In one of the sternest actions ever on an erring corporate, the government and the National Company Law Tribunal on Friday acted in harmony and in quick succession to suspend the board of debt-ridden realty firm Unitech and replace it with an interim set-up consisting of government nominees. A prominent precedent of annulling a corporate board was the January 2009 order of the then Company Law Board, the predecessor of NCLT, allowing the government to take over the management control of Satyam Computer Services following a huge financial fraud that rattled corporate India.
While barring the nine existing directors of Unitech with immediate effect, a two-member tribunal bench headed by chairman justice MM Kumar directed the government to submit its 10 names to the board by December 20, the next date of hearing.
Earlier, the ministry of corporate affairs had approached the NCLT to take over the management of Unitech, alleging mismanagement and siphoning of funds by the management. On hearing the company a few hours after the initial order was issued, the tribunal asked the firm to file a reply to the government’s petition. The firm had said the tribunal was not informed by the government of a Supreme Court bar on any coercive action against it.
“This order, already passed, shall be subject to compliance of all orders of Supreme Court,” the NCLT bench then said.
In fact, the NCLT even pulled up the government for the delay in filing the petition. “Why there was a delay in filing this petition, when they have siphoned off everything?… Several companies doing such fraud, let the gullible not suffer,” Kumar said.
The tribunal also restrained the promoters and managing directors of the firm, Sanjay Chandra and his brother Ajay Chandra, from alienating or mortgaging any assets of the company. Both brothers are behind bars in an alleged forgery case filed by flat buyers of its Gurgaon-based Anthea Floors Wildflower Country housing project. According to the tribunal, the company was neither run with sincerity and honesty nor according to the provisions of the Companies Act.
In its plea filed under Section 241(2) of the Companies Act, the ministry alleged “massive financial irregularities and mismanagement” in the company which, it said, were reflected by a report of the registrar of companies. The provision allows the government to apply to the tribunal for taking over management control of a firm if it feels that it is operating in a manner prejudicial to public interest.
Additional solicitor general Sanjay Jain told the tribunal that Unitech was a “fit case” for initiating winding-up proceedings but the government would still not go that way because of the larger interest of flat buyers and depositors of the company.
He said Unitech owes Rs 723 crore to 51,000 fixed deposit holders and was in no position to pay back the money. It added that the company and its subsidiaries have even failed to deliver 19,000 flats to home buyers and their future was in limbo as construction activity had come to a standstill. “We want to avoid insolvency of this company, otherwise the 19,000 home buyers will be left high and dry,” Jain said.
Unitech’s lawyers were not present during morning proceedings even as the government’s law officer told the tribunal that an advance copy of the petition was sent to the firm, but it refused to accept it. Hours after NCLT debarred its directors, Unitech approached the tribunal, challenging the order. However, the tribunal declined to vacate its order, although it modified it to the extent of allowing newly constituted board to take steps to comply with the Supreme Court orders that had directed Unitech to deposit Rs 750 crore by December-end to secure bail for the two brothers.
While asking tribunal to keep in abeyance its order of dismissing Unitech board, senior counsel Ranjit Kumar, who appeared for Unitech, cited the Supreme Court’s October 30 order that restrained all courts and tribunals from passing any coercive order against the company till the apex court decided the matter finally. The company claimed that it aimed to “monetise” its unencumbered properties including land bank and assets to recover money to deposit money in the Supreme Court.
A total of 4,688 home buyers are claiming a refund of Rs 1,865 crore from Unitech in the Supreme Court over various projects undertaken by the real estate company.
In April this year, the Economic Offences Wing of Delhi Police arrested Sanjay and Ajay Chandra for allegedly not developing a project despite receiving funds from investors.
The company’s net loss widened to Rs 149.23 crore for the second quarter ended September. The company had reported a net loss of Rs 54.39 crore for the same period of the previous fiscal. Revenue from operations declined to Rs 240.75 crore during the second quarter, compared with Rs 487.87 crore in the same period of previous fiscal, Unitech had said in a regulatory filing.