FE: Sterling Biotech: NCLAT sets conditions for promoters to take back control

7 September 2019: The National Company Law Appellate Tribunal (NCLAT) on Friday set two preconditions — clean money certified by the Enforcement Directorate (ED) and timely payment to the creditors — for the absconding promoters of Sterling Biotech to wrest back control of the insolvent firm. Failing which, the firm with a debt of over `9,000 crore will be sent back to liquidation.

NCLAT’s latest direction comes days after it termed “uncalled for” the National Company Law Tribunal (NCLT), Mumbai bench’s order of liquidation of Sterling Biotech on the ground that an application to take the company out of the insolvency process filed under section 12A of the Insolvency and Bankruptcy Code (IBC) has got nothing to do with a promoter’s eligibility under section 29A provided the proposal has the backing of over 90% affirmative votes of the lenders.

“The order (on August 28) is a conditional one. We may also revert to liquidation if the amount is not paid. Liquidation order may be restored. You (promoters) will have to get the verification done as to whether the money is genuine or not. Only ED will say that, not bank. Our order is very clear that it should not be the proceeds of crime,” the three-member NCLAT bench, headed by its chairperson SJ Mukhopadhaya, said.

The bench, hearing an application moved by the liquidator of Sterling Biotech seeking clarification over the order passed by the NCLAT on August 28, said the ED has to be satisfied that the money the promoters deposit is clean money and not from the proceeds of crime.

While setting aside the NCLT’s May 8 order, the NCLAT had on August 28 said even if the corporate debtors’ assets are proceeds of crime, it does not bar the promoters to settle the matter with the creditors if they put in the money out of their own pockets.

“We want clean money to come back to India, the money which will come from personal sources,” the bench said.

The NCLAT also issued notice to Andhra Bank, lead banker to Sterling Biotech under whose plea corporate insolvency petition was admitted, asking it to state as to why its August 28 judgment be not clarified in view of the fact the promoters or shareholders or directors “have been allowed to pay in their individual capacity from their respective accounts and not from the proceeds of crime”.

“A clarification is required to be given as to what would be the steps to be taken, if section 12A application is not given effect within the time-frame, say 30 days from the date of order and whether to revert to the stage of liquidation for failure of compliance,” the bench said.

The bench directed that the liquidator be appointed by the adjudicating authority to function until further orders. It has asked ED’s counsel to remain present in the court on the next hearing, scheduled on September 23.

The Financial Express reported

DNA: Lenders fail to attach Sterling Biotech’s overseas assets

22 August 2019: Banks have failed to take adequate safeguards to protect the loans extended to Sterling Biotech by attaching the oil assets of the promoters in Nigeria.

Instead of carrying out a prior examination on how this could be done by discussing with the Nigerian oil regulator, senior bank officials made a visit to the country years after issuing two standby letters of credit (SBLC) worth $230 million (Rs 1,500 crore) to the promoters Nitin Jayantilal Sandesara and Chetan Kumar Jayantilal Sandesara, who are now absconding, to raise money overseas.

Despite the officials travelling to Nigeria from September 17 to 23, 2017 to attach the oil assets of the Sandesaras, no action could be enforced. Initially, the agreement was that the overseas oil company, Sterling Oil Exploration & Energy Production Company Ltd (SEEPCO), would take responsibility for the unpaid loans of Sterling Biotech’s Indian companies, but the promoters failed to repay the loans and were classified as wilful defaulters.

The Sandesaras are defaulters of Rs 15,600 crore taken on behalf of their two Indian companies, Sterling Biotech and Sterling SEZ & Infra. While Sterling Biotech owes Rs 7,500 crore, its sister concern Sterling SEZ & Infra owes Rs 8,100 crore. Despite these loans being unpaid to the consortium of lenders led by the State Bank of India (SBI), two guarantees were offered to the group’s foreign outfit, SEEPCO, so that it could borrow from overseas.

