India’s Supreme Court halted on Wednesday a government takeover of the management of realty firm Unitech Ltd, while it was dealing with dozens of petitions over the company’s failure to deliver apartments and honour its deposits.
The National Company Law Tribunal (NCLT), which deals with insolvency and company disputes, last week allowed the government to name new directors on the board of the debt-ridden firm, a rare intervention that the government said was meant to protect the public interest.
Unitech’s shares that had shot up last week on hopes that a new management would help resolve the firm’s problems fell as much as 17 percent on Wednesday on the Supreme Court decision.
“When the matter is already pending in the Supreme Court the center (the federal government) should not move the NCLT. The order of the NCLT is stayed,” said Supreme Court Chief Justice Dipak Misra.
A lawyer for Unitech declined to comment after the court verdict.
Unitech’s two managing directors, Sanjay Chandra and Ajay Chandra, who are also the firm’s owners, were arrested earlier this year for failing to deliver the apartments and the Supreme Court demanded they deposit funds to secure bail.
The court has also banned Unitech’s existing directors from selling assets or raising loans on their personal and company assets.
The government, citing mismanagement and siphoning of funds by Unitech, had sought permission from NCLT to replace the existing 10 directors because it wanted to prevent the company from becoming insolvent and protect 19,000 home buyers who have yet to be handed apartments they had bought.
Unitech also owes about 7.24 billion rupees ($112.37 million) to 51,000 depositors who had placed funds with the company to earn higher interest rates than typically available in banks, government lawyers said.
India’s companies law allows the federal government to make a case before the companies tribunal to take over a company if the firm is found to be acting against the public interest.
Shares of Unitech ended lower by about 14 percent in a weak Mumbai market that closed 0.5 percent lower.