NCLT suspends Unitech Board

The National Company Law Tribunal (NCLT) on Friday suspended directors of Unitech Ltd and allowed the government to appoint nominees to the board as the ministry of corporate affairs (MCA) moved to take over the indebted real estate firm -- a step with few precedents in India’s corporate and legal landscape. NCLT issued notices to Unitech and sought a response in four weeks. The tribunal will examine the names of the 10 directors to be nominated by the government on December 20. The MCA is seeking to take control of the private firm as there are allegations of fund diversion against the company, said a person aware of the matter. It has filed its petition under section 241 of the Companies Act, 2013 that allows the government to apply to the tribunal if it feels that a company is operating in a manner prejudicial to public interest -- in this case, homebuyers, shareholders and depositors. This is only the second time that the government is invoking public interest to take over a private firm after Satyam Computer Services, whose founder Ramalinga Raju admitted in 2009 to fudging the books of the company over several years to the tune of Rs.7,136 crore. The move comes amid turmoil in India’s real estate sector after a prolonged slowdown. Insolvency proceedings have been initiated against promoters of many realty firms, including Amrapali Group and Jaypee Infratech, after angry customers dragged the builders to court. Last month, the government amended the insolvency and bankruptcy code to include home buyers as a class of creditors to real estate firms. Unitech, once the country’s second largest real estate firm after DLF Ltd, owes a total of over Rs7,800 crore to 16,300 home buyers in 61 projects, according to data collated by Mint. The MCA petition, parts of which were seen by Mint, cites the fate of 19,000 home buyers, 15000 small depositors and 7 lakh shareholders as being of public interest. It said the firm has also defaulted on debentures worth Rs 251.78 crore and owes small depositors Rs 596.76 crore. “We want to avoid insolvency of this company, otherwise the 19,000 home buyers will be left high and dry,” said Additional Solicitor General Sanjay Jain. The directors appointed by the government would comply with all the orders of the Supreme Court which is overseeing the recovery of dues and refunds to over 4,688 home buyers, said the NCLT after hearing Unitech’s lawyers in the afternoon. The real estate firm’s lawyers, who were not present in the court on Friday morning when the interim order was delivered, said the government had not informed the Supreme Court on any coercive action, citing a November 20 order by the apex court that restrains other forums from such actions. The NCLT observed that there is a prima facie case that the affairs of the company are not being carried out honestly and there are a large number of irregularities in the company. “The government is empowered to proceed under Section 241 of the Companies Act for mismanagement against a company. However, Supreme Court is already hearing pleas against Unitech’s default in handing over several residential projects in Delhi-NCR, and NCLT is subordinate to Supreme Court. The ultimate aim is to secure the interests of the consumer and Supreme Court is monitoring the issue,” said Aishwarya Sinha, counsel for homebuyers who haven’t got possession of their flats. The NCLT also restrained Sanjay Chandra and Ajay Chandra, directors of Unitech, from engaging in transactions related to their personal wealth till an investigation into alleged siphoning and diversion of money are concluded.