“The banker group that went to Nigeria reported back that recovery of loans from the oil field assets could be done only if the Nigerian oil regulator agreed to substitute SEEPCO with new owners,” said one of the bankers. However, the banks failed to reassign SEEPCO’s participating interest right to any other investor. No effort was made to find another investor or use the good offices of the government of India for taking charge of interests in the oil fields. No visit to Nigeria was made before sanctioning the two SBLCs, the source said.

The first SBLC worth $130 million was issued on March 2014 while the second one of $100 million was approved in September 2015. SBI had fronted the guarantees on behalf of the other banks despite two of its loans to Sterling turning into non-performing asset (NPA) and the promoters being classified as wilful defaulters.

A detailed questionnaire sent to SBI and Reserve Bank of India (RBI) failed to elicit any response.

Andhra Bank, which is now leading the lender consortium, had initially referred Sterling Biotech to the National Company Law Tribunal (NCLT) on June 11, 2018. But later lenders of Sterling Biotech voted with a 90.32% majority to pull the case out of the NCLT. In March this year, the creditors told the court that they would withdraw the case and have a one-time settlement (OTS) with the promoters. However, they refused to give the details of the OTS to the resolution professional (RP) saying that they would inform the court at the appropriate time.

A source told DNA that the absconding promoters made an offer of Rs 5,500 crore, which is 40% of the total claims of Rs 15,000 crore of the banks.

Andhra Bank has petitioned through its lawyers AZB Partners and Nishit Dhruva from MDP and Partners to withdraw the case from the NCLT so that banks could settle part of the debt with a representative, Farad Darruwala, of the promoters. However, the NCLT court noted that in the OTS there is no mention whether Daruwala is authorised by the promoters, the Sandesaras.

The DNA reported

BS: Insolvency case: NCLAT stays eviction of Sterling Biotech from its premises

5 August 2019: The National Company Law Appellate Tribunal (NCLAT) has stayed eviction of Sterling Biotech from its premises as the debt-ridden company was going under the insolvency resolution process and was under the moratorium period.

A two-member bench headed by NCLAT Chairman Justice S J Mukhopadhaya upheld the order passed by the Mumbai Bench of the National Company Law Tribunal (NCLT), which had asked Srei Infrastructure Finance, a financial creditor, to hand over the possession of the A and B wing premises of Laxmi Towers.

The appellate tribunal observed that although Sterling Biotech, which is presently going through liquidation, is not the owner of the premises it cannot be ejected or disturbed during the moratorium period as the company has to remain as a going concern.

“We hold that the Adjudicating Authority (NCLT) has rightly directed the Appellant to hand over the possession of B’ Wing premises of Lakshmi Towers and rightly prohibited the Appellant from evicting the Corporate Debtor (Sterling Biotech) from A’ Wing premises of Lakshmi Towers,” said NCLAT.

However, it also said that “So far as the question as to who is the owner of A’ and B’ Wings premises of Lakshmi Towers and whether the Appellant has any right over the said property, such questions are not required to be determined in the proceeding under the I&B Code’.”

NCLAT also said if Sterling Biotech is saved during the liquidation proceeding or if it is sold to a third party along with the employees then, in such case, one may move before the Competent Court of law for appropriate decision.

Besides, the appellate tribunal also said that “the Liquidator cannot sell the assets of the premises in question.”

Resolution Professional of Sterling Biotech had moved NCLT against the financial creditor to return the possession of B Wing premises of Lakshmi Towers and restrain Srei Infrastructure Finance from taking any action in relation to A Wing premises, which had allowed it.

Following which, Srei Infrastructure Finance moved NCLAT.

It had contended that the property in question does not belong to Sterling Biotech and being a third party property, the order of Moratorium’ passed under Section 14 of the I&B Code’ will not be applicable.

Opposing it, the RP had submitted that it amounts to obstruction in the matter of keeping Sterling Biotech as a going concern.

Sterling Biotech, whose promoters Nitin Jayantilal Sandesara and Chetankumar Jayantilal Sandesara are absconding, has a total debt of over Rs 9,000 crore.

