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Is Orchid Chemicals a Wilful Defaulter?

Every quarter all banks are supposed to provide a list of Wilful Defaulters to CIBIL (and other such agencies). A wilful defaulter is someone who can, but will not repay his loan. There are serious consequences of being listed as one, such as not getting access to any other loans by any financial institution, and that directors are "not fit and proper" to serve on company boards.

It turns out that a listed company, Orchid Chemicals, has been listed as a Wilful Defaulter at the end of the quarter ended Jun 30, 2014.

Here’s the CIBIL entry, from ING Vysya marking Orchid a Wilful Defaulter:

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If you click "Composition" you get:

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These are the same as the directors of Orchid Chemicals, the listed company. (K. Raghavendra Rao’s name is spelt wrong)

What about the CDR?

Orchid recently went through Corporate Debt Restructuring (CDR) which it has said (in a report) that has been implemented in July 2014. The wilful defaulter list is as of 30 June 2014, but why did ING Vysya report it as a wilful defaulter if a CDR was in progress?

The amount is not that much; just 54 crores. (In comparison with a Bhushan Steel’s massive 36,000 cr. loans this does sound insignificant).

We are awaiting a reply from the company about this issue, and at the time of writing this post, haven’t received a reply.

There are other listed companies noted as wilful defaulters – like Winsome Diamonds, Sterling Biotech, Parekh Platinum and so on. Many of them trade at very low prices, and are "penny" stocks for the most part. Orchid seemed like a big anomaly!

  • Kunal says:

    I don’t know the Orchid situation in detail.
    What I do know is that, all lenders need not join the CDR group. CDR. if passed, usually involves sacrifice.
    A lender may choose not to go down this path (a path that PSU banks usually take). It can take action against the borrower as per the rights they enjoy as a lender.

  • Atul says:

    Its not about cannot but about will not.. Who stops bank from giving loan to a person with low credit score but banks wont fund them. Unfortunately its not the case with companies as they bribe some one other/ask MP/MLA’s to call on their behalf and make PSU’s lend to such willful defaulters.. Case of unlisted entities and private firms is much bigger than the listed ones.

  • Kunal says:

    The CDR website says,
    “It may be emphasized here that, in no case, the requests of any corporate indulging in fraud or misfeasance, even in a single bank, can be considered for restructuring under CDR System. However, Core Group, after reviewing the reasons for classification of the borrower as wilful defaulter, may consider admission of exceptional cases for restructuring after satisfying itself that the borrower would be in a position to rectify the wilful default provided he is granted an opportunity under CDR mechanism.”
    CDR website:
    http://www.cdrindia.org/aboutus.htm
    This is in conflict with RBI’s master circular which says,
    ” No additional facilities should be granted by any bank / FI to the listed wilful defaulters.”
    RBI Master Circular on Wilful Defaulters:
    http://rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=8116#42
    The RBI position should apply, but it is strange to see the CDR website write something that goes against RBI norms. Not sure what happens in the end.

    • And it seems the Gujarat High Court has made the RBI wilful defaulter norms partially void, in the sense of having non-promoters removed from being noted as wilful defaulters. See this.
      But it seems here that Orchid is a direct wilful defaulter itself, so it will still be in trouble.