Public sector banks to face legal hurdle in recovering HDIL dues

The public sector banks (PSBs) that had given loans to HDIL will face prolonged litigation in recovering their dues as several properties mortgaged by the real estate developer and its promoters to the banks have been seized by the investigating agencies.

Besides, the one-time settlements (OTS) the PSBs had signed with HDIL in the past few years may face litigation if the OTS money was paid by taking fresh loans from Punjab and Maharashtra Co-operative (PMC) Bank. These loans from PMC Bank would be considered “proceeds of crime” by the Enforcement Directorate (ED) under the Prevention of Money Laundering Act (PMLA), and face legal action, say lawyers.

HDIL, which is facing insolvency proceedings in the Mumbai branch of the National Company Law Tribunal (NCLT), had received sanction for OTS proposals from several lenders, including Bank of India, Jammu & Kashmir (J&K) Bank, and Andhra Bank.

According to a plan submitted to the National Company Law Appellate Tribunal (NCLAT), HDIL paid part of Bank of India dues by way of a pay order issued by PMC Bank in the last week of August.

But within weeks, PMC bank collapsed following reports that the cooperative bank fraudulently gave ~4,500 crore of loans to HDIL. All the loans given by the PSU banks were guaranteed by Rakesh Wadhawan and Sarang Wadhawan, the company’s promoters who are now in police custody.

The ED is in the process of attaching the properties of HDIL and as several of these are already mortgaged with the PSU banks, the lenders will have to move courts to take control of the properties (see chart), lawyers said.

“It is going to be a legal quagmire. The PSBs, which lent ~2,000 crore to the company, will have to classify HDIL as a fraud account and if they had accepted any OTS money in the past then it will have to be returned,” said a lawyer.

Citing an example, the lawyer said in the case of Sterling Biotech, the ED had taken a stand that any OTS money to be paid by its promoters — the Sandesaras — will be considered as proceeds of crime and would be seized. The NCLT Mumbai did not clear the Sterling Biotech OTS offered by the promoters and sent the company for liquidation.

The NCLAT, however, said the promoters of Sterling Biotech can apply for the OTS with the banks provided they give “clean money” to repay the bank debt. The matter is pending.

In the case of HDIL, the NCLAT has stayed the formation of a committee of creditors of the company following an appeal by Rakesh Wadhawan challenging an NCLT Mumbai order to initiate bankruptcy proceedings against the firm. The NCLAT will hear the case again on November 13.

The dud collateral

Central Bank of India: Secured by registered mortgage of immovable properties at Premier Road, Kurla, Mumbai
 

J&K Bank: Term loans secured by first charge on the cash flows, receivables and project agreements/project escrow accounts in few projects
 

Allahabad Bank: Loans secured by mortgage over Nahur, Mumbai, property and further secured by Chandansar, Maljipada in Thane, Mulund and Palghar properties
 

Syndicate Bank: Secured by charge over escrow of cash flows from Whispering Tower and immovable properties in Doliv, Koshimbe, Thane
 

YES Bank: Secured by exclusive charge on Metropolis, Galaxy and Majestic towers in Mumbai 
 

IL&FS:  Loans secured by mortgage of immovable properties at Sasunavghar, Doliv, Dahisar and Kasarali  
 

LIC: Term loan is secured by mortgage of immovable properties situated at Doliv and Khardi and further secured by mortgage of six floors of HDIL Towers, Bandra (East), Mumbai 
 

YES Bank (Suraksha Asset Reconstruction Company): The bank has assigned its loan to Suraksha ARC. The loan is secured by exclusive charge on Metropolis, Galaxy and Majestic Tower projects