Political Economy

The Fall of Sterling Biotech and the Brothers Sandesara

Did political and bureaucratic connections help the billionaire promoters of top Gujarat-based firm wilfully default on loans worth thousands of crores from public sector banks?

New Delhi: Amongst the Gujarati business elite, the Sandesaras of Vadodara were always outliers.

As brash, first-generation entrepreneurs in the 1980s, they didn’t quite fit in with Gujarat’s old-world industrialists: the Patels of the Nirma Group, the Lalbhai textile giants, the Mehtas of Torrent or the Bakeri real-estate lords. All in all, a group of businessmen who prided themselves on sticking to a single market and typically passed their businesses down from father to son.

Nor did the Sandesaras’ ambition ever match their ability to execute: the razor-sharp, shark-like business instincts of the Ambanis or the Mafatlal family escaped them.

Their origins, instead, resembled the rise of Gautam Adani, who, around the time that the Sandesaras were just starting to strike out, was just another small trader trying to find his place in the sun.

Like Adani, Nitin and Chetan Sandesara were first-time entrepreneurs who moved from Bombay back to Gujarat to start a sprawling and often unsuccessful business group whose interests ranged from pharmaceuticals and infrastructure to oil and gas exploration.

Unlike most low-key Gujarati businessmen, they liked to live larger than life and make sure people knew about them. This included the whole nine yards: Bollywood connections, private jets, and weekend-long parties.

“When Chetan bought a Gulfstream jet for over Rs 100 crore, he personally called up journalists to brag about the price. He also wanted to thumb his nose a little bit at other businessmen. And sure enough, one year after they got a jet, Adani bought a Challenger. And Pankaj Patel of Cadila as well a couple of years after that,” said a former senior executive of Sterling Biotech, who declined to be identified.

Also read: ‘Fleece India, Flee India’ – Has Narendra Modi Launched a New Scheme?

Once the toast of Vadodara’s business community, the Sandesara brothers are now considered wilful defaulters to the tune of Rs 5,000 crore and have been declared economic fugitives. Their properties attached and sealed by the Enforcement Directorate, their businesses taken over by bank officials, both siblings flew the coop last year, reportedly to Nigeria, where parts of their once-promising oil business still remains.

While this alone buys them entrance into a club that includes the likes of Nirav Modi and Vijay Mallya, their connections and alleged pay-offs to officers of senior investigative agencies and the family members of senior Congress leader Ahmed Patel puts them squarely in the centre of a number of uncomfortable scandals that are yet to be properly investigated.

What currently places them in the hot-seat, though, is their relationship to top Central Bureau of Investigation (CBI) officer Rakesh Asthana – at least three people with knowledge of the matter spoke to The Wire about their friendship, which grew during Asthana’s time as police commissioner of Vadodara – who is at the eye of the storm threatening the CBI’s credibility.

Striking gold with gelatin

After graduating from Mumbai University in the 1980s, the Sandesara brothers muddled around for a bit, first with a trading firm called Pluto Experts and Consultants and then later through an entry into India’s tea industry with the purchase of a few gardens in the North-East.

With nothing working out for the first few years, they eventually struck gold in the 1990s after deciding to manufacture pharma-grade gelatin – a gloopy, colourless substance that is later hardened into crystal-like flakes.

The brilliance of their plan at that time takes a second to understand. Pharma-grade gelatin is used as a gelling agent in nearly every end-product that India’s booming generics industry was churning out at the time: hard capsules, soft capsules and even in the binding of non-capsule tablets.

Also read: CBI Approaches Nigeria for Information on Absconding Businessman Nitin Sandesara

Despite the demand, none of India’s biggest pharmaceutical companies wanted to make it at that time. Why? For one, there was more money in manufacturing generic medicine. But another, lesser-talked about reason is that one of the primary ingredients required to make gelatin was animal bones, usually from already-dead buffalos. For most traditional Gujarati businessmen, this was a strict no-no.

For the Sandesaras, on the other hand, this was an opportunity. Sterling Biotech was born.

As Abhishek Gupta, a market analyst at Bajaj Capital, wrote in 2008 on the company’s business model:

“The primary raw materials required to produce gelatin are buffalo bones, lime and hydrochloric acid (HCL). These raw materials are available in abundance since India is one of the world’s largest producers of buffalo meat. Competitive material costs enable Sterling to be the lowest cost producer of gelatin, globally. Capacity utilisation of more than 100% allows Sterling a distinct cost advantage over its competitors.”

The brothers opened their first gelatine production facility in the mid-1990s in Karakhadi district –  roughly 35 kilometres outside the city of Vadodara, and nearly 20 kilometres from where their massive Ampad Village farmhouse would eventually be constructed – and there was no looking back.

