Nitin Desai faced financial crunch months before the Covid lockdown

Six days after the nationwide lockdown was imposed to check the spread of Covid-19, the loan account of art director Nitin Desai’s ND Art World Private Ltd was declared a stressed account by the lender ECL Finance Ltd, an Edelweiss Group promoted non-banking finance company (NBFC).

According to available information, ECL Finance Ltd had classified Desai’s company under SMA-2, which is a special mention account under the early warning NPA guidelines of the Reserve Bank of India. This happened on March 30, 2020. 

SMA-2 is a loan account where the loan has been overdue between 61 to 90 days. This shows that Desai’s company was not regular in payments of the principal instalment as well as the interest. ND’s World defaulted on interest payment of Rs 4.17 crore on January 31, 2020. The loan was declared as NPA by March 31, 2021. The total default amount was Rs 252.48 crore as on June 30, 2022. 

The two-decade old ND’s Art World had approached ECL Finance in or around 2016 for a loan of Rs 150 crore. Later in February 2018, Nitin Desai again approached the company for a loan of Rs 35 crore. However, only Rs 31 crore was disbursed out of the total sanctioned amount. 

Nine months later, the ECL Finance assigned the loan to CFM Asset Reconstruction Company Ltd. It was CFM Asset Reconstruction, which filed an insolvency case against the ND’s Art World Private Ltd. 

ARCs or asset reconstruction companies are specialised companies, which buys the NPAs from the banks and NBFCs at a discounted rate and follow up with the defaulters by taking them to bankruptcy courts or doing a one-time settlement or using the SARFAESI Act to take back the collateral or securities against the loan. 

In the case of ND’s Art World, the CFM ARC, which became the new financial creditor, decided to invoke the insolvency and bankruptcy code (IBC) proceedings in December 2020. By January, the ND’s Art was also communicated about the CFM ARC as the new financial creditor of the company. During the pendency of the company's IBC application, the debt was assigned to Edelweiss Asset Reconstruction Company. So, it was Edelweiss ARC that was pursuing the case against the defaulter under the IBC. In July this year, the NCLT gave it the go ahead.