Kolkata: A sponge iron manufacturer in Kolkata has dragged the state-owned West Bengal Industrial Development Corp. Ltd (WBIDC) to the bankruptcy court.
In its petition filed last week before the Kolkata bench of the National Company Law Tribunal (NCLT), Ankit Metal and Power Ltd said WBIDC owed it Rs4.08 crore. The corporation, which disburses subsidies under different government schemes, started defaulting from 2012, the firm has alleged.
If the tribunal accepts the petition and starts the resolution process under the Insolvency and Bankrupcy Code (IBC), it could set a precedent and trigger similar action by other companies against such nodal agencies. In West Bengal alone, hundreds of small enterprises have similar complaints.
WBIDC declined to comment pending review of the dispute by its lawyers.
In West Bengal, the government provides subsidies to set up factories in areas with limited employment opportunities and infrastructure. A large number of firms have set up units, banking on the incentive. At least two different subsidies were disbursed through WBIDC: one linked to electricity duty paid and the other linked to value-added tax (VAT) collected under the earlier tax regime.
Ankit Metal said it set up a unit in the backward district of Bankura in West Bengal in 2005. West Bengal State Electricity Distribution Co. Ltd approved its claim, which was to be settled by WBIDC.
Though the electricity duty incentive was to be paid over five years, nothing was ever disbursed, the petition said.
In January 2013, the company took a bridge loan of Rs2.04 crore from WBIDC under a scheme which allowed the borrowed money to be settled against the pending subsidy.
In the past six months, the company has been writing to WBIDC seeking clarity on the payment of the rest of subsidy due from 2012. In March, it received a correspondence from WBIDC saying that Rs2.13 crore payable on account of the subsidy had been adjusted against the bridge loan.
Ankit Metal then wrote to WBIDC claiming that the agency owes it Rs3.06 crore: Rs1.95 crore of principal and Rs1.11 crore of accrued interest. “It was our money (Rs4.08 crore) in the first place which was lying with WBIDC from 2012," said a spokesperson for Ankit Metal.
After WBIDC charged interest on the bridge loan at 16.25%, the company decided to claim interest on its outstanding dues at 18%, he added.
A former official of WBIDC said the bridge loan scheme was started in view of the state government’s inability to clear the subsidy payments on time. There would always be a shortfall in budgetary allocation for WBIDC for timely payment of the subsidies, so no company was ever paid in full, this person said, asking not to be identified.
WBIDC has its own revenue streams: its main task as a facilitator of business was to acquire land for industrial units and set up industrial parks. It made decent money out of these initiatives, the official said.
Because of the government’s inability to clear the subsidy payments, a lot of companies started to face working capital shortages. So, WBIDC came up with the idea of providing short-term loans out of its own surplus to be adjusted later against budgetary allocation for subsidies, according to the official cited above.
Thus, while the corporation managed to keep its own surplus intact, it could help companies dependent on subsidies tide over working capital shortages.
Mint spoke to three top corporate lawyers in Kolkata separately, and they concurred that Ankit Metal’s case may not be admitted as one fit for insolvency resolution under IBC.
There is no doubt that Ankit Metal is a creditor, but it may not be treated as a financial or an operational creditor—neither has it lent money to WBIDC nor has it sold any goods or services, the lawyers said, asking not to be named because the case is still at an early stage of admission.