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Carnation bankrupt - Bank files insolvency plea

Punjab National Bank (PNB) has filed for the insolvency of Carnation Auto India at the National Company Law Tribunal (NCLT). The multi-brand automotive sales and service company had taken a loan of Rs. 170 crore from PNB in 2009. As per the filing with the Registrar of Companies, the cumulative losses of the company during the years 2009-10 to 2013-14 stood at Rs. 278 crores, more than the total funds raised by them.

Carnation was established in 2008 with an idea to set up multi brand car dealerships and service centers in India. It was backed by former Maruti Suzuki managing director, Jagdish Khattar. Carnation managed to secure funds of Rs. 108 crore from PremjiInvest and IFCI Ventures, Rs. 84 crore by Gaja Trustee Co. Pvt. Ltd. in the first round of funding. However, car manufacturers didn't like the whole idea and the plan did not materialize.

Later that year, the company's model was changed to multi brand garages rather than the retail of cars. Khattar invested into opening workshops in many parts of the country. This time they faced another problem. The dealers and manufacturers were against selling of spare parts in the open.

In 2009, the company once again changed its business model and ventured into the used car market. They set up a used car channel which would use the earlier facilities that were planned for workshops. However, the sudden growth of online used car entities resulted in an organization that was unable to keep up with the times. The online counterparts also got funding of venture capitalists - giving them an advantage over Carnation.

Once the insolvency petition is submitted, the NCLT will appoint an Insolvency Resolution Professional (IRP) who will oversee the future of the company assets along with a committee of creditors. The committee will be given a time of 180 days - extendable to up to 270 days to find a solution, failing which the company will be liquidated. The management of the company is now handled by the IRP and the powers of the company's board of directors is suspended in the interim.

Source - Financial Express / Livemint

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