MC: SEBI directs Hotel Leela to make additional disclosures to shareholders on asset sale

23 July 2019: Markets regulator Sebi on July 23 directed Hotel Leela Venture Ltd to make additional disclosures to its shareholders on sale of assets. Besides, the watchdog would initiate adjudication proceedings against JM Financial Asset Reconstruction Company (JMF ARC) for failing to comply with provisions of takeover norms.

The ruling has come on complaints received from minority shareholders of Hotel Leela alleging violations in relation to postal ballot notice, dated March 18, wherein the company had sought approvals regarding sale of assets to Brookfield.

At the end of June, JMF ARC owned 26 per cent stake in Hotel Leela.

The regulator had received ITC and LIC — minority shareholders in Hotel Leela — alleging violations by promoters and JMF ARC in respect of asset sale transaction mentioned in the postal ballot notice.

In its order, Sebi said Hotel Leela should provide various additional disclosures in the postal ballot notice, including all relevant details of each of the sale transactions.

Details of valuation of both asset sale transaction and additional IP transaction, including the methods adopted by the company, should also be disclosed.

During the course of the postal ballot, the valuation reports shall be kept for inspection by the shareholders of Hotel Leela, it added.

“Sebi may initiate adjudication proceedings under the Sebi Act against JMF ARC for its failure to ensure compliance with the applicable provisions of the Takeover Regulations, as deemed fit and appropriate,” the order said.

Moneycontrol reported

IE: DHFL auditors raise red flags around financial numbers, loans

23 July 2019: Flagging concerns over financial numbers of housing finance company DHFL, auditors of the debt-ridden firm said there were irregularities in granting of certain loans as well.

The auditors had raised several red flags around the audited numbers of the fourth quarter ended March 2019.

While stating that they were unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion, the auditors put out several qualifications and disclaimers.

“We were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the statement,” said DHFL’s auditors Deloitte Haskin & Sells and Chaturvedi & Shah said.

The auditors had made the remarks in their independent report which is part of the filing submitted to the exchanges on Monday.

Both auditors pointed out that there were significant deficiencies in the grant and rollover of unsecured borrowings at DHFL and that there had also been other irregularities in the granting of certain loans.

“All these developments raise a significant doubt on the ability of the company to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities including potential liabilities in the normal course of business,” they said.

The auditors also said that the company is in the process of monetising its assets and has submitted a draft resolution plan to the consortium of bankers for restructuring its borrowings and also there have been discussions for stake sale by the promoters to a strategic partner with further equity infusion.

“The ability of the company to continue as a going concern inter alia is dependent upon its ability to monetise its assets, secure funding from the bankers or investors, restructure its liabilities and recommence its operations, which are not wholly within control of the company,” they said.

The auditors observed that various regulatory authorities or lenders are currently carrying out their own investigation and they may make a determination on whether any fraud or any other non-compliance or illegalities have occurred in relation to the allegations.

“We are therefore unable to determine if these allegations would have an impact on the statement including whether any adjustments to the carrying value of the loans granted, any restatement, related parties and other disclosures and compliances are required,” they added.

The development by the auditing firms comes at a time when the big four PwC, Deloitte, EY and KPMG, along with rating agencies ICRA and CARE face criticism from authorities for failing to uncover, or flag the issues at IL&FS in a timely manner.

Last month, Reliance Infrastructure’s auditors raised similar red flags around the financials.

Observations made by audit firms are going to have its impact on resolution plan and sale of stake to investors.

DHFL on Monday said it expects an in-principle approval from its lenders to its the resolution plan by month-end.

The company said that it was in the process of submitting a resolution plan to the lenders who are expected to give in-principle approval by month-end.

It further said that DHFL has received non-binding indicative term sheets as part of the proposed corporate restructuring of the company and any proposals approved will constitute a part of the resolution plan.

Promoters of mortgage lender are in talks with private equity firms and are expecting to garner USD 1 billion (about Rs 6,900 crore) by selling nearly 50 per cent of their holdings, sources said.

The Wadhawan family, the promoters of the company, currently holds close to 40 per cent stake in the company.

Private equity firms Lone Star, AION Capital and KKR are in talks with promoters for a strategic stake, sources said.

It further said that the company is undergoing substantial financial stress since the second half of the last financial year.

The Indian Express reported

BQ: NCLAT’s ArcelorMittal-Essar Steel Order Doesn’t Apply To Ruchi Soya, Say Lenders

23 July 2019: The National Company Law Appellate Tribunal’s order in the ArcelorMittal-Essar Steel case is not applicable to Ruchi Soya Industries Ltd. as it is already under trial, lenders to the firm said on Tuesday.

The counsel for the committee of creditors of Ruchi Soya said the judgment will not apply to any matter, which are under trial or going through the insolvency process, hence is also not applicable to the Ruchi Soya case.

