ITC, a minority shareholder in Hotel Leelaventure, on Tuesday sought to argue on its application for waiver of the minimum shareholding requirement. This comes as its petition alleging oppression and mismanagement of minority shareholders effectively remains on hold amid ongoing investigation by Sebi into the proposed sale of Hotel Leelaventure’s various undertakings to Brookfield.
April, ITC had moved the NCLT against Hotel Leelaventure alleging oppression and mismanagement under Section 241 of the Companies Act, 2013, along with a waiver application.
According to the shareholding pattern for 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.
Section 241 states member of a company can file a petition based on complaint that “affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company”.
ITC’s main petition objects to the Brookfield transaction, alleging it would leave Hotel Leelaventure a mere shell with only liabilities while allowing promoters to benefit and 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”, even though 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 has 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.
Laying the ground in support of the waiver application, the counsel to ITC argued that ITC had the largest stake among minority shareholders, suggesting no other minority stakeholder was in a position to approach the tribunal. He further alleged that almost 99% of the ‘non-interest stakeholders’ and all of the ‘public’ stakeholders had voted against the proposed sale of company’s properties to Brookfield.
Meanwhile, in a bid to dismantle ITC’s arguments, senior counsel Navroz Seervai, appearing on behalf of Hotel Leelaventure, tagged ITC’s petition as ‘grossly mala fide application’. He suggested ITC’s application against the Brookfield deal, which could otherwise resuscitate Hotel Leelaventure, was done because ITC, as a trade rival with its own chain of hotels, had more to gain if the deal fell through.
The counsel to Hotel Leelaventure further noted that JM Financial was representative of other banks within the consortium, who would also ‘partake’ in the Brookfield transaction. The counsel further alleged that ITC did not vote in a 2013 ballot that put before the shareholders resolutions to to confirm the corporate debt restructuring scheme in relation to the company’s debts and the scheme to approve the issuance of equity shares to CDR Lenders/Security Trustee/Monitoring Institution upon exercising their right to convert loans into equity shares in future. Nor did ITC, the counsel further alleged, vote in 2017 on a resolution after JM Financial ARC called upon the Company to convert part of the existing outstanding dues aggregating to Rs 275.09 crore into 16,39,43,459 fully paid up equity shares of Rs 2 each.
Seervai suggested that by not voting on these resolutions, neither exhibiting assent or dissent, ITC had through its ‘conduct’
indicated that it had ‘acquiesced’. For filing its petition this late in the game, Seervai referred to ITC as a ‘slumbering giant’.
The NCLT adjourned the matter to June 19. Hotel Leelaventure promoters are expected to make their arguments then.
Source: Financial Express, June 19, 2019