Fugitive bizman Nitin Sandesara’s Sterling Oil Resources to undergo insolvency proceedings

Fugitive businessman Nitin Sandesara-owned Sterling Oil Resources Limited (Corporate Debtor) will face the corporate insolvency resolution process after Mumbai-bench of the NCLT admitted the insolvency application filed by State Bank of India (Financial Creditor) against the company.

According to the submission made by SBI in NCLT, Sterling Oil Resources defaulted on a payment of Rs 1,656 crore leading to filing of the insolvency application.

The liability has arisen out of financial debt provided by SBI (in its capacity as a member of the consortium of banks) to Sterling Global Oil Resources Private Limited (SGORPL) by way of Standby Letter of Credits (SBLCs) facilities, which came to be invoked by the beneficiaries/discounting banks and upon such invocation, the financial creditor had to discharge the obligations on various dates by making payments under such SBLCs.

Brief of the case

Sterling Global Oil Resources, a Mauritius based entity, has holding participating interest in an Oil Prospecting License through Sterling Exploration and Energy Production Company Limited, (SEEPCO, Nigeria), which is a step-down Asset level entity.

For the purposes of running and for development of Oil and Gas assets of Sterling Nigeria in the Okwuibome Field (OKW), the SBLC facilities were sanctioned to SGORPL by a consortium of 10 lenders led by Bank of Baroda (which also includes SBI). Such SLBC facilities were secured by securities and undertaking provided by Sterling Oil Resources as holding company of SGORPL.

After the sanction of facility, on 22 April 2014, a SBLC Facility Agreement was entered into relation to the issuance of the SBLCs.

The first SBLC was issued by SBI on 25 June 2014 and further SBLCs were issued subsequently on various dates. The SBLCs were discounted through Sterling Exploration & Energy Production Company Limited, BVI (SEEPCO BVI) one of the group companies from Offshore Foreign Currency Lenders.

In or around February 2016, the group company of Sterling Oil Resources, Sterling BVI failed to meet its periodical debt obligations to Foreign Currency lenders under OKW Facility.

Accordingly, the Foreign Currency lenders invoked the SBLCs. The SBLC Lenders were thereby forced to honour their obligation under the said SBLC by crystallizing the amount in INR. On account of devolution of this liability under the said SBLC, SBI made payment of various amounts aggregating to Rs.857.61 Crores. Consequent to devolution of the liability under the said SLBC and consequent to the said payment aggregating to Rs.857.61 Crores being made by the Financial Creditor under SBLC on account of invocation of SLBC, on 19 March 2016 a demand was raised upon SGORPL calling upon to immediately reimburse the amounts paid by the Financial Creditor as a SBLC provider to Foreign Currency Facility lenders.

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However, SGORPL defaulted in repaying the above demand. Due to constant defaults under SBLC Facility, the account of SGORPL was declared as a ‘Non-Performing Asset (NPA) on 19 June 2016, in accordance with the guidelines prescribed by the Reserve Bank of India (RBI).

On 18 April 2017, a revival letter was executed by SGORPL, wherein the outstanding principal debt due and payable as on 18 April 2017 was acknowledged by the SGORPL under the SBLC Facility Agreement.

Despite making repeated assurances to repay the SBLC Facility and issuing a letter confirming its debt, the parties liable for the debt including the Corporate Debtor failed to repay the outstanding amount under the SBLC Facility Agreement owing to which the SBLC Lenders (including the Financial Creditor) were constrained to issue a Recall Notice on 22 October 2019 calling upon SGORPL and its other obligors, including the Corporate Debtor, to immediately and forthwith make payment of the then outstanding dues of Rs. 6.967.53 Crores (as on 30 September 2019) along with all other charges payable.

This forced the lenders to move DRT, which directed the Sterling Oil Resources to to pay the dues to the Financial Creditor, within a period of two months form the date of DRT Order.

Submission of Sterling Oil Resources

However, the Corporate Debtor submitted that it was never served with any notice inasmuch as the Company has been inactive since 2016.

The Promoters of the Corporate Debtor also contended that they entered into a One Time Settlement (OTS) with the banks for their Indian group Companies and Foreign Companies as that was the only way forward. The total amount of OTS of Rs 6457 Crores (Rs. 3826 Crores towards Group’s Indian Companies and Rs. 2631 Crores towards Group’s Foreign Companies). The OTS for Indian Companies got scuttled as banks were pressurized to opt for liquidation and insolvency proceedings in spite of the fact the promoters had already paid Rs. 614 Crores towards the OTS amount. However, OTS for foreign companies still stands and these contracts with banks and companies are governed by English and Nigerian law.

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