NCLT sees violation of Sec 29(A) in Sterling Biotech case

The National Company Law Tribunal (NCLT) in the Sterling Biotech case for the second time has questioned the motive of lenders, led by Andhra Bank to withdraw their bankruptcy application and to choose a one-time settlement with the absconding promoters of Sterling Biotech.

The tribunal has also questioned the source of funds which the lenders of the defaulting company have agreed to accept as the one-time settlement (OTS) on behalf of the promoter. The four promoters of the group -- Nitin Jayantilal Sandesara, Chetankumar Sandesara, Dipti Chetan Sandesara and Hiteshkumar Patel -- are currently absconding and facing extradition orders.

Sec 29(A) of the Insolvency and Bankruptcy Code (IBC) bars re-entry of the promoter in to the resolution scene on any form.

This is the second time the appellate tribunal has questioned the motive of banks that have accepted an OTS offered by promoters, Nitin Jayantilal Sandesara and family. They have offered Rs 3,100 crore of repayments by June 2019. At the earlier hearing of March 11, the tribunal had questioned the one-time settlement by absconding promoters, for a loan of Rs 7,500 crore excluding interest and penalties from a group of lenders led by Andhra Bank, while Sandesara group owes over Rs 15,000 crore to lenders.

On March 7, ninety per cent of the Committee of Creditors (CoC) decided to withdraw insolvency proceedings against Sterling Biotech under Section 12 (A) of the IBC.

"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 Gujarat-based pharmaceutical company has a total debt of Rs 9,035 crore while the entire Sterling Group owes over Rs 15,000 crore.

NCLT questioned the settlement offer as the OTS is for around Rs 3,100 crore, which translates to 65 per cent haircut for lenders.

However, lenders have informed that the money for the OTS came from Sandesara's Nigeria-based firm Welfro Ltd.

Promoters of Vadodara-based Sterling Group have said that close to $700 million will come from Dubai-based Al Khoory Group.

Earlier this month, the NCLT noted that the OTS was signed by one Farhad Daruwalla on behalf of Sandesara group and that the offer did not specify whether Sterling had authorised Daruwalla to submit the proposal.

The NCLT was suspicious on the lenders' acceptance of the OTS from the absconding promoters against whom investigative agencies are proposing to enact the Fugitive Economic Offenders Act.

Consequently, 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.

The tribunal has 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 April 26.

--IANS

ravi-ana/pgh/