After the government and the National Company Law Tribunal acted in harmony and in quick succession, in one of the sternest actions ever on an erring corporate, to suspend the board of debt-ridden realty firm Unitech, could this case be a precedent for other beleaguered players in the sector? The National Company Law Tribunal (NCLT) has allowed the corporate affairs ministry to appoint 10 nominee directors for Unitech, who would be subject to tribunal nod, saying that the existing directors will not be allowed to sell company’s or personal assets. The NCLT has also permitted permitted the ministry of corporate affairs (MCA), to suggest names of 10 new nominee directors by 20 December.
The move is also seen to benefit the homebuyers. The slump in real-estate demand, mainly due to incomplete projects, left companies like Unitech, Jaypee and Amrapali in the lurch, forcing the government to seek control of the former on grounds of mismanagement and diversion of funds, while two others are facing insolvency and repeated raps from the Supreme Court. But, as the real-estate business failed, it put enormous risks on home-buyers, who did not get their house even after investing their hard earned money.
Moving for insolvency when the companies are failing to either deliver their promised projects and repay their loans seems as the only option but homebuyers get nothing from it as they are not treated as secured creditors such as the banks and financial institutions. Unitech has failed to deliver despite the apex court refusing to grant bail to Managing Director Sanjay Chandra. The government trying to take control of Unitech, which has 16,299 flats worth Rs 7,816 crore yet to be delivered, could be a good thing if it succeeds in reviving the management and ceases the chances for going into insolvency, as it will also set a precedent for other similar cases.
Bank of America Merrill Lynch says that government taking control of a company is indeed a rare event, and appears to be be most plausible solution. In its note, the global firm said that the case will set a precedent for other stranded real estate projects. “ Resolution of stranded assets will expedite industry consolidation,” noted the research firm.