The Business Standard reported

ET: Gujarat cancels Dahej port contract given to absconding Sandesara brothers of Sterling group

8 July 2019: The Gujarat government Monday canceled all permissions granted to the bankrupt Sterling group promoted by the absconding Sandesara brothers to develop an all-weather port in Dahej.

The absconding promoters of the Sterling group– Nitin and Chetan Sandesara–are alleged to have defrauded over Rs 14,500 crore of public money. Two of their flagships–Sterling Biotech and Sterling SEZ are in bankruptcy tribunals now.

Both the bothers are absconding since their names came up in the bank loan scam and money laundering activities and federal agencies began probing them.

“Chief minister Vijay Rupani today decided to cancel all the permissions given for building an all-weather berthing port at Dahej to Sterling Ports of Nitin Sandesara,” the chief minister’s office said in a statement Monday.

“Rupani has also directed the Gujarat Maritime Board to recover the amount that the company had to pay as bank guarantees and also to take re-possession of the 84.95 hectares given to the company for developing the port,” the statement added.

The Gujarat Maritime Board and a consortium led by Sterling Biotech had entered into an agreement to develop the Dahej port as an all-weather direct berthing port in 2009. Following this, the board had handed over 84.95 hectares to the group in 2010.

The Sterling consortium had formed a new company– Sterling Port-to develop the port and had also signed a concession agreement in 2014 with the board.

As per the agreement, the company was to invest Rs 2,500 crore in the first phase and had to deposit 1.5 percent of the equity along with another Rs 5 crore as performance guarantee with the maritime board.

But the company is yet to start any work on the port, government officials said, adding it even failed to deposit Rs 37.50 crore which it had to pay as bank guarantee to the government.

Earlier in the day, the board of directors of the maritime board met and recommended to cancel the contract, they said, adding following this, the chief minister ordered cancellation of all the agreements and permissions given to the Sandesara group.

The Sandesaras brothers are alleged to have committed bank frauds to the tune of Rs 14,500 crore of the one by Sterling Biotech alone is around Rs 8,100 crore, according to the Enforcement Directorate. The brothers have been absconding since the federal agency CBI registered a bank fraud case against them in 2017.

The Economic Times reported

DC: Sterling Biotech: ED attaches assets worth Rs 9,778 crore

27 June 2019: The Enforcement Directorate (ED) has attached assets worth over Rs 9,500 crore in connection with its money laundering probe against Gujarat-based pharmaceutical firm Sterling Biotech, which is allegedly involved in a multi-crore bank fraud case.

The agency in a statement issued here on Wednesday said that they have issued a provisional order under the Prevention of Money Laundering Act (PMLA) for attachment of properties linked to Gujarat-based pharmaceutical firm Sterling Biotech. This is one of the biggest attachment of assets order issued by the agency and in this, most of the properties attached are based abroad, a senior official said, adding that the total value is Rs 9,778 crore.

“Four oil rigs and an oil field named OML-143 in Nigeria, four Panama registered ships— ‘Tuljabhawani’, ‘Varinda’, ‘Bhavya’ and ‘Brahmani’, a Gulfstream jet registered in the US and held in the name of SAIB LLC, and a residential flat in London have been attached”, the federal probe agency said in its statement. The holding company of the ships is Atlantic Blue Water Services, it added. The alleged Rs 8,100 crore bank loan fraud is being alleged to have been perpetrated by the Vadodara-based pharma firm and its main promoters Nitin Sandesara, Chetan Sandesara and Deepti Sandesara, all of whom are absconding.

The Sandesaras are also under probe for their alleged nexus with some high-profile politicians by the ED as also by the CBI and the Income-Tax department under criminal sections that deal with corruption and tax evasion respectively. The ED, in the past, has attached assets worth Rs 4,730 crore in this case. “The main promoters (of the Sterling group) have not only siphoned off loan funds to finance their Nigerian oil business but also for their personal purposes,” the agency said.

