4 September 2019: The National Company Law Appellate Tribunal (NCLAT) has set aside a lower court order to liquidate debt-ridden Sterling Biotech, allowing its promoters to take back control of the company once they make full payment to the lenders.
The ruling may well set a precedent that will have ramifications for companies willing to clear dues after they are admitted for insolvency resolution.
In an oral order last week, a threemember NCLAT bench presided over by justices SJ Mukhopadhyay and AIS Cheema along with member (technical) Kanti Narahari, set aside the May 8 order of the National Company Law Tribunal’s Mumbai bench and allowed withdrawal of a petition filed under Section 7 of the Insolvency and Bankruptcy Code (IBC).
“The entire payment under OTS (one-time settlement) shall be made by the promoters and not through the corporate debtor or its properties,” the NCLAT said in its order. “The liquidator to continue till the entire payment is made to the lenders.”
In June, the NCLAT had stayed the corporate insolvency resolution process of Gujarat-based Sterling Biotech after its workmen and lenders challenged the NCLT order before the appellate tribunal.
The dedicated bankruptcy court in Mumbai had rejected the plea of the lenders, led by Andhra Bank, to withdraw from the CIRP process.
Over 90% of the lenders had approved the settlement offer of around Rs 3,945 crore and withdrawal of the insolvency case under Section 12 (A) of the IBC. The lenders received 5% of the default amount on the day of default. Total dues to the lenders stand above Rs 8,100 crore.
The Sterling group collectively owes its financial and operational creditors Rs 15,000 crore.
Nishit Dhruva, managing partner of law firm MDP & Partners and an advisor to the Andhra Bank, confirmed the development but refused to comment since the matter is still sub-judice.
Sundaresh Bhat, partner and leader of resolution process advisory at consultancy BDO, who is the RP for the company, also confirmed the development but refused to give details.
“In so far asset of the corporate debtor (Sterling Biotech) is concerned, if it is based on the proceeds of the crime, it is always open to the Enforcement Directorate to seize the assets of corporate debtor and act in accordance with the Prevention of Money Laundering Act, 2002 (PMLA),” said the NCLAT in its 28-page order. “However, it will not come in the way of the individual such as promoter, shareholder or director, if he pays, not from the proceeds of crime but in his individual capacity, the amount from his account and not from the assets of the corporate debtor and satisfies all the stakeholders including financial creditors and operational creditors.”
Sterling promoters Chetan Sandesara and Nitin Sandesara are absconding and believed to be in Africa. The Central Bureau of Investigation (CBI), the Enforcement Directorate (ED) and the income tax department are looking into the dealings of the promoters.
Three companies of the group — Sterling Biotech, Sterling SEZ and trading arm Sterling International — are facing insolvency cases. In a separate development, the tribunal has also stayed the withdrawal petition of lenders to Sterling SEZ. These bankers too accepted a settlement offer from the promoters. Sterling SEZ owes around Rs 4,500 crore to its lenders.