Sterling Biotech Lenders Keep Pushing For Settlement with Absconding Promoters, Under Investigation for Money Laundering
Even while the National Company Law Tribunal (NCLT)’s Mumbai bench blasted a consortium of banks for their attempt to withdraw the bankruptcy petitions of the Sterling Biotech group—bankers themselves seem to be in a defiant mood and are set to contest the NCLT order.  This was decided at a meeting of Sterling Biotech lenders on 9th May that Moneylife has accessed. 
 
Remember, the sterling group owes over Rs15,600 crore to a consortium of banks led by Andhra Bank (Sterling Biotech owes over Rs7,500 crore to lenders, sister concern Sterling SEZ owes over Rs8,100 crore). It has offered to pay less than 45% of this amount as a one-time settlement. But what is important here is that the promoters of Sterling -- Nitin, Chetak and Dipti Sandesara and Hitesh Patel—are absconding from India and are also under investigation by all the top investigation agencies in India. 
 
So what emboldens bankers in this specific case when the courts have questioned their conduct? The Gujarat-based Sandesaras have been known for their political connections and their closeness to former CBI special director Rakesh Asthana. 
 
So is there political influence or pressure at work to rehabilitate the Gujarat-based Sandesaras and wipe out over half their debt? Here is a gist of what the bankers decided on 9th May. 
 
1. The committee noted that the final order of the NCLT was yet to be issued as on that day.  It also noted that it has the option of approaching the National Company Law Appellate Tribunal and then the Supreme Court. This suggests that bankers, mostly Indian public sector banks (PSBs) intend to spend public money to make a fight of it. 
 
2. The meeting noted that one Mago Singh, who is identified as “representative of the promoters informed over phone to COC that promoters will be approaching the Supreme Court against the NCLT order”.  If this does happen, it will be interesting to see whether the apex court entertains a petition from absconding promoters under investigation by all law enforcement agencies that too with an offer to pay less than half their massive outstanding debt.  Clearly, the Committee of Creditors (COC) have taken this assurance by Mr Mago, seriously enough. 
 
Comment: There is however no reference to the source of funds that the promoters will access to repay banks? India’s massive bad loans of nearly Rs10 lakh crore have reached this high figure mainly because bankers and politicians colluded with shady industrialists to keep lending to group companies and turn a blind eye to their siphoning of funds.
 
3. The meeting noted that Andhra Bank and State Bank of India (SBI) had received letters from the CBI (Central Bureau of Investigation), SFIO (Serious Frauds Investigation Office), ED (Enforcement Directorate) that they are investigating the group and also raised concerns about how bankers can enter into a settlement with absconding, fugitive promoters. 
 
Comment: This recording is interesting, because various governors of Reserve Bank of India (RBI), including the high profile Dr Raghuram Rajan would have us believe that bankers are so worried about action by investigation agencies, that they are afraid to lend. Here is an example, where even questions and investigations by the very same agencies, with draconian powers of arrest, doesn’t seem to have fazed a whole committee of lenders.
 
4. State Bank of India in fact informed the committee that it would be writing to the “Ministry through the IBA (Indian Banks Association) that more recovery is expected through OTS (One Time Settlement) with promoters and OTS should be allowed.” 
 
Comment: This very assertion makes a mockery of the bankruptcy law and exposes how banks are unconcerned with the actions of promoters including siphoning of funds and money laundering. 
 
5. Andhra Bank has informed the investigation agencies that they had entered into the OTS as per RBI (Reserve Bank of India) guidelines. 
 
Comment: It is unclear whether the RBI guidelines are silent about banks entering into deals with fugitive and absconding promoters or specifically permits it. 
 
6. Andhra Bank also told all the lenders that once the NCLT order is received they plan to obtain a legal opinion on the way forward. It wanted all other lenders to do the same. The COC ended with a decision to meet again to plan further action. 
 
A summary of the meeting, recorded by one of the attendees, expose the preposterous state of affairs in public sector banks and how banks collude with fugitive promoters accused of money laundering and worse, to loot public money. 
 
It is an issue that all Indians need to watch with great interest. If bankers, especially those of PSBs, as a group had acted with half the resolve to recover loans from top industrialists our banking system would have been in far better shape. Remember, banks already stand to lose over nearly Rs50,000 crore on Anil Ambani’s Reliance Communications alone. 
 
By way of background, on 26th April, the NCLT had withdrawn its earlier order allowing the lenders of Sterling SEZ to withdraw the bankruptcy petiton. It also directed government to take punitive action against the senior officials of the lenders for misleading the Tribunal with a withdrawal plea.
  
The Enforcement Directorate had strongly opposed the banks’ move to allow the promoters to get away with a settlement. It remains to be seen how this case plays out, because this move has direct bearing on hundreds of other cases including Essar Steel and Kingfisher Airlines.
 
While the Sandesaras have allegedly offered to pay 100% of principle and a fraction of interest, Vijay Mallya repeatedly tweets that he has offered to pay 100% including interest and has submitted a list of assets that exceeds his outstanding. 
 
The Sterling group resolution is fast emerging as the biggest test of the bankruptcy code. 
 
Moneylife sent emails to the chairman of SBI and managing director of Andhra Bank seeking their comment on this issue. We will update this article as and when we receive any reply from them.
Comments
PRAKASH D N
2 years ago
It only shows that PSBs continues to be remote controlled from MoF. No MD will accept such absurd proposal unless he is under pressure from political bosses.
Ramesh Bajaj
2 years ago
All this will be played out in the courts. Satyamaye Jayete....Truth will prevail.....God Willing.
Anil
2 years ago
Whether the lenders have satisfied themselves that there was no diversion/ siphoning of funds and bank funds were utilised for the purpose- it were lent. and integrity of promoters is not in doubt.
BR
2 years ago
Earlier Indian Bank (Your bank) under its Chmn MrGopalakrishnan & Minister MrP. Chidambaram (Escape artist & Repeat performer) ripped off the economy & were exposed but escaped. Still all bankers do not fear consequences of corruption. Where does that courage come from?
K. M. Rao
2 years ago
Our money is not safe in stocks, not safe in banks, not safe in the form of gold, not safe in real estate.......What options are left!
Mohan Krishnan
Replied to K. M. Rao comment 2 years ago
10 years constant maturity mutual funds. Most liquid, sovereign guarantee, most sought after by FIIs.
Mohan Krishnan
Replied to Mohan Krishnan comment 2 years ago
10 years constant maturity Gilt Funds.
BR
Replied to Mohan Krishnan comment 2 years ago
Please clarify what is meant by 'Constant' maturity. I want to consider investing as I lost much money in deposits in companies & firms. I fear even banks. Inflation is higher than Interest rate, yet I cannot refuse to give minimum facilities or med treatment to my family. I have no salary or regular income.
Suresh C Ashawa
2 years ago
PSU bankers are colluded with promoters and are not doing enough to recover bad loans. The officers who are invo9lved in giving these loans without verifying the assets should be punished. They have favoured the promoters at the cost of public money.
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