ITC plea on mismanagement of minority shareholders ‘abuse of process’: JM Fin ARC

ITC’s petition alleging oppression and mismanagement of minority shareholders against Hotel Leelaventure is an ‘abuse of process’, senior advocate Janak Dwarkadas representing JM Financial Asset Reconstruction Company told the National Company Law Tribunal (NCLT) on Wednesday, adding that ITC’s waiver application ‘must go’ as well.

JM Financial ARC is a respondent to the ITC petition.

To be eligible to pursue its petition to stop the proposed sale of Hotel Leelaventure’s various undertakings to Brookfield, currently under investigation by the Securities and Exchange Board of India (Sebi), ITC as minority shareholder in Hotel Leelaventure has sought waiver of the minimum shareholding requirement.

In April, ITC had moved the NCLT, alleging oppression and mismanagement under Section 241 of the Companies Act, 2013, along with a waiver application, arguments for which are being heard by the NCLT this week.

According to the shareholding pattern for the quarter ended March, ITC holds a 7.92% stake in Hotel Leelaventure, failing to meet the minimum threshold of 10% shareholding listed under Section 244 of the Companies Act among requirements for the right to apply under section 241.

As part of arguments, Dwarkadas told the NCLT that ITC’s application must be seen in light of the fact that it is a competitor of Hotel Leelaventure. Dwarkadas further compared ITC’s incremental investments over the years in a non-dividend, loss-making entity such as Hotel Leelaventure to a lion stalking its prey.

He further referred to ITC’s claim under its petition that the ARC was using the IBC proceedings as a means to pressure promoters into selling virtually the entire business undertaking, and announced a ‘with prejudice offer’ that ITC could pay JM Financial ARC Rs 7,000 crore and take its 26% stake within the company.

ITC’s petition objects to the Brookfield transaction, alleging it would leave Hotel Leelaventure a mere shell with only liabilities while allowing promoters to benefit while leaving minority shareholders holding worthless shares with no underlying business or assets.

Its petition also noted that JM Financial ARC and the promoters were not identified as “related parties”, although JM ARC holds a stake of 26% in Hotel Leela, following conversion of a part of its loan amounting to about Rs 275 crore in September 2017.

Sebi advised Hotel Leelaventure not to act on the proposed sale of company’s properties to Brookfield and started an investigation following complaints from minority shareholders ITC and Life Insurance Corporation of India (LIC).

Hotel Leela Venture had said, in an exchange notice dated March 18, it had entered into a binding agreement with a Brookfield Asset Management (Brookfield) sponsored private real estate fund, to sell by way of slump sale, four hotels in Bengaluru, Chennai, Delhi and Udaipur and the property that it owns in Agra.

The proposed transaction would also involve transferring the Leela brand by the promoters to Brookfield for all hospitality businesses.

Dwarkadas also reiterated that JM Financial ARC was merely acting as a trustee on behalf of the 14 other lenders with exposure to 94% of total debt and its own 6% exposure.

He further stated that prior to the conversion of debt to equity, the debt in ratio to equity capital stood at 47.33 times, which later came down to 17 times the equity capital, indicating the company had benefited from the loan conversion.

Senior counsel Ravi Kadam also presented his arguments on behalf of the promoters of Hotel Leelaventure. The NCLT has adjourned the matter to June 24.