Photographer: David Paul Morris/Bloomberg: Chained door is shut

Sterling Biotech Insolvency: NCLT Rejects Promoters-Andhra Bank’s Attempt To Settle

An attempt by the promoters of Sterling Biotech Ltd. to withdraw the company from insolvency resolution proceedings has hit a roadblock. Earlier this week, the Mumbai bench of the National Company Law Tribunal refused to accept the settlement plan proposed by the promoters and approved by the committee of creditors. The NCLT has asked to hear from the Ministry of Corporate Affairs, Income Tax office, Enforcement Directorate, SEBI, CBI and RBI before deciding the case.

In the backdrop of this proceeding are several pending corruption and money laundering cases against Chetan Sandesara and Nitin Sandesara - the promoters and suspended directors of Sterling Biotech. Amidst ongoing investigations, Andhra Bank had initiated the insolvency process against the company in June last year.

Soon after, the promoter group reached out to the CoC with a settlement offer which was rejected. A revised offer was submitted and subsequently approved by a little over 90 percent of the creditors’ committee by vote share. This prompted the resolution professional to file a withdrawal application with the NCLT. Under section 12A of the Insolvency and Bankruptcy Code, 2016, a withdrawal application may be approved by the NCLT after 90 percent of the CoC by vote share approves of it. The NCLT has the option to allow or deny the withdrawal.

When presented with this settlement plan on Wednesday, the tribunal noted that the offer had been made by Farhad Daruwalla on behalf of Sandesara Group - the promoter company of Sterling Biotech. The NCLT in its order said raised doubts about how the proposal submitted by Sandesara Group was accepted by the financial creditors when Sterling Biotech’s promoter/director is an absconder and investigating agencies are searching for him.

We often get the news from newspapers that various government agencies like Enforcement Directorate, CBI and other agencies are unable to trace the promoters of the corporate debtor (Sterling Biotech).
NCLT Order

The tribunal also noted that the settlement proposal said the promoter group is exploring raising funds for the settlement from a private group of financial / strategic investors. But subsequently, when the resolution professional asked for the terms of the offer, the source of funds, time frame for payment, undertaking of compliance with Reserve Bank of India norms and a representation that interests of all stakeholders have been met, Andhra Bank refused to share the details saying it would take up these issues directly with the NCLT.

In the light of these observations, the NCLT refused to approve the withdrawal application.

In January this year, in an interim order, the NCLT had enumerated fraudulent activities that Sterling Biotech’s promoters indulged in, including alleged violation of exchange control laws and income tax laws. It had pointed out that the promoter group faced allegations of having defrauded various public and private sector banks and financial institutions by indulging in circuitous transactions with various shell companies without any actually sale or purchase of goods. This was allegedly done with the intent of inflating turnover and fraudulently obtaining loans. This caused wrongful loss to the banks to the tune of Rs 5,383 crore, the order said while noting the allegations.

The NCLT will now hear this matter on March 26.