Sterling Biotech. Credit: PTI

A little over a decade after the Sandesaras opened shop in Karakhadi, they had done well in the pharma business. Nearly Rs 1,000 crore in revenue with a Rs 4,000 crore market cap; an 85% domestic market share and a global market share of 6% in addition to being one of the top five gelatin producers globally.

With their initial success kicking in, the brothers looked to quickly diversify.

At successive ‘Vibrant Gujarat’ summits from 2003 onwards, a smattering of other businesses were quickly announced – the most important of which were a greenfield facility at Dahej Port and a special economic zone project in Jambusar.

Both these projects eventually failed miserably, racking up hundreds of crores of debt in the process. Earlier this year, the group companies behind the investment in Dahej and Jambusar were taken to the National Company Law Tribunal by its lenders for bankruptcy proceedings.

“The early 2000s were great for Gujarati businessmen. The relationship between Modi and other prominent Indian industry leaders faltered after the 2002 riots, so local businessmen looking to ride on the state’s industrial wave were able to pick up projects and get easy funding,” a senior executive of an Ahmedabad-based conglomerate said.

But what would be touted as the next crown jewel of the Sandesara group was its oil exploration and production business – a company called Sterling Global.

“When we decided to get into the oil business in early 2001-2002, we wanted to make it big and not remain on the fringe,” Nitin Sandesara, who at the time was the group’s chairman, told Mint in an interview in November 2011.

And big it was: over $1.5 billion was poured into their Nigeria operations after the company won  a licence in late 2004 to explore and extract crude oil from four onshore blocks.

Great Gatsby, Baroda style

Being Vadodara-based didn’t stop the Sandesaras, especially Chetan, from living the South Mumbai life. That unique Indian nexus of politics, business and Bollywood all swirled into weekend parties at the family’s 60,000 square-foot farmhouse in Ampad Village, just on the outskirts of the city.

Dipti Sandesara, Chetan’s wife, in particular was clued in: her socialite friends included Neetu Kapoor (actress and wife of Rishi Kapoor), Neelam Kothari (actress and designer) and Sunita Kapoor (designer and wife of Anil Kapoor).

Once the Sandesaras fled the country, Mumbai’s tabloid press, a faithful documenter of Dipti’s birthday parties over the years, took a small crack at the family’s fate: “It seems the links between frauds and celebrities are unbreakable,” went a 2018 report in Mumbai Mirror

“It’s been just days since a Delhi court issued non-bailable warrants against Baroda- and Mumbai-based Dipti Sandesara, also known as a great pal of Neetu Kapoor, Maheep and Sunita Kapoor, and several well-known society ladies like Nandita Mehtani, Surily Goel, Seema Khan and Neelam Kothari.”

But even when troubles started mounting, the Sandesaras didn’t bother to keep a lower profile. Two years after the income-tax department started making regular visits to Vadodara (2011), asking questions about unaccounted wealth – it was this year that the Enforcement Directorate also visited and seized the controversial ‘Diary 2011’ – and one year after banks warned that Rs 6,000 crore of the group’s loans could go bad (2012), they were still living the high-life.

For instance, in an interview with The Times of India in 2013, Chetan Sandesara spoke about how his bungalow outside the city was being re-designed and renovated by Gauri Khan and Suzanne, the wives of actors Shah Rukh Khan and Hrithik Roshan.

“My wife met both Gauri and Suzanne in parties and is friends with them. We were looking for professional interior designers for our new bungalow and we knew that Gauri and Suzanne are into interior designing. They gave us presentations of some designs and we liked them,” he told the publication.

“The bungalow would be ready by December [2013]  following which we will shift there. We are planning to organise a gathering during the occasion where Gauri, Suzanne and Bollywood’s top stars will be invited,” he added.

But this seemed to be the Sandesara way, which included leaving a mark on the city of the Vadodara.

Meeting Asthana

Where the brothers were more muted was in openly displaying their political loyalties, which was something most Gujarati industrialists at the time had no problem in showing.

While the Sandesaras were part of the “Resurgent Group of Gujarat” – the name adopted by over a hundred local industry leaders who sided with the-then chief minister Narendra Modi against certain members of the Confederation of Indian Industry (CII) after the 2002 Godhra riots – they weren’t the organisation’s more prominent faces.

That job was left to industrialists seen as more close to Modi: Gautam Adani of the Adani Group, Sudhir Mehta of Torrent, Karsan Patel of Nirma and Anil Bakeri of Bakeri Engineers.