Investigations revealed that the group was engaged in round-tripping of standby letters of credit (SBLCs) funds to the tune of Rs 4,500 crore by violating conditions laid by the RBI while sanctioning the loan”. It is alleged that the company took loans of over Rs 5,383 crore from a consortium led by Andhra Bank, which had turned into non-performing assets. The ED registered a criminal case in the alleged bank loan fraud case based on a CBI FIR and chargesheet.

The promoters of the firm, also alleged to be the main conspirators of the bank fraud, are absconding and have been reported to be based in Nigeria from where India is trying to extradite them.

The Deccan Chronicle reported

DNA: CBI investigates on what basis banks gave loans to struggling Sterling Group

25 June 2019: The Central Bureau of Investigation (CBI) is investigating officials and examining documents of banks that have lent money to the Sterling Group, which is facing insolvency proceedings over debts of Rs 15,600 crore, Zee Media has reported.

The Banking and Securities Fraud Cell of CBI has been examining documents and questioning officials of the lender banks for eight days. The focus of the CBI’s investigation is to understand on what basis the loans had been sanctioned and if due processes were followed or not.

Many of the banks that lent to the Sterling Group are PSU banks – Andhra Bank, UCO Bank, Union Bank, SBI, Indian Overseas Bank, Allahabad Bank, Bank of Baroda and Bank of India.

The Sterling Group is owned by Nitin Sandesara and his family. The Group owned by Sandesara family, who have fled the country to avoid legal proceedings. Sterling Biotech owes more than Rs 7,500 crore and Sterling SEZ owes over Rs 8,100 crore.

Apart from CBI, Enforcement Directorate is conducting investigation against the Sandesara family. The ED had already moved to the PMLA court and registered a complaint under the recently-enacted Fugitive Economic Offenders Act against Nitin, Chetan and Dipti Sandesara, and Managing Director (MD) Hitesh Patel. Other than Patel, Chetan and Dipti are also MDs of the company.

In March 2019, it was reported that Hitesh Patel was nabbed by the Interpol after a red corner notice (RCN) was issued in his name.

The DNA/Zee News reported

DNA: SBI, banks gave defaulting Sterling owners Rs 1.3k cr guarantees

11 June 2019: The State Bank of India’s (SBI) loan sanction process to a subsidiary of debt-laden pharmaceutical company Sterling Biotech has come under a cloud.

A consortium banks led by the SBI provided guarantees of Rs 1,298.10 crore to Sterling Biotech’s overseas oil subsidiary when the promoters of the company, Nitin Sandesara, Chetan Sandesara, Dipti Sandesara and Hitesh Patel, were already in the Reserve Bank of India’s (RBI) wilful defaulters’ list. Two domestic companies, Sterling Biotech and Sterling SEZ & Infrastructure Ltd, had unpaid dues of Rs 15,500 crore to a clutch of domestic banks.

The guarantees were in the form of Standby Letter of Credit (SBLC), which the SBI said was to secure the stressed domestic loan.

The RBI, which probed these loans sanctioned to Sterling, observed that the company may have round-tripped the funds to the SBI to make their accounts standard temporarily. The guarantees helped the Sterling promoters to raise money abroad, RBI observed.

However, the central bank did not respond to a detailed questionnaire sent by DNA Money despite repeated reminders.

The guarantee was extended in September 2015 to Sterling Global Oil Resources Ltd (SGORPL), which is the overseas subsidiary of the Sterling group that operates an oil field in Nigeria. The money was to be utilised to set up infrastructure for undertaking exploration, production and evacuation activities in the oil business and the cash flows were to serve as a security for the domestic loan.

As of now, Sterling Biotech owes over Rs 7,500 crore while its sister concern, Sterling SEZ, has an outstanding dues worth Rs 8,100 crore to a consortium of banks.

The banking regulator had asked SBI to escalate the matter to the board, which was then headed by Arundhati Bhattacharya, to scrutinise the loan sanction process. However, no action was taken by the SBI, and both the regulator and the bank seem to have glossed over the issue.

