Unitech: the fall of a real estate giant
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.
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 ₹251.78 crore and owes small depositors ₹596.76 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 ₹1,906.07 crore on December 8, from ₹16,929 crore on December 31, 2010. In the same period, market capitalisation of India’s largest developer DLF fell to ₹42,540.83 crore from ₹49,558.51 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 that 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 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 ₹6,733 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 October 30, the Supreme Court had directed Unitech to deposit ₹750 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.