How textiles group took its banks to the cleaners

He worked 16-hour days, he struck out on his own in the textile business. Through most of the 70s, the 80s and the early 1990s, the Modern Group flourished, setting up eight factories and five companies across Rajasthan and Gujarat. Indeed in the 1980s, Modern Suiting occupied billboards and the wardrobes of middle-class India.

The great Indian success story began to darken in 1997 when high project costs and unviable plants sparked off defaults, first to lending institutions and soon on repayment of public fixed deposits.

And today, through a combination of crashing markets, mismanagement, family squabbles and questionable business practices, the Modern Group’s five companies are a financial mess, despite sometimes overenthusiastic support from financial institutions.

Over the last three years the group unfolded a familiar defaulter litany of legal stalling, trying to simultaneously extract concessions from banks—and repaying no money, not even the interest. The group has been slapped notices for seizure of assets under the new ordinance issued in June and ratified by Parliament last week. But like Defaulter No 1, the Mardias, Ranka too has challenged the ordinance in court.

The Worli police station in Mumbai, where Ranka lives, has a long list of cases filed by desperate depositors. At one stage the Supreme Court intervened to dismiss the writ petition filed by the group to quash some 3000 criminal cases against him and son Kamal Ranka.

Who’s to blame? Here’s what Modern Syntex attributes its defaults since 1996 to: recession in the textile industry; slump in world demand, labour unrest, heavy rains and floods (in July 1999 at Baroda) and the “shocking earthquake” of January 2001. Oh yes, also some of the 34 lending institutions who apparently played their part in the downfall—by putting directors on the boards of Modern Syntex.

Today, Ranka steadfastly refuses to accept any blame. When contacted, he had this to say in a faxed statement: ‘‘It is our past experience that on earlier occasions information published relating to the group was not appreciated in the correct perspective.’’

A Marwari known for his frugal lifestyle, Ranka has had to swallow some of that pride over the last year. Under threat of the tough new law, he’s now started negotiations with banks, where he must often discuss his options with 30-something middle-rung bankers.

HOW THEY GOT THE MONEY

Through most of the 70s, the 80s and the early 1990s, the Modern Group flourished, setting up eight factories and five companies across Rajasthan and Gujarat. Indeed in the 1980s, Modern Suiting occupied billboards and the wardrobes of middle-class India.

Ranka’s companies (Modern Syntex, Modern Threads, Modern Insulators, Modern Terry Towels and Modern Denim) flourished during the stockmarket boom. They issued scores of fixed deposits and borrowed close to Rs 1,500 crore from 34 lending institutions. There was never a problem. The group had the best credit rating, AAA.

It was only in 1995, when the markets went bad that it began to unravel for Ranka. Still, according to most corporate observers, the Modern Group has been the subject of unusual benevolence by various financial institutions, especially the now beleagured IFCI, a big and, according to observers, an often ‘‘reckless’’ benefactor.

Modern Group firms were offered repeated rescue packages over the years although there were no signs of a turnaround. Investor associations have accused group companies of serious misstatements in project proposals and prospectus.

AND HOW THEY GOT AWAY

The Group got some of its first reprieves from its lenders. In October 2001, some of the lending institutions that were vexed with the Rankas for bad debts, almost decided to raise their stake in Modern Syntex by converting some loans to equity. That means the loans effectively get waived: in exchange institutions get a larger shareholding in the company.

This was part of a restructuring proposal that included the sale of Modern Denim. It was supposed to help the Rankas bring in funds for the rescue plan. Accordingly, a mandate was given to Jardine Fleming to find a buyer for the company, but no one wanted the plant. Modern Denim was declared sick after accumulating losses of Rs 150.17 crore for the year ending March 2000.

Meanwhile, Modern Syntex, which always claimed a turnaround was possible, restated its account and tried to declare itself a sick undertaking. In August 2001, its application was rejected by the BIFR. Unhappy with the order of the appeals tribunal, it went to the Rajasthan High Court. That order was dismissed too.

But the Rankas wouldn’t give up. They appealed to a division bench of the court and won a reprieve. The State Bank of Bikaner and Jaipur and the Union Bank even moved Debt Recovery Tribunals to get their money, but the group stymied action on that front under the Bombay Relief Undertakings (BRU) Act 1958, meant to protect labour by prohibiting action by creditors for a year.

It’s of course misused blatantly, as Modern Syntex and Modern Suitings did: both have been under BRU protection since 1999 and recently had the notification extended until February 14, 2003.

Despite the long rope that the group got from its bankers, it now accuses the lending institutions—in its court case—of not being as tough on other borrowers who “stand on the same footing”.

The big question is this: if the Group says it’s bankrupt, why does it fight institutions trying to take over its assets? Obviously, the Group still has assets worth fighting for.

(With George Mathew in Mumbai)