On July 9, the Mumbai bench of the National Company Law Tribunal had directed all stakeholders, including the resolution professional and the lenders, of Ruchi Soya to find out whether NCLAT’s order in the ArcelorMittal-Essar Steel case would have any impact on the Ruchi Soya insolvency case.

The NCLAT has ordered almost equal treatment of operational and financial creditors of Essar Steel in payout of ArcelorMittal’s Rs 42,000 crore offer for the steelmaker.

The NCLT observed that the NCLAT order has changed the entire outcome for all stakeholders and is like a formula with clear-cut directions on the distribution of the proceeds should be carried out. Reserving an order on Ruchi Soya, the tribunal said the resolution plan is required to be further discussed.

On Monday, however, the Supreme Court put on hold Essar Steel’s sale to ArcelorMittal as it agreed to hear an appeal filed by financial lenders against the NCLAT order, saying it would like to settle the issue “once and for all”.

Meanwhile, the counsel of Patanjali Ayurved Ltd. said that it stands by its resolution plan for Ruchi Soya.

In December 2017, NCLT referred Ruchi Soya for insolvency on applications moved by Standard Chartered Bank and DBS Bank and appointed Shailendra Ajmera as the resolution professional.

Patanjali, who initially lost out to Adani Wilmar in the race to acquire Ruchi Soya, hiked its bid value by around Rs 140 crore to Rs 4,350 crore, including a capital infusion of Rs 1,700 crore.

Ruchi Soya owes over Rs 9,345 crore to its financial creditors.

The BloombergQuint reported

BQ: NCLAT Dismisses Contempt Petition Against Anil Ambani, Others Over Alleged Reliance Infratel Default

23 July 2019: National Company Law Appellate Tribunal on Tuesday dismissed a contempt petition filed against Reliance Group Chairman Anil Ambani and other officials, alleging default by Reliance Infratel Ltd.

“We have found that no case has been made out for contempt,” said a two-member NCLAT bench headed by Chairman Justice SJ Mukhopadhaya.

On July 3, NCLAT reserved its order saying that it will decide whether the the contempt petition filed by HSBC Daisy Investments (Mauritius) and others should be admitted as Reliance Communications Ltd. is going through insolvency proceedings.

Reliance Infratel, is a subsidiary of RCom, and is presently under corporate insolvency resolution process. HSBC Daisy had moved NCLAT over alleged default of payment of Rs 230 crore by Reliance Infratel.

According to the consent terms of the agreement among Reliance Infratel, HSBC Daisy and others, recorded by the NCLAT in its order dated June 26, 2018, the Anil Ambani-owned firm had to pay the amount in the following six months. After the six-month period ended, HSBC Daisy and nine other minority shareholders holding 4.26 percent stake in Reliance Infratel filed the contempt plea.

The counsel appearing for resolution professional said that as RCom was going through insolvency proceedings and was under the moratorium period under the Insolvency and Bankruptcy Code, it cannot pay the money.

In May this year, the Mumbai bench of the National Company Law Tribunal started the corporate insolvency resolution process of RCom, which has a total bank debt of over Rs 50,000 crore.

The Bloomberg Quint reported

FE: Will repay Jaypee Infra’s dues, hand over flats in 3 years: Jaiprakash Associates

23 July 2019: With a view to wrest back control of its insolvent subsidiary Jaypee Infratech (JIL) under the provisions of Insolvency and Bankruptcy Code (IBC), which allows lenders to withdraw an insolvency petition, parent Jaiprakash Associates (JAL) on Monday said it would repay creditors their entire dues and hand over flats to homebuyers in three years.

JAL’s proposal is better than Suraksha and NBCC, who have evinced interest in JIL. So, the committee of creditors (CoC) should consider its offer under section 12A of the IBC, JAL’s counsel said before the National Company Law Appellate Tribunal (NCLAT).

JIL has Rs 9,800 crore outstanding to 13 banks. It is also required to complete around 20,000 flats and hand them over to buyers.

The two-member NCLAT Bench, headed by chairman Justice SJ Mukhopadhaya, has agreed to hear JAL’s plea. The counsel alleged that a proposal was made earlier before the CoC to withdraw the insolvency appeal, but it had fallen on deaf ears.

The NCLT allows withdrawal of an application admitted under section 7,9 or 10 of the IBC with the approval of 90% voting share of the CoC. JAL does not want liquidation of the company. It also does not want extension of the time period for the ongoing Corporate Insolvency Resolution Process (CIRP), the counsel said.

The NCLAT Bench has asked JAL to file written submissions over exclusion of time frame. It has scheduled the matter for “orders” on July 29.

