The Board of Control for Cricket in India (BCCI) believes a consortium of banks that offered a Rs 2,000 crore guarantee to it on behalf of Nimbus Communications for domestic cricket telecast rights, did so without sufficient collateral from the broadcaster.
As a result, claims the board, the three banks-Union Bank of India, Punjab National Bank (PNB) and Indian Bank-are now unwilling or unable to meet BCCI's demand to encash the guarantee of Rs 1,600 crore. Nimbus owes this much to the board. This is the third default by Nimbus.
If the banks had agreed, BCCI would have claimed Rs 1,600 crore of the Rs 2,000 crore contract which was signed in November 2009 for six years. The balance of Rs 400 crore is for matches yet to be telecast during the remainder of the contract.
BCCI's working committee cancelled the contract with Nimbus on December 12 after the broadcaster failed to pay Rs 50 crore, part of an instalment of Rs 74 crore which it owed BCCI for the 2011 season. Nimbus sought a 45-day reprieve; it had already paid BCCI Rs 24 crore. BCCI refused to budge and wanted the entire Rs 1,600 crore, citing two previous defaults by the channel.
"We would like to seek legal recourse at the highest level and also raise this issue with the Reserve Bank of India (RBI) and seek its intervention to recover the money owed to us," says BCCI legal head P.R. Raman. He claims the board informed the banks about earlier defaults.
When Nimbus defaulted for the third time in November, the board demanded that the banks pay them Rs 50 crore from the margin money retained by them. The margin money is 10-15 per cent of any contract, and is retained till the account is settled.
The banks are either silent or evasive about their deal with Nimbus. In Delhi, PNB CMD K.R. Kamath said it was their prerogative to decide what to seek from a company as collateral. On December 22, PNB, along with the other banks, told the Bombay High Court that they would not pay BCCI the guarantee money. An email from India Today seeking answers from Indian Bank and Union Bank went unanswered.
In a note emailed to India Today, Nimbus said the banks followed norms that were prescribed by RBI. "The banks also took first charge on receivables of Nimbus from BCCI matches, charge on physical assets as well as several other additional securities," said Nimbus Chairman Harish Thawani. He, however, refused to give details of the assets pledged to the banks.
In a note to BCCI Treasurer Ajay Shirke, a senior official of Union Bank of India, the lead bank in the consortium, said the guarantee could not be invoked because the BCCI did not mention the nature and extent of default by Nimbus.
Raman claims that BCCI became aware of Nimbus's poor financial health only when the broadcaster sought a refund of Rs 250 crore for the cancelled India-Pakistan series in March 2012. Nimbus told BCCI that the refund would help it clear its dues worth Rs 50 crore.
BCCI officials are worried that the current controversy could affect the board's future arrangement with broadcasters. "If a bank refuses to honour a guarantee on a technicality-the invocation was made after the termination of the contract and not before as stipulated in the agreement-it will set a bad precedent," says a senior board official.
In the high court, Justice S.J. Vazifdar referred the case for arbitration after the banks stood firm. The world's richest cricket board's cash dilemma continues.
Reproduced From India Today. © 2012. LMIL. All rights reserved.
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