The company law tribunal, NCLT today suspended all the eight directors of realty firm Unitech over allegations of mismanagement and siphoning of funds, while authorising the government to appoint its 10 nominees on the board.
In a rare move, the government approached the NCLT to take over the management with a view to protecting the interest of nearly 20,000 home buyers, and 51,000 depositors to whom the company owes Rs 723 crore.
The government's intervention in this case comes almost a decade after it had taken over the board of IT firm Satyam (now Tech Mahindra) and sold it to Mahindras'.
The National Company Law Tribunal (NCLT) said the government must give name of its nominees by the next date of hearing, December 20, while restraining Unitech's 8 suspended directors from selling their personal and company properties.
The tribunal's order came after the government filed a petition arguing that Unitech was a fit case for winding up but considering the interest of thousands of home buyers and small depositors, it wanted to take over company management.
The order by two-member NCLT bench, headed by Chairman Justice M M Kumar, said: "We are persuaded to record that the affairs of the company are not being carried in accordance with the provisions of the Companies Act.
"In fact, prima facie appears to us that the affairs of the Unitech are being conducted against large public interest.
Therefore, a prima facie case is made out." Suspending the eight directors, including Chairman Ramesh Chandra and two MDs Sanjay Chandra and Ajay Chandra, the NCLT ordered that the government is "permitted to appoint 10 nominee directors on the Unitech board, which shall remain subject to approval of this tribunal".
While Unitech was not represented during the morning hearing, in the afternoon the firm moved the tribunal challenging its order saying that no "coercive steps for execution" can be taken in view of a November 20 order of the Supreme Court.
NCLT, however, refused to keep in abeyance its order to suspend the incumbent directors of Unitech Ltd and said the government appointed directors would comply with all the orders of the Supreme Court.
"In the pursuance to our direction 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," it said.
The tribunal directed the suspended directors of Unitech to file their replies within a week.
Reacting to the development, Unitech Ltd said any interference in the working of its current management would be detrimental to the cause of all stakeholders.
Despite its two managing directors in judicial custody, they have been "striving hard to secure financing so that construction can continue to complete various projects", Unitech said in a statement.
The company has over Rs 6,000 crore debt with more than 16,000 undelivered units from about 70 projects.
In its petition filed under section 241 of the Companies Act, 2013, the government requested the tribunal to remove the eight directors.
It sought permission for "recovery of undue gains made by the respondents upon the findings of investigation into diversion and siphoning of funds as ordered by the tribunal".
"In order to further prevent acts of fraud, continuous misfeasance, breach of trust to the stakeholders of Unitech persistent negligence in the obligation and discharge of duties as directors of Unitech, the tribunal may empower the central government to appoint 10 nominee directors consequent upon the removal of the respondent directors," the petition said.
The Supreme Court had recently asked Unitech to deposit Rs 750 crore by December-end in bail pleas of Sanjay Chandra and Ajay Chandra, who were arrested by the Economic Offence Wing (EOW) of the Delhi Police in April for allegedly not developing a project despite receiving funds from investors.
Commenting on the development, realtors apex body Credai president Jaxay Shah said: "While we are not aware of the details of the matter and reasons for the ministry of company affairs to approach the NCLT, the verdict of the NCLT, however, must be trusted."
The authorities concerned must work towards a sustainable process to mitigate unscrupulous activities while maintaining a sense of stability within the system which would further work towards the betterment of the industry as a whole, he added.
The Unitech stock jumped nearly 20 per cent to Rs 7.29 on BSE.
(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)