing assets (NPAs) for the banks. This financial mismanagement forced the company into the National Company Law Tribunal (NCLT). Ultimately, BPSL was auctioned off to JSW Steel, which proposed a Rs. 19,700 crore repayment plan, resulting in banks incurring a 60% loss on their loans.

3. Essar Steel

Part of the Essar Group, founded in 1969 and owned by the Ruia family, Essar Steel initially encountered financial trouble in 2002, requiring Corporate Debt Restructuring for a Rs. 2,800 crore debt. The company recovered by 2006 but fell into debt again by 2015, accumulating Rs 42,000 crore in liabilities. The company’s efforts to overcome the debt were hampered by falling commodity prices.

In June 2017, Essar Steel was listed among 12 stressed accounts by the RBI, necessitating insolvency proceedings under the IBC. The company was eventually auctioned and acquired jointly by ArcelorMittal and Japan’s Nippon Steel, and was rebranded as ArcelorMittal Nippon Steel India (AM/NS India).

4. Lanco Infra

Founded in 1986 by Lagadapati Amarappa Naidu and his nephew Lagadapati Rajagopal, Lanco Infra expanded into power generation, transportation, solar energy, and coal mining, becoming one of the fastest-growing infrastructure companies in the world. By 2010, Lanco was India’s first independent power producer and its largest private power provider.

However, policy changes by the UPA government in 2012 led to a drastic reduction in merchant power tariffs, affecting Lanco’s revenue. By March 2017, 60% of the company’s expenses were interest payments. In June 2017, Lanco Infra was listed among the 12 stressed accounts by the RBI and subsequently faced insolvency proceedings under the NCLT.

5. Alok Industries

Founded in 1986, Alok Industries emerged as a leading textile manufacturer in India. The company initially experienced good growth and profitability. However, it made several strategic errors, such as borrowing Rs. 10,000 crores in 2004 for new plants instead of optimizing existing ones, and investing in real estate in Lower Parel, Mumbai, during a market downturn post-2008 financial crisis.

Continuous losses and rising debt exacerbated the company’s troubles, resulting in Rs. 30,000 crores in dues. Reliance and JM Financial Asset Reconstruction Company won the bid for Alok Industries with a Rs. 5000 crore resolution plan.