The bank’s financial support to Sterling’s oil subsidiaries in Nigeria was undertaken despite the country was being on the high-caution list of SBI. The promoters of Sterling Biotech are being investigated for money laundering by the Enforcement Directorate, and are absconding.

“The guarantee was given so that the liabilities of the two stressed companies were taken over by the foreign subsidiary, Sterling Oil, which had far better security as the Nigerian oil fields were onshore. It had quality crude, with low production cost, and, thus, gave the bank better security,” said an official defending the bank’s loan sanction. However, the foreign subsidiary failed to generate any cash flows to the domestic companies, and Sterling Biotech was admitted in the bankruptcy court.

Meanwhile, Andhra Bank, leading the same clutch of banks, is fighting in the National Company Law Tribunal (NCLT) to withdraw the case and go for a settlement with the promoters of Sterling by taking a haircut of 64% on the outstanding debt. Of the admitted claims of Rs 9,000 crore, the company is willing to repay about Rs 3,000 crore.

The Mumbai bench of NCLT has raised questions over the manner in which the lenders agreed to settle their claims with the absconding promoters under 12A and to withdraw the insolvency plea so that they can get back the company.

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

“The Committee of Creditors (CoC) was interested in getting their money without verifying the source of funds. If such a plan is approved in the guise of section 12A, then this will defeat the statutory provision of section 29A and the promoters will get the control of the company at a discount of approximately 64 %, a sum of Rs 3,110 crore as against a total claim of Rs 9,053 crore,” NCLT had said. Section 29A bars defaulting promoters from bidding for a stressed company.

While NCLT ordered liquidation of the company, National Company Law Appellate Tribunal (NCLAT) has stayed the liquidation order on June 7, saying it is a going concern. Next hearing is slated for July 16.

RBI’s Investigation

  • RBI, which probed the loans, observed that the company may have round-tripped the funds to the SBI to make their accounts standard temporarily.
  • The guarantees helped the Sterling promoters to raise money abroad, RBI observed 

The DNA reported

ET: NCLAT stays tribunal’s order to liquidate Sterling Biotech

4 June 2019: The National Company Law Appellate Tribunal (NCLAT) has stayed the liquidation order passed by the dedicated bankruptcy court against Gujarat-based Sterling Biotech. The tribunal has granted a stay against the liquidation of the firm in two separate petitions filed by its employees and Andhra Bank, a lead consortium lender of the company.

“Until further order, the operation of the impugned order dated May 8, 2019, so far as liquidation is concerned shall remain stayed. However, the liquidator will ensure that the company remains a going concern,” said NCLAT bench presided over by Justice SJ Mukhopadhaya, Justice AIS Cheema and Kanthi Narahari. “The bank account(s) of the corporate debtor (Sterling Biotech) be allowed to be operated for the day-to-day functioning of the company such as for payment of current bills of the suppliers, salaries and wages of the employees’/workmen, electricity bills etc.” Last Friday, while staying the tribunal order, the appellate tribunal had given two weeks’ time to the lenders and RP of the company to file their reply and posted the matter for July 16 for further hearing. The lenders, led by Andhra Bank had sought the tribunal’s approval after accepting the one-time settlement from the Sandesara brothers, the fugitive promoters of Sterling Biotech.

On May 8, NCLT had rejected an application from the Sterling Biotech lenders to withdraw their insolvency resolution petition. Over 90 per cent of the lenders had approved the settlement offer of Rs 3,945 crore and withdrawal of the insolvency case under Section 12 (A) of the Insolvency and Bankruptcy Code. The lenders received 5 per cent of the default amount on the day of default.

Total dues to the lenders stand above Rs 8,100 crore. Nishit Dhruva, managing partner of law firm MDP & Partners, an advisor to Andhra Bank, confirmed the development but refused to comment as the matter is subjudice. Sundaresh Bhat, partner and leader of resolution process advisory at consultancy BDO, who is the RP for the company confirmed the development but refused to divulge any details.

