Bengaluru/Mumbai/New Delhi: In its 2007-08 annual report, Unitech chairman Ramesh Chandra spoke of becoming a pan-India developer, venturing into the telecom business and turning into a professionally managed company, something rare in the real estate industry. The tone was one of aggressive expansion, with a cautionary note on the global financial slowdown.

Just over a decade later, the Gurugram-based company’s two promoters are in jail over a forgery case, it has exited the telecom business, its projects have mostly stalled and it is battling disgruntled homebuyers and investors.

Unitech was the second largest developer till 2010, until the 2G telecom spectrum scandal broke

The latest blow came on Friday when the ministry of corporate affairs (MCA), in a rare move, sought to take control of Unitech over allegations of fund diversion.

Following an MCA petition, the National Company Law Tribunal (NCLT) dismissed its board, and allowed the government to name 10 directors to its board.

The MCA petition cited the fate of 19,000 homebuyers, 15,000 small depositors and 700,000 shareholders as constituting public interest. It said the company has also defaulted on debentures worth Rs251.78 crore and owes small depositors Rs596.76 crore.

“The government has taken an effective decision against Unitech for the first time. We are in safe hands now. The real problem with the Chandra brothers was their wrong intention,” said Vivek Tyagi, president, Anthea Homebuyers Association.

Residents of Anthea, a project in Gurugram launched by Unitech in 2011, have fought its promoters tooth and nail, until managing directors Sanjay and Ajay Chandra were arrested in April on charges of money laundering and failing to deliver the project.

Anthea is still a barren piece of land.

Unitech’s market value fell to Rs1,906.07 crore on 8 December from Rs16,929 crore on 31 December 2010. In the same period, market capitalization of India’s largest developer DLF fell to Rs42,540.83 crore from Rs49,558.51 crore.

Unitech was the second largest developer till 2010, until the 2G telecom spectrum scandal broke and Sanjay Chandra was arrested in connection with it in April 2011.

“Section 241(2) empowers the central government to make a reference to NCLT and seek for an order for protection of public interest,” said Sandeep Parekh, managing partner, Finsec Law Advisors. “The remedial powers are prescribed under section 242 which allows NCLT to take ‘any’ action which is just and equitable for the company and its shareholders, including, removal of existing directors and appointment of new. As the company is listed, Sebi (Securities and Exchange Board of India) will also need to look at issues related to investor interest, change of control and corporate governance under the new board.”

Unitech has been posting losses and has around Rs6,733 crore of debt

Unitech can approach the National Company Appellate Law Tribunal (NCLAT) against the NCLT order.

In case the appellate body rules in its favour, the current order to replace the Unitech board would be revoked; else, the case could be referred back to the tribunal to hear it afresh. If the appellate body rules in favour of the tribunal order, Unitech can approach the Supreme Court.

Unitech has been posting losses and has around Rs6,733 crore of debt. It has been trying to sell land and raise money, but couldn’t do much, said analysts.

The two cases—the MCA move to take over the company and the Supreme Court matter of refunding home buyers—are being dealt separately.

NCLT in the order on Friday said, “In the pursuance to our direction (current board removed) if a new board of directors is constituted, then it shall also be bound to obey the directions of the Supreme Court which are binding on all authorities in any case.”

“The only scenario in which the two cases come together is when the matter of MCA taking over the company reaches the Supreme Court,” said a senior lawyer who represents the government when its orders are challenged.

On 30 October, the Supreme Court had directed Unitech to deposit Rs750 crore by December to secure bail for Sanjay Chandra.

A Unitech spokesperson declined to comment.

Homebuyers, who were waiting for the government to make a conclusive move, are relieved.

Savita Sinha, a member of the Vistas Residents Association and an advocate, described it as a benevolent strategic move by the government that safeguards homebuyers’ interests, by having the company run in such manner that under-construction projects could be completed. At the same time, law can take its own course regarding siphoning of funds and offences of cheating.

“Unitech will no longer negotiate the bail of the Chandras with the hope of delivering the flats to so many of us which it has been doing for the past so many years,” she said.

A special Central Bureau of Investigation (CBI) court is likely to deliver its verdict on 21 December, after more than six years of delay since it was first heard by the court in 2011, in the corruption cases relating to irregularities in the allocation of 2G telecom spectrum and licences .

Its verdict could affect the fate of bureaucrats and businessmen, including Sanjay Chandra who has faced trial in the matter on charges of cheating, forgery, conspiracy and criminal misconduct. If found guilty of cheating, Chandra will have to serve the jail term as prescribed under the law, which may extend up to three years.

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