But the Sandesaras did believe in giving back to Vadodara and trying to shape the town that they had made their home, which is what brought them into contact with super cop Rakesh Asthana.

In 2008, Asthana was appointed as the police commissioner of Vadodara. By that time, he was a well-known officer, having served as the head of the special investigation team that crucially altered the course of the Godhra train burning case.

Depending on who you speak to, there are multiple stories of how Vadodara’s police chief became an acquaintance and then later a close friend of the Sandesara family.

One version goes like this: shortly after Asthana became police commissioner in 2008 (he earlier served as inspector general for five years), Nitin Sandesara decided he wanted to sponsor the new renovation of the police headquarters as part of a public-private partnership that at the time was becoming the norm for most state government departments throughout the country. And that during this renovation process, Asthana grew close to the Sandesaras.

At least one source described the family as having helped out in funding the make-over, with the police headquarters even installing a plaque crediting the Sandesara Group for its financial contribution. The Vadodara city police’s website makes no mention of this.

Another version says that Asthana met Chetan Sandesara during a visit to Sterling Health Mall, a sprawling three-floor gym and healthcare facility that the family opened up in the city, and hit it off with them there. And that because of this initial friendship, the Sandesaras reached out to help renovate Vadodara’s Police Bhavan.

Watch: The Ongoing CBI Controversy Explained

Others from the Sandesaras’ social circles talk about Nitin Sandesara and Asthana’s common love for ‘garbas’, or religious music, which led to the company funding a relaunch of the ‘Ma-Aarkee’ garba during the 2010 Navaratri season in Vadodara – a function which Asthana reportedly attended multiple times.

A Times of India report from the time noted that all funds generated as a result of the garba would be given to the Vadodara Traffic Education Trust (VTET). The report quotes the city’s stock exchange vice-chairman Sudhir Shah as saying that it was “during VTET’s meeting chaired by city police commissioner Rakesh Asthana on Friday night that we announced that the funds raised through the garba will be donated directly to VTET.”

It was around this time, from 2010-12, that Asthana’s son, Ankush Asthana, also reportedly joined Sterling Biotech as an intern and worked for them for a period of two years – an allegation made out in a petition filed by Common Cause, an NGO, before the Supreme Court last year.

In recent months, Asthana’s daughter’s wedding has come under the CBI’s scanner, portions of which allegedly took place at the Sandesaras’ farmhouse in Ampad, just outside Vadodara.

Was the relationship between Asthana and the Sandesaras transactional in nature? There’s enough evidence for at least a few people within the CBI to be suspicious, but nothing has been proven yet. 

“You ask anyone and they will tell you that businessmen who belong to a particular city will be friendly with the local authorities. It’s not a question of bribes necessarily but a question of acknowledging one another. Does it help to have a senior police officer on your side when the I-T department comes calling? Sure, but it won’t save you in the end,” said a senior executive of a Gujarat-based pharmaceuticals giant.

The infamous ‘Diary 2011’, a set of company records seized by the Enforcement Directorate in 2011, appears to suggest that there is more that lurks underneath the surface.

At a press conference in late 2017, advocate-activist Prashant Bhushan and political activist Yogendra Yadav alleged that the diary entries expose that “Asthana took around Rs 3.5 crore from Sterling Biotech” – although there has been some debate as to whether the initials “RA” in the records correspond to Rakesh Asthana or whether they are meant to signify ‘Running Account’. 

More recently though, an internal CBI investigation headed by the agency’s third-most senior office (A.K. Sharma) started examining whether Asthana used his influence within the CBI to deflect and stall various income tax proceedings against the Sandesaras and other directors of Sterling Biotech.

The downfall of House Sandesara

The cracks in the Sandesara empire came in two waves, both of which investigative agencies believe are deeply connected to one another.The first was the fall of Sterling Biotech, its flagship gelatin business. A number of pollution issues forced its facility outside Vadodara to close down for nearly a year, a development from which it never really recovered. In August 2008, the company’s stock was trading at Rs 196.50. From there it plunged to Rs 90.20 a little over a year later in October 2009 before going onto becoming a penny stock by 2012.

It was around this time – from 2006 onwards – that the Sandesaras started borrowing heavily. Most of it came from a group of lenders lead by Andhra Bank, whose director Anup Prakash Garg was booked by the Enforcement Directorate for allegedly receiving cash payments from the brothers. 

There are various public estimates on how much they borrowed and what percentage of that went to which group company.

