Hearing the Sterling Biotech case, the National Company Law Tribunal (NCLT) said that withdrawal from proceedings can violate the rule to debar defaulting promoters from taking back control of the firm under the Insolvency and Bankruptcy Code (IBC).
At a time when the lenders of the defaulting company have agreed to accept the one-time settlement (OTS) on behalf of the promoters, the NCLT has questioned the sources of funds for the offer.
The NCLT for the second time questioned the motive of banks that have accepted an OTS offered by promoters, Nitin Jayantilal Sandesara and family, offering Rs 3,100 crore of repayments by June 2019.
On 7 March, 90% of the Committee of Creditors (CoC) decided to withdraw insolvency proceedings against Sterling Biotech under Section 12 (A) of the IBC.
The Section allows withdrawal of a case after it is admitted at the NCLT by settling the matter between the creditors and the corporate debtor outside the insolvency process with the approval of 90% of CoC. With this, the corporate debtor gets another chance to make good on the default and retain control over the firm.
Interestingly, the four promoters of the group--Nitin Jayantilal Sandesara, Chetankumar Sandesara, Dipti Chetan Sandesara and Hiteshkumar Patel--are currently absconding and facing extradition orders.
“Hence, this is a peculiar case...Section 12 (A) is not a substitute of 29 (A)...Suppose 12 (A) is allowed, what Sandesara was not getting under 29 (A) but will now get full freedom through 12 (A),” the NCLT noted.
The Section 29 (A) of IBC disallows defaulting promoters and related persons from bidding for their own company and assets.
The Gujarat-based pharmaceutical company has a total debt of Rs 9,035 crore while the entire Sterling Group, which has other businesses as well, owes more than Rs 15,000 crore.
The OTS is for around Rs 3,100 crore, meaning a 65% haircut for lenders.
The NCLT questioned the veracity of the settlement offer. “Have you verified the source of fund? The only question most relevant is the source of funds,” the NCLT said.
Advocate Gaurav Joshi, representing Andhra Bank-led consortium in the case, argued that lenders are trying best possible recovery and hence had collectively taken the decision to accept the OTS of promoters.
“The promoters have already deposited over Rs 179.67 crore as token and are willing to deposit the entire Rs 3,110 crore as OTS by end of June 2019,” Joshi said. He added that the company’s liquidation value is less than Rs 300 crore and hence this “pragmatic decision” after nine months of efforts was taken by the lenders based on their commercial wisdom.
Lenders informed that the token money for the OTS came from Sandesara’s Nigeria-based firm Welfro Ltd. Also, promoters of Vadodara-based Sterling Group have informed that around $700 million will come with help of Dubai-based Al Khoory Group.
Sterling Biotech is the flagship company of Sandesara Group, which also owns Sterling Global Oil Resources Ltd, based in Nigeria.
Earlier this month, the NCLT noted that the OTS was signed by one Farhad Daruwalla on behalf of Sandesara group and that the offer didn’t specify whether Sterling had authorised Daruwalla to submit the proposal.
The NCLT raised suspicion on the lenders’ acceptance of the OTS from the absconding promoters against whom investigative agencies are proposing to enact the Fugitive Economic Offenders Act.
On Tuesday, while submitting its reply, counsel for the Enforcement Directorate (ED) informed the NCLT that the case is being heard in a special court in Delhi.
“Out of total fraud of over Rs 14,000 crore, the ED has already attached the properties of promoters which are worth around Rs 4,200 crore,” the ED’s counsel told NCLT.
“The newly enacted Fugitive Economic Offenders Act supersedes all the other laws and under this Act, properties of the accused in India and abroad can be attached. Hence, all the lenders should make their claim and representation to the special court in Delhi,” the counsel further said.
Joshi said, “We are doing our best to recover and the settlement will not impede any criminal proceedings against the promoters...It will still continue and nothing will change on that front. We have informed the CBI (Central Bureau of Investigation), ED and other agencies of our OTS.”
The tribunal has now also allowed the Ministry of Corporate Affairs, Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI) to file their responses within three weeks.
The case will be next heard on 26 April.