NCLT suspends Unitech board; government may take over

NEW DELHI: The National Company Law Tribunal (NCLT) on Friday suspended the Unitech board for alleged mismanagement of funds and barred its directors from selling either personal or company assets, while allowing the Centre to name 10 nominee directors and paving the way for a government takeover of the floundering property developer.

The NCLT has clarified that its interim order will be subject to compliance with Supreme Court directives. The next hearing is scheduled on December 20. On a corporate affairs ministry plea for taking over the Unitech management in ‘public interest’, the principal bench of NCLT said that there is a prima facie case of mismanagement and restrained company directors from selling, transferring and mortgaging assets. NCLT has asked the government to submit its list of fresh nominee directors by December 20.

“The current directors are suspended and restrained from acting as directors of Unitech. All the directors are restrained from alienating, mortgaging, creating charge or lien or interest in the properties owned by them personally or that of the company till the conclusion of investigation,” said the NCLT interim order.


In a statement issued in the evening, Unitech said the current management has been with it since its inception and was much better equipped in raising funds, and any interference in the working of the current management would be detrimental to the cause of all stakeholders. “We have already submitted a detailed chart before the Supreme Court which demonstrates that there is no diversion of funds,” said the statement.

“Forensic audits carried out on majority of projects of the company have repeatedly found that the company has invested more money in the projects compared to what it has received from various consumers,” the statement said.

Unitech stands accused of not delivering around 19,000 homes to buyers who have paid for them and owes Rs 723 crore to 51,000 fixed-deposit holders. Ramesh Chandra is the chairman of the company and his two sons, Sanjay and Ajay Chandra, are the managing directors. Both the brothers are currently in prison in connection with a criminal case lodged by homebuyers of two of the company’s projects in Gurgaon. On October 30, the Supreme Court had asked Unitech promoters to deposit Rs 750 crore in its registry by end-December, allowing them to sell their properties for raising the cash.

“We argued before the tribunal that its interim order is contrary to an earlier Supreme Court order, which had directed the company to deposit Rs 750 crore by any means, including selling assets,” said a lawyer who represented the property company before the NCLT.

After hearing Unitech’s argument separately later in the day, NCLT said its order will be subject to compliance with the apex court’s directives. Unitech shares hit the daily upper circuit limit of 20%, after the NCLT order, and remained locked there at Rs 7.30 apiece on the National Stock Exchange in Mumbai. The government, on its part, will soon start the process of selecting the ‘most competent people’ as its nominee directors to the Unitech board.

A senior official told ET that the government would do a detailed assessment of the health of the company, its assets, and land bank before drawing up an effective operational strategy. “We have to see how best we can protect the interest of home buyers and different stakeholders-…The board of directors will take whatever action is required,” the official said.

The government will also look at ways to recover funds that might have been siphoned off. “It is not an easy exercise, but the fear of the law has to be instilled in corporates. A proper inquiry and inspection of the financial status of the company will have to be undertaken,” the top official quoted earlier said.

It is not clear for how long the government intends to run the company. Satyam Computers is the most high-profile case of a government takeover of a company. The company was subsequently sold to Tech Mahindra.

As on March 31, 2017, the promoters held 20.6% equity in Unitech, with total pledged holdings worth Rs 248 crore. Ashwarya Sinha, who is representing many Unitech home buyers in the Supreme Court, believes the NCLT order will not impact their interest. “Through its multiple orders, the Supreme Court has assured that the interest of homebuyers is paramount,” Sinha said.

Vikram Bishnoi, president of the Residences Apartments Buyers' Association, said homebuyers were confused about the likely impact of government intervention now. “It’s not clear why has the government suddenly moved NCLT to take over the Unitech board when the Supreme Court is already pushing the builder to deposit money and resolve disputes. Whatever happens should be time-bound, either by the government or the Supreme Court,” he said.