There is a new twist to the drama around the Sterling Biotech group whose promoters, while absconding from India, have offered a ‘settlement’ deal to a bunch of lenders, mainly public sector banks (PSBs) and institutions.
Acting through an ‘authorised representative’, the shady promoters, who are being investigated by almost every investigation agency in the country, offered to bring in 10% of the one-time settlement (OTS) amount, while the remaining 90% would be paid by a bunch of investors who they will identify from their hiding place overseas. The payments will be made over a period of six months.
It may be recalled that the Sandesaras had offered to repay Rs3,400 crore, which barely covered the principal, as against an outstanding loan of over Rs7,500 crore, amounting to a 55% haircut on what they owe banks. This particular deal, sources tell me, pertains to Sterling Biotech Ltd. The other major defaulter Sterling SEZ Ltd, and other group companies, owe PSBs over Rs15,600 crore.
My sources say that the latest twist to the settlement offer was discussed at a joint meeting of lenders a few days ago – probably on 20th November.
The entire promoter group—comprising Nitin, Chetak and Dipti Sandesara and Hitesh Patel—is absconding from India and is understood to be holed up in Nigeria, where it has a thriving business. In contrast to the Vijay Mallya case, there does not seem to be any concerted effort to bring this bunch of promoters back to India.
If accepted, their offer makes a complete mockery of the bankruptcy process because the shady group is trying to extract even more concessions.
It may be recalled that the National Company Law Appellate Tribunal (NCLAT) had allowed the promoters’ offer to pay up while absconding from the country and, despite the many criminal charges they face (including money laundering). But the NCLAT order (of 18 November 2019) also stipulated that the entire payment be made within 30 days or the company will go into liquidation. The defaulter group finds this condition restrictive.
The politically powerful corporate group, with links across the political spectrum, is pushing banks to buy more time for them to pay up. They want banks to file an appeal before the Supreme Court against the 18 November 2019 order (which is already very generous to them and raises questions about the bankruptcy process), asking for six months to complete the payment.
That such a suggestion from a failed group, with absconding promoters, is even discussed at the lenders’ meeting shows how big defaulters, especially those with political connections, game the judicial system and continue to call the shots.
Some lenders did suggest that the Sandesaras must be asked to prove their bona fides by depositing the money in an escrow account. It remains to be seen whether this is accepted. These lenders are to meet again in December to work out details of the appeal to the Supreme Court.
Remember, while banks are completely in cahoots with the defaulter to buy time, this group has had plenty of time to put together the funds ever since it first made the outrageous settlement offer sometime in March this year or earlier. That is when Andhra Bank scurried to withdraw proceedings from the NCLT (National Company Law Tribunal), with concurrence from other lenders, including Allahabad Bank, Bank of India, State Bank of India and United Commercial Bank.
The lenders to Sterling Biotech are all in favour of grabbing this money, no matter what the source. After all, it covers up their own questionable lending decisions. In their previous surreptitious move, they were scampering to have board permissions in place by the end of the year and to complete the OTS by 30th June.
We learn that some of the lenders are already helping the shady group by wanting time for completion of settlement to be dragged to the end of the financial year, that is, 31 March 2020, for completion of all processes.
One would have thought that banks would be counting their blessings that NCALT overturned an order of the NCLT, asking the Sterling group companies to be liquidated. But that is not the case.
Moneylife had earlier written how some money was already remitted by this group and has been accepted by the lenders, while they fought to accept the deal. It will, indeed, be an irony if the Supreme Court of India hears a plea to demand more time and a part payment from wilful defaulters who have lookout notices against them and are not being forced to return to India to face the music.
The objections of the investigation agencies to the OTS have been brushed aside; but, interestingly, financial regulators seem to be supporting the settlement process which appears to be dictated by legal representatives of the defaulter group.
The curious case of the Gujarat-based Sterling Biotech group also raises questions about why Vijay Mallya is being treated differently and his offer to pay up his outstanding with interest has not been accepted.
By way of background, on 26th April, NCLT had withdrawn its earlier order allowing the lenders of Sterling SEZ to withdraw the bankruptcy petition. It also directed government to take punitive action against senior officials of the lenders for misleading the Tribunal with a withdrawal plea.
The enforcement directorate (ED) 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.