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Mumbai/New Delhi/Bengaluru: The National Company Law Tribunal (NCLT) on Friday dismissed the board of Unitech Ltd while hearing the central government’s plea to take control of the real estate company, and directed the ministry of corporate affairs (MCA) to nominate 10 directors to the board.

The MCA, in a rare move, is seeking to take control of the private firm as there are allegations of fund diversion against it, said a person aware of the matter who did not want to be named.

The ministry filed a petition under section 241 of the Companies Act, 2013, which allows the government to apply to the tribunal if it feels that a company is operating in a manner prejudicial to public interest—in this case, homebuyers, shareholders and depositors.

“We want to avoid insolvency of this company, otherwise the 19,000 homebuyers will be left high and dry," additional solicitor general Sanjay Jain told the tribunal.

To be sure, insolvency proceedings have been initiated against promoters of many realty firms including Amrapali Group after angry customers dragged builders to court. Last month, the government amended the Insolvency and Bankruptcy Code to include homebuyers as a class of creditors to real estate firms.

Unitech, once the country’s second largest real estate firm after DLF Ltd, owes over Rs7,800 crore to 16,300 homebuyers in 61 projects, according to data collated by Mint. The MCA petition, parts of which were seen by Mint, cites the fate of 19,000 homebuyers, 15,000 small depositors and 7 lakh shareholders as constituting public interest. It says the firm has also defaulted on debentures worth Rs251.78 crore and owes small depositors Rs596.76 crore.

The newly appointed directors would comply with all the orders of the Supreme Court, which is overseeing the recovery, and refund over 4,688 homebuyers, said the NCLT after hearing Unitech’s lawyers in the afternoon. The real estate firm’s lawyers were not present in the court on Friday morning when it passed the interim order ousting the board. The lawyers said that the government had not informed the tribunal about the Supreme Court bar on any coercive action against the company.

The NCLT observed that there was a prima facie case that affairs of the company were not being carried out honestly and there were a number of irregularities in the company’s operations.

“The government is empowered to proceed under Section 241 of the Companies Act against a company for mismanagement. However, Supreme Court is already hearing pleas against Unitech’s default in handing over several residential projects in Delhi-NCR, and NCLT is subordinate to the Supreme Court. The ultimate aim is to secure the interests of the consumer and Supreme Court is monitoring the issue," said Aishwarya Sinha, counsel for homebuyers, apprehensive of the move impacting the prospects of his clients securing refunds.

The NCLT also restrained Sanjay Chandra and Ajay Chandra, directors of Unitech, from engaging in transactions related to their personal wealth till an investigation into alleged siphoning and diversion of money is concluded.

Sanjay and Ajay Chandra, part of the firm’s promoter family, are named in a case of forgery lodged by buyers of Unitech’s Gurugram project. On 1 April, the Supreme Court had sent both accused to police custody after the prosecution said their custodial interrogation was required to unravel the alleged money trail, beneficiaries of transactions and recovery of project-related documents and other evidence.

A spokesperson for Unitech declined comment.

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

The firm also needs to raise money not just to repay loans of banks and lenders, but also customers who have booked homes in projects where construction is yet to start. It also has around Rs6,733 crore of debt. 

This is only the second instance of the government invoking public interest to take over a firm after Satyam Computer Services, whose founder Ramalinga Raju admitted to fudging the books to the tune of Rs7,136 crore.

“This is a power to be used exceptionally and in public interest alone. The debate always in such cases is the evidence available to justify ‘public interest’, which is different from a concern with which the shareholders alone are interested. Though not exactly same, MCA in a different context has used similar routes in the cases of Satyam Computer Services and National Spot Exchange (where it recently pushed through a merger with its parent Financial Technologies (India) Ltd)," said Sumit Agrawal, a partner at Suvan Law Advisors.

Unitech shares rose by their daily allowed limit of 20% to close at Rs7.29 on the news. The NCLT will hear the matter next on 20 December.

jayshree.p@livemint.com

Bloomberg contributed to this story.

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