KAAND 21: The Pivot Kaand TACTIC: When the original business fails, rebrand the failure as strategic evolution — nobody checks if the new direction works either
THE TACTIC IN ONE PARAGRAPH The pivot tactic is a financial sleight of hand: when a business model collapses, its promoters repackage the failure as a deliberate shift in strategy, often under a new brand or vertical. The mechanism relies on three steps. First, the original venture is quietly starved of capital or allowed to atrophy, while its liabilities—loans, vendor dues, employee salaries—are left unresolved. Second, a new entity is spun up, often with a trendy narrative (e.g., "digital transformation," "asset-light model," "ESG focus") that aligns with whatever is currently in vogue with investors or lenders. Third, the old business is either merged into the new one at an inflated valuation or simply abandoned, with its losses buried in footnotes or written off as "one-time exceptional items." The key to the tactic’s success is the absence of retrospective scrutiny: regulators, auditors, and even shareholders rarely demand a forensic audit of the pivot’s logic or its financial viability. The new direction is assumed to be sound because it is new, and the old one is forgotten because it is old.
HOW IT WORKS IN INDIA SPECIFICALLY This tactic thrives in India due to a combination of regulatory arbitrage, judicial delays, and the structural opacity of corporate ownership. The Companies Act, 2013, allows for mergers and demergers with minimal scrutiny if the transaction is framed as a "scheme of arrangement" under Section 230-232. These schemes require only a majority shareholder vote and a nod from the National Company Law Tribunal (NCLT), which has historically rubber-stamped such proposals unless there is glaring fraud. The Insolvency and Bankruptcy Code (IBC), 2016, was meant to curb such tactics by forcing resolution of stressed assets, but its implementation is slow—cases drag on for years, and promoters often regain control of their companies through backdoor routes, such as the "Swiss challenge" method, where they outbid other resolution applicants by leveraging insider knowledge.
Banking norms exacerbate the problem. The Reserve Bank of India’s (RBI) guidelines on "evergreening" of loans (where banks extend fresh credit to repay old dues) were tightened after the IL&FS crisis, but the practice persists through layered transactions. For instance, a promoter might route funds through a web of related-party entities, using the new business as collateral for loans that are then diverted to service the old one. The gap between RBI’s oversight of banks and SEBI’s oversight of listed entities means that while banks may flag suspicious transactions, the stock market regulator often misses them unless there is a whistleblower complaint.
Finally, India’s judicial system enables this tactic by design. Civil suits for recovery of dues can take decades, and criminal proceedings for fraud are rarely pursued unless the amounts involved are politically sensitive. Even when cases reach the courts, judges are reluctant to pierce the corporate veil, especially if the promoter has structured the pivot through a maze of holding companies and special purpose vehicles (SPVs). The result is a system where failure is not punished but repackaged, and the cost is borne by creditors, employees, and minority shareholders.
THE HISTORICAL RECORD One of the most documented instances of this tactic is the case of Kingfisher Airlines, which collapsed in 2012 under a mountain of debt. The original business—an airline—was allowed to fail, with banks writing off ₹6,000 crore in loans. Meanwhile, promoter Vijay Mallya pivoted to a new narrative: "Kingfisher as a global lifestyle brand." The new entity, United Breweries Holdings Limited (UBHL), was positioned as an investment company, with Mallya claiming it would focus on "high-growth sectors" like real estate and hospitality. The pivot was facilitated by a complex web of transactions, including the sale of Kingfisher’s brand to Diageo (which later alleged it was misled about the brand’s value) and the transfer of assets to related parties at inflated valuations. The Enforcement Directorate (ED) later documented how funds from the new ventures were siphoned off to service the old airline’s debts, while banks, which had lent to Kingfisher based on personal guarantees from Mallya, found themselves chasing a shell company. The outcome for the perpetrator? Mallya fled the country in 2016 and remains a fugitive; the outcome for the victims—banks, employees, and vendors—was a near-total loss, with recoveries under the IBC process amounting to less than 10% of the dues.
