NCLAT Sets Aside Liquidation Of Sterling Biotech

The National Company Law Appellate Tribunal has set aside a National Company Law Tribunal order to liquidate Sterling Biotech, and directed that the management should be handed over to its promoters if the dues of creditors are settled.

Promoters of the company include absconding Nitin Jayantilal Sandesara and Chetankumar Jayantilal Sandesara.

A three-member NCLAT bench headed by Chairperson Justice SJ Mukhopadhaya said it will not come in the way of the individual such as promoters and directors, if they pay back to the creditors in their individual capacity, and not from proceeds of crime.

However, the NCLAT granted liberty to the investigative agencies as Enforcement Directorate, Cental Bureau of Investigation, Ministry of Corporate Affairs, Securities and exchange Board of India and the other authorities to "continue/take any action against the company, Promoter/ Shareholder/ Director under the existing laws" irrespective of its settlement with the creditors.

During the hearing, counsel from ED, SEBI, MCA, and CBI had contended that they are investigating the matter against Sterling Biotech and its promoters, Directors and officers and role of other public servants.

Earlier, on May 8 Mumbai-bench of the NCLT had rejected Sterling's plea filed under section 12A of IBC to bring the company, which is facing a debt of around Rs 9,000 crore, out of insolvency proceedings.

The NCLT had also raised questions over the manner in which lenders of Sterling Biotech had agreed to settle their claims with the absconding promoters.

"CoC was interested in getting their money but without verifying the source of funds," the NCLT had said.

Lead creditor Andhra Bank had challenged this order before the NCLAT, which had passed an interim order in June this year, staying the liquidation of Sterling Biotech.

Later, passing a final order last week on Aug. 28, 2019 the NCLAT set aside NCLT order and observed that promoters have satisfied all stakeholders, including financial creditors, and proposal was also approved by 90 per cent votes of Committee of Creditors.

"We hold that the order of 'Liquidation' was uncalled for, we set aside the impugned order dated May 8 passed by the NCLT and allow the Appellant (who filed the application of Section 7 'Andhra Bank') to withdraw the application," the NCLAT said.

It also said: "...it will not come in the way of the individual such as 'Promoter' or '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 account/assets of the 'Corporate Debtor' and satisfies all the stakeholders".

The appellate tribunal further said it was always open for the enforcement agencies such as Enforcement Directorate to attach the property if that was based on proceeds of crime.

"In so far the assets of the Corporate Debtor (Sterling) is concerned, if it is based on the proceeds of crime, it is always open to the ED to seize the assets of the Corporate Debtor (Sterling) and act in accordance with the Prevention of Money Laundering Act, 2002," the NCLAT order said.

The appellate tribunal also expunged observations made against Sterling Biotech resolution professional Sundaresh Bhat by the NCLT.

It also observed that there was nothing on the record to suggest that the "individual property of the promoter/ Shareholder'/ 'Director' who proposed to pay the amount has been subjected to restraint by the ED".

"Therefore, even if the asset of the 'Corporate Debtor' is held to be proceeds of crime, the NCLT cannot reject the prayer for withdrawal of application under Section 7, if the Promoter' / Director' or Shareholder' in their individual capacity satisfy the creditors," it said.

Moreover, the NCLAT also held that section 29A, which bars defaulting promoters from bidding for a stressed company, was not applicable in this case as they are not filing it as resolution applicant, the bench said.

"The application under Section 12A having been approved by the CoC more than 90 per cent of the voting share, it was not open to the NCLT to reject the same and that too on a ground of ineligibility under Section 29A, which is not applicable," it added.

Section 12A of the Insolvency and Bankruptcy Code allows corporate debtor to settle its defaults and get the company out of insolvency proceedings after settling the claims of lenders.

The appellate tribunal further directed the resolution professional of Sterling Biotech to manage the company till the conditions of section 12A are complied.

"Till the 'terms and conditions' under Section 12A is complied, the RP will manage the company and ensure that the company remains a going concern and protect its assets," it said.