On an application filed by a consortium led by IDBI Bank, JIL was admitted for initiation of insolvency process on August 2017. In the first round of insolvency proceedings conducted last year, the `7,350-crore bid of Lakshadweep, part of Suraksha Group, was rejected by lenders.

Later in October 2018, the IRP started the second round of bidding process. In all, five companies had submitted expression of interests, but only Suraksha and NBCC submitted financial bids. The CoC has rejected both the bids.

The Financial Express reported

ET: Reliance Communications lenders to seek Rs 580 crore from Ericsson claiming violation of IBC

23 July 2019: Lenders to Reliance Communications (RCom) have decided to send a demand notice to Ericsson, asking the Swedish telecom equipment maker to refund the Rs 580 crore that it received from the erstwhile Anil Ambani-owned telco under a Supreme Court directive, according to people directly aware of the matter. The lenders claim the payment to Ericsson qualifies as a ‘preferential transaction’ under the Insolvency and Bankruptcy Code (IBC).

The decision was taken at a recent meeting of RCom’s committee of creditors, and the consortium of lenders led by SBI is likely to send a formal communication to Ericsson soon, according to two independent sources. RCom was admitted for insolvency proceedings in the National Company Law Tribunal in February.

Lenders may Move Court if Ericsson Refuses

If Ericsson refuses to refund the sum, the lenders may explore legal options, the sources said.

A ‘preferential transaction’ involves a payment to a single creditor or set of creditors ahead of others who are waiting in queue and whose claims rank higher in order of importance as per the IBC.

In this case, Ericsson qualifies as an operational creditor since it provided services to RCom. Hence, the payment to the Swedish company ahead of other secured financial creditors — such as banks — was in violation of the insolvency law, the sources claimed.

A spokesperson for Ericsson said the company had not received any request from RCom’s lenders. A source close to the company said the payment had been received as part of contempt proceedings filed by Ericsson against RCom in the apex court, after the latter refused to honour payments for services rendered to it.

“It is a policy of the bank not to comment upon individual accounts and their treatment,” an SBI spokesperson said in response to ET’s queries.

The Supreme Court had held RCom chairman Anil Ambani and two directors guilty of contempt on February 20 as they had failed to obey the court’s orders to deposit sums claimed by Ericsson. The trio was instructed to make the payment or face a jail term.

RCom eventually made the payment, accompanied by a statement from Anil Ambani thanking his elder brother Mukesh and sister-in-law Nita for their “timely support”. People familiar with the matter said Mukesh Ambani, the chairman of Reliance Industries, had contributed around Rs 480 crore for the Ericsson payment. These people said this was an outright payment by the RIL chairman and not a loan.

Ericsson had been battling RCom in court for over 18 months before it finally got a favourable order and received its dues.

The company had filed an application to take RCom to insolvency proceedings in May last year to recover dues, but agreed to halt the legal action after the telco promised an upfront payment. The assurance was backed by a personal guarantee from Anil Ambani.

Ericsson eventually dragged RCom to the Supreme Court after the latter reneged on its promise. Though RCom had initially opposed Ericsson’s plea to initiate insolvency proceedings against it, the embattled telco eventually withdrew its opposition.

Ericsson later claimed RCom was allowing itself to be subjected to insolvency proceedings to avoid paying it.

Financial creditors have claimed as much as Rs 85,000 crore as dues from RCom and two of its arms — Reliance Telecom and Reliance Infratel — after the companies were admitted for insolvency proceedings.

The parent and the two units collectively house spectrum, domestic fibre assets and telecom towers. RCom had shut its wireless telephony services business last year. Another RCom unit — Bermuda-incorporated Global Cloud Xchange, which houses the undersea cable business — is not part of the insolvency proceedings.

The Economic Times reported

FE: NCLAT stays NCLT order to liquidate Adhunik

23 July 2019: The National Company Law Appellate Tribunal (NCLAT) has stayed the order of the Cuttack Bench of the National Company Law Tribunal (NCLT) to liquidate Adhunik Metaliks (AML) after Liberty House Group moved the appellate tribunal against the liquidation order.

Earlier this month, the Cuttack Bench of the NCLT had ordered liquidation of the bankrupt steel maker after cancelling the resolution plan of Sanjeev Gupta-led Liberty House Group, with the UK-based group failing to implement the resolution plan submitted by it for bankrupt AML under the corporate insolvency resolution process (CIRP).

In a stock exchange filing on Monday, AML said, “Liberty House Group preferred appeals before the NCLAT against the liquidation order dated July 9, passed by the adjudicating authority, NCLT Cuttack Bench, in the matter of Adhunik Metaliks.”

In its order dated July 17, the NCLAT said, “Until further orders, operation of the impugned order of liquidation shall remain stayed.”