But roughly speaking, the Sandesara Group borrowed nearly Rs 6,000 crore between 2006 and 2011. A major chunk of this went to Sterling Biotech (Rs 3,000 crore) but the rest was funneled ostensibly into expanding other core businesses: Sterling SEZ (Rs 900 crore), Sterling Oil in Nigeria (Rs 1,500 crore) and PMT Machines (Rs 300 crore).

How much of these loans were frittered away as a result of bad business decisions and how much was a result of diverting the funds, as the CBI and ED suspect? This is what the ongoing investigation will hopefully reveal.

Within five years of the borrowing craze, the picture started looking grim. In May 2012, a group of institutional investors took the Sandesara Group to court in London for failing to meet a repayment deadline for a five-year foreign currency convertible bonds (FCCBs) sold by Sterling Biotech in 2007.

At the time, in remarks made to the media, Nitin Sandesara brushed off the company’s debt repayment woes as a “temporary liquidity mismatch”.

Other people weren’t so optimistic. Writing on Sterling Biotech’s debt burden in 2012, market analyst Deepak Shenoy noted:

“Nearly $184 million needs to be repaid today (16 May 2012) – a total of 993.6 crore rupees (9.936 billion).

Sterling Biotech hasn’t got the money, it seems. Their recent results show a loss of Rs. 92 crore in just the JFM quarter, with even the December quarter showing losses. Their main business of gelatin has been seriously impacted by higher effluent discharge anti-pollution norms, and their CoQ10 products have been hammered by cheaper Chinese competition…

While we may have written off Sterling Biotech as a gone-case, what its default might trigger is an avalanche.”

By 2017, it became clear that some of the group’s diversified businesses had failed – in particular the Dahej Port and the Jambusar SEZ project.

On its Nigeria oil business, warning signs started showing up from 2015. In that year, the company presented a brave face, saying that it planned on investing $3-billion in its oil exploration operations and hit 1 lakh barrels of oil per day by 2017.

In June 2016, an oil industry website, PetroWatch,  presented a drastically different picture after it reported how a number of the company’s employees in Nigeria, who had allegedly not been paid for months, took to Twitter to ask for help from external affairs minister Sushma Swaraj.

The story notes:

“Alleged threats and intimidation by billionaire Nitin Sandesara-owned Sterling Oil Exploration and Energy have forced company employees in Nigeria to plead for help from the Indian government.”

Unpaid for up to seven months, Sterling employees contacted external affairs minister of state General (Retd) V.K. Singh on Twitter. Singh replied on June 15: ‘[The Indian] Embassy is making all efforts and will solve your problem.’  A day earlier, Mahaveer Dawan, a wireline logging engineer dismissed from Sterling’s Lagos office, posted on Twitter that company boss Deepak Barot threatened him, demanding he leave for India immediately.

On June 12, Parth Kumar tweeted external affairs minister Sushma Swaraj: ;We work 7 days a week like a slave without money for 6-7 months. Now they are not clearing our salaries and dues. If anyone complains then company management threatens them and their family’.”

In October 2017, the final hammer fell, with the CBI filing two cases against the Sandesara Group’s management, the brothers, Dipti Sandesara and “unknown private persons and public servants” under sections of the Prevention of Corruption Act and Prevention of Money Laundering Act, 2002.

“A reliable source information has been received that M/s Sterling Biotech Ltd, its above named directors and others hatched [a] criminal conspiracy with each other with dishonest intention to cheat Andhra Bank and other public sector banks,” reads one of the FIRs.

“The Sterling Biotech Group has availed [of] loans of more than INR 5,000 crore which have turned non-performing assets (NPA),” it adds.

The Enforcement Directorate’s chargesheet, filed last Friday, is even more stark. It places the quantum of loans even higher – at Rs 8,000 crore – and specifically lays out that there was a criminal conspiracy to cheat banks.

“They manipulated figures in the balance sheets of their flagship companies and induced banks to sanction higher loans. After obtaining loans, they diverted the loans funds to non-mandated purposes through a web of shell companies,” the ED said in a statement.

But by the time the CBI filed its first case, it was far too late.The Sandesara family had flown the coop – first reportedly to Dubai and now to Nigeria.

Did their connections and alleged pay-offs help them get away before the noose tightened? Time will tell, but in January 2018, additional sessions judge Sidharth Sharma, who was hearing the bail plea of a smaller businessman connected to the Sterling case, asked the very same question of the Enforcement Directorate.

“The entire system is corrupt. You (ED) are only catching small fishes while I am surprised why till date no officials of the accused company (Gujarat-based pharma firm Sterling Biotech), the chartered accountants and others are arrested? Don’t pick and choose,” Sharma said, in a damning and perhaps prophetic indictment of how the investigation will likely proceed in the years ahead.