RBI found irregularities in bank guarantees to Sterling Bio

Reserve Bank of India (RBI) had found irregularities in the banks' sanction of standby letter of credit (SBLCs) as far back as September 2016 to Sterling Biotech, whose one- time settlement offer was tossed out by National Company Law Tribunal last week. 

The central bank had told the lenders to put the matter before their respective Boards. 

“But nothing has moved and the matter is given a quiet burial,” said a banker. 

On Friday, the Mumbai bench of NCLT upheld Insolvency and Bankruptcy Code 2016 by disallowing banks to go for a one-time settlement with Farhad Daruwala, a representative of the absconding promoters of Sterling Biotech. 

The promoters are facing several criminal charges from several investigating agencies for financial irregularities. They agreed to pay off the banks from cash flows from their Nigerian oil business and with the help of other investors keen to partner with them.

“There is no commercial wisdom in the OTS, “ the court said, questioning the functionality of the committee of creditors (CoC)). The court also said that OTS plan was also vague as the bank did not reveal the details.

The court order said the CoC refused to divulge details of timelines for the payments and the funding source to Resolution professional (RP), instead saying that they will inform the adjudicating authority.

Banks had got 90.32% of votes to withdraw from the corporate insolvency resolution plan (CIRP) and opt for a vague OTS with no definite timelines.“Daruwala had got an OTS, which would have allowed the Sandesara group to get back their company at a 64% discount, where they would pay Rs 3,110 crore as against a claim of Rs 9,053 crore.

In its order, NCLT said, “If such a plan is approved in the guise of OTS it will defeat the statutory provision of Section 29A and the promoter will get the control of the company at a discount of approximately 64%.” Under Section 29A of IBC 2016, no defaulter can take over the company unless all his dues are repaid.

The court said that it is clear from the additional affidavit filed by Andhra Bank on March 12, 2019, four days after the expiry of the 270 days, that the promoters initially requested to make payment under the OTS proposal by March 2019. However, the promoters have requested orally to make the payments under the OTS proposal by June 30, 2019.

“Through the OTS proposal, promoters are not making any upfront payment. As per the one time-settlement they had given a plan to make the upfront payment by June 30. The promoter group is proposing to invest about 20% of the settlement agreement, which is about $700 million from cash flows sources from its business in Nigeria,” the court order said.

The court also expressed surprise that when other arms of the government and enforcement agencies have opposed the withdrawal of the application by Andhra bank, the public sector banks which are also part of the government insisted on accepting an OTS proposal.

A WIDE GULF

• 90.32% – Lenders voted  to withdraw from the corporate insolvency resolution plan (CIRP) and opt for an OTS
   
• OTS would have allowed absconders to come back to India and pick up the company at a 65% discount
   
• Rs 9,053 cr – Total claim of the banks; proposed OTS Rs 3,110 crore
   
• OTS would be lower as the company said 20% of the settlement amount will be reinvested in its oil business in Nigeria 
   
• No commercial wisdom with  CoC. No clear payment timelines and funding sources