According to the order, the advocate appearing for State Bank of India (SBI), the lead lender, may file reply affidavit within two weeks. Rejoinder, if any, can be filed within two weeks thereafter. The appellate tribunal has directed to list the matter on August 28. Lenders to Adhunik Metaliks are SBI, PNB, ICICI Bank, IFCI, Punjab & Sind Bank, UCO Bank, Allahabad Bank, BoB, Corporation Bank and Srei Infrastructure Finance, among others.

Earlier, after Liberty House had failed to make the upfront cash payment of Rs 410 crore within the extended timeline to acquire AML, the Committee of Creditors (CoC), led by SBI, had filed an application before the Cuttack Bench of the NCLT to cancel the resolution plan of the LHG stating that it had “committed breach” in implementation of the plan.

In his submission before Justice Madan B Gosavi of the NCLT Cuttack Bench, the counsel for CoC had appealed to revive the CIRP by excluding period vested by LHG by not implementing the resolution plan as the group had not paid the required upfront cash payment to lenders within the stipulated deadline set by the NCLAT. The CoC’s counsel had also requested the Bench to allow them to consider the resolution plan submitted earlier by the H2 bidder, Maharashtra Seamless.

Notably, there had been only two resolution applicants for the debt-ridden steel manufacturing company — Liberty House and Maharashtra Seamless of the DP Jindal Group. LHG had been identified as the highest bidder (H1) by the creditors, while the plan of Maharashtra Seamless had been rejected as it had been offering less value than the liquidation value of the company.

During the hearing by the Cuttack Bench, Liberty House counsel Arvind Kumar Gupta had requested it to give directions to the CoC, the monitoring committee and the managing committee for the corporate debtor to cooperate with them in implementing the resolution plan in proper prospective as per the terms laid down in the plan. The Kolkata Bench of the NCLT had in July last year approved the resolution plan submitted by Liberty House, with lenders agreeing to take a haircut of around 92% and settling for Rs 410 crore against their outstanding dues of Rs 5,370 crore.

The Financial Express reported

LM: Apex court stays NCLAT verdict in Essar Steel insolvency case

23 July 2019: The Supreme Court on Monday put on hold the sale of Essar Steel India Ltd to ArcelorMittal after lenders to the bankrupt Indian steel maker challenged an appeals court ruling that said operational creditors have to be treated on a par with financial creditors.

The Supreme Court agreed to “expeditiously” hear the plea filed by banks against the National Company Law Appellate Tribunal (NCLAT) order of 4 July.

The bankruptcy appeals court order, approving ArcelorMittal’s ₹42,000 crore offer for Essar Steel, had upset secured financial creditors, as it diminished their priority rights to the proceeds generated from the sale or liquidation of a bankrupt entity.

A division bench of Justices Rohinton Fali Nariman and Surya Kant said the NCLAT order not be given effect to as of now. The bench added that the monitoring committee comprising the committee of creditors and the resolution professional shall continue its work till the next hearing on 7 August. A consortium of lenders, led by State Bank of India, challenged the NCLAT order on 16 July.

On the following day, the Union cabinet approved several changes to the bankruptcy law, including upholding secured creditors’ priority rights on the sale or liquidation proceeds of insolvent companies.

The proposed changes to the insolvency law are likely to help the secured creditors of Essar Steel. The modifications make the rights of financial and operational creditors explicit. The Insolvency and Bankruptcy Code (IBC) gives the highest priority to those who have brought interim finance to meet the costs of resolution or liquidation, followed by dues to workers for the past two years and dues to secured creditors in equal priority. Employees other than workmen, and unsecured creditors and operational creditors are further down the line in the priority of receiving resolution or liquidation proceeds.

A status quo implies that “everything remains as it is, no party should do anything and the NCLAT judgement is stayed”, a senior lawyer said on condition of anonymity. “The Supreme Court will revisit the positions of all the parties on the next date. I believe it is in the banks’ interest to wait till the amendments to IBC are passed in Parliament; it will boost their case. So, they will have no intention to hurry this along.”

A member of the Essar Steel’s CoC said it is confident the apex court would reverse the NCLAT order to the original set forth in the resolution plan, which gives priority in payment to secured creditors. “With the cabinet approving the amendments to IBC, we feel the judges will have more clarity on how the payment should be done,” this person said, requesting anonymity.

In the Essar Steel case, the appellate tribunal had ruled that lenders and operational creditors will get 60.7% of their outstanding claims and proportionately share the money that ArcelorMittal has offered to pay for the Indian firm, which in rupee terms entails a payment of ₹30,030 crore to financial creditors and ₹11,969 crore to operational creditors.

Operational creditors with admitted claim amounts of less than ₹1 crore would get 100%, while for those with claims of more than ₹1 crore, the payment would be 60.26%, according to the NCLAT ruling.

The LiveMint reported