LKB dubs Morepen a wilful defaulter

Lord Krishna Bank has classified Morepen Laboratories as a 'wilful defaulter'. The drug firm's corporate debt restructuring (CDR) plan, which was discussed at a meeting on Tuesday, did not get clearance from the lenders. The company's exposure to banks is to the tune of Rs 750 crore.

Even if one lender categorises the account as a wilful defaulter, the lenders cannot restructure the account through CDR. Going by the Reserve Bank of India (RBI) definition, when a borrower does not repay the lender despite having the capacity, it becomes a wilful defaulter. Besides, fund diversion and siphoning off funds also constitute wilful default.

In a faxed statement to Business Standard, Vikas Thapar, vice-president (finance), Morepen Laboratories, said, "...Lord Krishna Bank, one of the lenders with an exposure of about 1.3 per cent of the total debt, has classified Morepen Laboratories as a wilful defaulter. The bank's stand was discussed in the CDR committee meeting... and the CDR cell took a stance that the bank's claim does not comply with the RBI guidelines."

Refuting the accusation, R M Nayak, managing director and chief executive officer, Lord Krishna Bank, said: "There is no question of violating the RBI guidelines. We declared Morepen Laboratories a defaulter on March 22, much before the new RBI norms asking for pre-hearing of defaulter before declaring it a 'wilful defaulter' came on June 17."

"The question is not whether the classification as wilful defaulter is preventing the CDR. The question is whether a reference to CDR can be a ruse for wilful defaulters to avoid repayment of funds to the financial system. Looking at the way it is presented, one is constrained to state that there is a mistaken impression that a reference to CDR is an alternative for non-payment of dues by wilful defaulters," he pointed out.

Over 43 cases have been filed by various lenders against Morepen in several courts and debt recovery tribunals in an effort to recover the dues, banking sources said. The lenders will meet on October 8 to discuss the issue.

In a faxed statement, Morepen said: "We are under the process of restructuring our debt through CDR mechanism. Ernst & Young had carried out a techno-economic feasibility study and had presented its report on the viability of the project for the next 15 years."

Meanwhile, the pharma firm is understood to be talking to Lord Krishna Bank asking it to reclassify the account. But the bank plans to make the recoveries through the legal route, according to Nayak. If the RBI were to declare any company as a wilful defaulter, no bank gives fresh funds to it.

The New Delhi-based drug major owes Rs 750 crore to 43 lenders with Exim Bank as the lead bank. The other lenders include Lord Krishna Bank, Bank of Baroda, Canara Bank, Punjab National Bank, Uco Bank, State Bank of Travancore.

The firm, which has been posting losses for the past 6 quarters on the trot, wants several concessions through CDR in the form of fresh funding from lenders and lower rates of interest.