Sterling promoters Chetan and Nitin Sandesara are absconding and believed to be in Africa. The Central Bureau of Investigation (CBI), Enforcement Directorate (ED) and the income tax department are looking into the dealings of the promoters.

The Economic Times reported

DNA: Bank of India tags Sandesara brothers as wilful defaulters

5 June 2019: Bank of India (BoI) has declared Sandesara brothers, the absconding promoters of Sterling Biotech as wilful defaulters. The group, which has two companies Sterling Biotech based in Bandra focusing on pharmaceuticals and Sterling Global Oil Resources in Nigeria, borrowed about Rs 15,000 crore from a clutch of 37 domestic banks.

The bank in an advertisement put out on Tuesday said that the company directors Nitin Jayatilal Sandesara and Chetan Jayantilal Sandesara are declared as wilful defaulters for not repaying cash credit and term loans of Rs 124.79 crore. The loan was availed in June 2009 from BoI’s Nariman Point large corporate branch in Mumbai.

In a separate statement, BoI also declared Nitin Sandesara a wilful defaulter for not repaying another loan of Rs 113.69 crore borrowed by his company Sterling Global Oil Resources, which is based in Nigeria.

“Internal investigations on this loan sanction are on,” said a banker at BoI.

In March 2018, the government had admitted in the Lok Sabha that some 31 top economic offenders had fled the country, including the Sandesara brothers.

Lenders, led by Andhra Bank, are trying to seal a settlement with Sandesara brothers that involved a 65% haircut on the loans. An unknown representative of the company had come forward to settle about Rs 3,100 crore dues of the company. However, National Company Law Tribunal (NCLT) last month ordered Sterling Biotech, which had about 800 employees on its rolls, to be liquidated. However, National Company Law Appellate Tribunal (NCLAT) stayed the liquidation process and posted the case for hearing on July 16, 2019.

NCLT had raised doubts on the one-time settlement offer, which gave a huge advantage to the promoters to settle the debt at a huge discount and get back their company.

The admitted claims of the lenders in the court were a little over Rs 9,000 crore. However, the order was stayed by NCLT. BoI is one among the 37 banks that have lent to the group.

Enforcement Directorate, which is probing the case, has already attached properties of the company, both in India and overseas.

The DNA India reported

MC: Sterling Biotech lenders receive settlement from promoter-owned company: Report

29 May 2019: Bankers have received a settlement amount from a Nigerian company belonging to the promoters of Sterling Biotech, a company undergoing bankruptcy proceedings, Moneylife reports.

The lenders have received an undisclosed one-time settlement from VELL FLO, a company whose registered address is in Lagos, through SWIFT. The details of the transaction have been sent to the NCLT and the Central Bureau of Investigation (CBI).

The report cited documents, which said that VELL FLO belongs to Sterling Biotech promoter Nitin Jayantilal Sandesara.

Moneycontrol could not independently verify the story.

Sterling Biotech’s promoters, Nitin Sandsera and Chetan Sandera, are absconding, and a Delhi court has issued an extradition order against them.

Earlier this month, the NCLT rejected a plea by Sterling Biotech’s lenders to withdraw the insolvency proceedings against the company as they were hoping to accept a one time settlement offer made by Sterling Biotech’s absconding promoters.

The report noted that the lenders were offered Rs 5,500 crore as an one time settlement by Sterling Biotech’s promoters, which is close to 40 percent of their outstanding dues. The report also noted that the promoters made a similar offer to settle dues of Sterling SEZ, another company owned by the promoters — a deal which the banks were keen to accept.

The consortium of lenders, led by Andhra Bank, are planning to contest the NCLT’s decision at the National Company Law Appellate Tribunal (NCLAT), the report added.

In addition to extradition requests, the Sandsera brothers are also facing multiple charges of fraud and are being investigated by the CBI, the Serious Fraud Investigation Office (SFIO) and the Enforcement Directorate (ED).

The Sterling Group owes Rs 15,600 crore to financial and operational creditors.

Moneycontrol reported