The National Company Law Tribunal (NCLT) has not accepted the attempt of bankers to let of the Sandesara group of Sterling Biotech by accepting a sharp haircut and a one time settlement (OTS). Instead, the Mumbai division bench of the NCLT slammed Andhra Bank and other lenders for not sharing details of the proposal with the resolution professional (RP), or the source of funds, time frame for payment to each lender, compliance with Reserve Bank norms and whether interests of all stakeholders /creditors had been provided for.
Further, it has issued notices to the government and all regulators in case they would like to make any representations in the matter, which has now been posted for hearing on 26 March 2019.
In a strongly-worded order, the Mumbai bench of VP Singh and Ravikumar Duraisamy says, "...OTS proposal is from Mr Farhad Daruwalla, who has signed on behalf of Sandesara group. It is not mentioned in the OTS proposal whether Farhad Daruwalla has been authorised by the corporate debtor to submit OTS proposal. It is also important to point out that the corporate debtor is Sterling Biotech and no proceedings under Insolvency and Bankruptcy Code (IBC) has been initiated against Sandesara group. How the proposal submitted by Sandesara group is accepted by the financial creditors creates suspicion when the promoter and director is absconder and Enforcement Directorate (ED) and Central Bureau of Investigation (CBI) is searching them."
"In this background, before passing any further order, we would like to issue notice to the central government through regional director of ministry of corporate affairs (MCA), Enforcement Directorate, Income Tax Department, CBI, Securities & Exchange Board of India and RBI, so that if they want to make any representation, they can make the same before passing any further order on the miscellaneous application for withdrawal," it added.
The OTS proposal was widely publicised in newspapers with Business Standard
stating that lenders have agreed for a 65% haircut. Quoting bankers, the report
said, “The promoters, bankers said, have made an offer that entails a haircut of close to 65% for the lenders. The promoter has already deposited 5 per cent of the OTS offer to banks”
In a regulatory filing, Sterling Biotech had stated, “The committee of creditors has approved the withdrawal of the Corporate Insolvency Resolution Process- CIRP of the company with requisite majority.”
According to the order, the resolution professional (RP) appointed in this matter, put up a resolution before the committee of creditors (CoC) for liquidation of Sterling Biotech after resolutions for withdrawal of corporate insolvency resolution process (CIRP) and approval of resolution plan from ACG Associated Capsules Pvt Ltd (ACG) failed. However, the CoC rejected the resolution submitted by the RP.
When the RP asked the CoC for further directions, during the 14th meeting, it was revealed that Andhra Bank on 5 March 2019 had submitted a fresh proposal for withdrawal of CIRP of Sterling Biotech. When asked to share details of its proposal, a representative of Andhra Bank asked the RP to refer to the documents submitted to NCLT on 26 February 2019.
"A representative of Andhra Bank further informed the RP that should the NCLT seek information pertaining to the OTS offer including sources of funds, timeframe for payments to each lender, compliance with RBI norms and whether the interest of all stakeholders and CoC members have been provided for under the OTS offer, the applicant Andhra Bank and CoC will address all such queries posed by the NCLT directly and not with the RP," the NCLT bench observed.
NCLT said, "It is pertinent to mention that the promoters of Sterling Biotech are absconder and we often get the news from the newspaper that various government agencies like ED, CBI and other agencies are unable to trach the promoters of Sterling Biotech."
The next hearing in this case is scheduled on 26 March 2019.
Last year in October, the ED had filed a charge sheet under the anti-money laundering law against Sandesara brothers and their Gujarat-based pharmaceuticals company Sterling Biotech in the fraudulent Rs8,100-crore loan from domestic as well as offshore branches of Indian banks during 2004-2012.
The ED had named 191 accused and 184 companies of the Sterling Biotech group in the charge sheet filed in a special court. The group includes Sterling Biotech, PMT Machines Ltd, Sterling SEZ and Infra Ltd, Sterling Port Ltd, Sterling Oil Resources Ltd and 179 shell companies.
Some individuals named in the charge sheet include the main promoters of Sterling Biotech group—Chetan Jayantilal Sandesara and Nitin Jayantilal Sandesara—Dipti Sandesara, Rajbhushan Dixit, Hitesh Patel, their chartered accountant Hemant Hathi and middleman Gagan Dhawan.
The agency had stated that the investigation in this case is still on as Sandesara brothers are learnt to be abroad.
Investigations by ED revealed that Sandesara brothers and others hatched a criminal conspiracy for cheating banks by manipulating figures in the balance sheets of their flagship companies and induced banks to sanction higher loans.
"After obtaining loans, the accused diverted the loan funds to non-mandated purposes through a web of shell companies. Thus, the loan funds were diverted, layered and laundered by the promoters for their personal purposes. Total amount of loan fraud as on date is Rs 8,100 crore. The loan fraud pertains to domestic as well as offshore branches of Indian banks," the ED had said in statement.
Loans worth Rs5,700 crore was disbursed by various banks during the years 2004-2012 and look out circulars were issued against the accused in August 2017, said the statement.
"To fulfil their criminal motive of defrauding banks, the promoters devised a multi layered strategy of cheating. They not only cheated banks but also revenue department as well as the share-holders. Their strategy included incorporation of shell companies, conducting circular transactions to artificially inflate turnover of flagship companies, claiming higher depreciations on non-existing machinery, artificial share trading with the use shell companies, layering and laundering of proceeds of crime within India and abroad through the web of shell companies."
The promoters used their employees' names and got incorporated 249 shell companies, said the ED, adding the ill gotten money was knowingly rotated, layered and finally integrated into the financial system and projected as untainted.
"The amount was further invested in the form of immovable properties. The loan funds were diverted for non-mandated purposes to shell companies and were withdrawn as cash. An amount of Rs140 crore was withdrawn from shell companies and were used for the personal purposes of the promoters which also includes bribing of public officials," said the statement.
The ED said the promoters created a web of corporate and accounting structure abroad and they incorporated more than 100 entities in various countries including United Arab Emirates, the US, the UK, British Virgin Island, Mauritius, Barbados and Nigeria.
"Their main entities outside India includes Richmond Overseas, Sunshine Trust Corporation, SEEPCO BVI, SEEPCO Nigeria and Atlantic Blue Water Services Pvt Ltd. It is revealed during investigation that the funds were rotated through various structures and ultimately carried to Nigeria to finance their oil business," said the ED.
The banks have also found that the sanctioned loans were not used for the laid down purposes but were diverted for non-mandated purposes.
The ED said the banks have also declared the loans to the tune of Rs8,100 crore as fraud, including domestic loans of Rs3,675 crore and foreign loans of Rs4,425 crore.
Last month, according to reports, promoters of Sterling Biotech—Chetan, Chetan’s wife and Nitin Sandesara as well as Hiteshkumar Patel moved a Delhi court seeking cancellation of open-ended non-bailable warrants issued against them. The matter will be heard on 2 April 2019.