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India said to seek control of realty firm

[NEW DELHI] India's corporate affairs ministry in a rare move is seeking approval from the bankruptcy court to take over management control of real-estate giant Unitech Ltd citing mismanagement and diversion of funds, people with knowledge of the matter said.

The government has sought the suspension of Unitech's existing board of directors and its chief financial officer in a petition filed with the National Company Law Tribunal under a section of the Companies Act, 2013, given the public interest involved, said the people, asking not to be identified as they are not authorized to speak publicly. This is only the second time that the ministry has sought to take control of a company, one of the people said. The tribunal is scheduled to hear the government's plea as early as Friday.

Thousands of buyers across India have been left in the lurch by indebted developers such as Unitech and Jaypee Infratech Ltd after a slump in sales forced them to slow or halt construction of projects. Unitech's Founder and Managing Director Sanjay Chandra was arrested in April this year following a complaint by people who weren't given possession of their flats. The Supreme Court denied Chandra bail until the company deposited funds with it to protect the interests of such buyers, according to a Times of India report in November.

The government is seeking to replace Unitech's board with 10 of its own nominee directors in the interim, the people said. There are currently about 19,000 home buyers awaiting possession of flats or houses, while the company has defaulted on payment of 6 billion rupees (S$125.8 million) to 15,000 small depositors, according to the petition, sections of which have been seen by Bloomberg. The company has also defaulted on 8.8 billion rupees of loans and debentures, including interest due, it said.

"Real estate developers have to be careful in order to deliver the commitments they have made to people to deliver homes and office," Sanjay Asher, senior partner at law firm Crawford Bayley & Co told Bloomberg Quint. "Once the new management comes, a new set of promoters would come, which would be in benefit of the public shareholders." The company, once India's second-largest real estate developer, didn't immediately respond to an email seeking comment sent to Puneet Bansal, who is listed on Unitech's website as a media contact. Calls to a company helpline listed on their website didn't connect. The company's shares surged as much as 11.5 per cent and were trading 10.7 per cent higher at 6.75 rupees at 12.17 pm in Mumbai.

The government has also appealed to the tribunal to restrain the existing directors and CFO from selling, mortgaging, creating a charge or interest on their personal properties until an investigation into allegations of siphoning and diversion of funds by the company is complete, according to the petition.

It is seeking permission to recover undue gains made by the management after an investigation into diversion of funds is complete, the people said.

This government stepped in to take the reins of Satyam Computer Services Ltd and an affiliated firm in 2009, citing mismanagement, to protect the interests of investors and the public. Founder Ramalinga Raju admitted to inflating the software maker's assets by about US$1 billion. Under the Companies Act, the federal government can move the tribunal if it thinks that the affairs of a company are being conducted in a manner prejudicial to the public interest.