Another case is that of Suzlon Energy, which pivoted from wind turbine manufacturing to "renewable energy solutions" after its original business model collapsed under debt. In 2012, Suzlon defaulted on foreign currency convertible bonds (FCCBs) worth $221 million, leading to a credit rating downgrade. The company then rebranded itself as a "service provider" rather than a manufacturer, selling off assets (including its German subsidiary, REpower) to repay debt. The pivot was presented as a strategic shift toward an "asset-light" model, but the new direction never generated enough cash flow to service the old debt. Suzlon’s promoters, the Tanti family, retained control through a series of debt-for-equity swaps and preferential allotments, while minority shareholders saw their holdings diluted. The outcome for the perpetrators? The Tanti family’s stake was reduced, but they remained in control; the outcome for the victims—bondholders and minority shareholders—was a 90% erosion in the company’s market value over a decade.
A third example is Deccan Chronicle Holdings Limited (DCHL), which pivoted from print media to "digital and retail" after its newspaper business became unviable. In 2012, DCHL defaulted on loans worth ₹4,000 crore, and its promoters, the Reddy family, were accused of diverting funds to related-party entities. The company then rebranded itself as a "multi-platform content and retail company," acquiring stakes in e-commerce ventures and even a chain of bookstores. The pivot was facilitated by a debt restructuring plan approved by the Corporate Debt Restructuring (CDR) cell, which allowed the promoters to retain control despite the default. The outcome for the perpetrators? The Reddy family was later charged with fraud by the Serious Fraud Investigation Office (SFIO), but the case remains pending; the outcome for the victims—banks and employees—was a recovery rate of less than 20% under the IBC process.
THE INSTITUTIONS THAT ENABLED IT No tactic of this scale works without institutional complicity. In the Kingfisher case, the State Bank of India (SBI) and other lenders approved the debt restructuring plan despite red flags, including the diversion of funds to related parties. The Institute of Chartered Accountants of India (ICAI) later found that Kingfisher’s auditors, BSR & Co (a KPMG affiliate), had failed to flag these transactions in their reports. The NCLT approved the merger of Kingfisher’s holding companies without questioning the valuation of the brand or the rationale for the pivot.
In Suzlon’s case, ICRA and CARE Ratings maintained investment-grade ratings on the company’s debt even as it defaulted on its FCCBs. The CDR cell, a consortium of banks, approved the debt restructuring plan without conducting a forensic audit of the promoter’s related-party transactions. The SEBI took no action until minority shareholders filed complaints, by which time the damage was done.
In DCHL’s case, the CDR cell again played a key role, approving a restructuring plan that allowed the promoters to retain control despite the default. The SFIO later found that DCHL’s auditors, S.R. Batliboi & Co (an EY affiliate), had failed to disclose the diversion of funds. The NCLT approved the insolvency resolution plan despite objections from operational creditors, who argued that the promoters had siphoned off assets.
THE CURRENT STATE This tactic remains alive and well in India, though its execution has become more sophisticated. The IBC was supposed to curb such practices by forcing a resolution of stressed assets within a time-bound framework, but its implementation has been uneven. Promoters have adapted by using the "Swiss challenge" method to regain control of their companies at a fraction of the original debt, while banks, eager to clean up their balance sheets, often settle for haircuts rather than pursue legal action. The RBI’s new guidelines on "fraud classification" require banks to report diversion of funds, but enforcement remains lax, and promoters continue to exploit the gap between banking and securities regulations.
The introduction of the Pre-packaged Insolvency Resolution Process (PPIRP) under the IBC in 2021 was meant to speed up resolutions, but it has also created a loophole: promoters can propose a resolution plan before the company is declared insolvent, effectively allowing them to pivot without losing control. Meanwhile, the NCLT’s backlog—over 13,000 cases pending as of 2023—means that even when fraud is alleged, the legal process moves too slowly to deter the tactic.
WHAT TO WATCH FOR 1. Sudden rebranding with a buzzword-heavy narrative: If a company abruptly shifts from its core business to a trendy new vertical (e.g., "AI-driven," "metaverse," "Web3") without a clear path to profitability, ask why the original business failed and where the capital for the pivot is coming from. 2. Related-party transactions at inflated valuations: Check the annual report for transactions with entities controlled by the promoter or their family. If assets are being sold to related parties at prices far above market value, it’s a red flag that the pivot is being used to siphon funds. 3. Debt restructuring with minimal haircuts for promoters: If a company defaults on its loans but the promoter retains control through a debt-for-equity swap or a preferential allotment, scrutinize the terms. A genuine pivot should involve a clean break from the old business, not a backdoor bailout for the promoter.
This newsletter describes documented business tactics and systemic patterns based on public records, regulatory orders, and published financial journalism. It does not make allegations against any individual or entity. Readers are encouraged to consult primary sources and form their own conclusions.