Sebi restrains Hotel Leela from selling properties to Brookfield, NCLT issues notice

Market regulator Sebi has restrained Hotel Leelaventure from selling its four hotels and other assets to Brookfield Asset Management in a Rs 3,950 crore deal till its further orders after a representation by Kolkata-headquartered ITC, the debt-ridden firm said Wednesday.

Meanwhile, the Mumbai bench of NCLT issued notices to Hotel Leelaventure, its promoters along with its lender JM Financial over a joint petition filed by ITC and its investment arm Russell Credit Ltd.

ITC and Russell Credit which together hold 8.72 per cent of the issued share capital of Hotel Leelaventure have sought a waiver of 10 per cent minimum shareholding for minority shareholders to be counted in management matters.

The National Company Law Tribunal (NCLT) adjourned the matter to June 18, 2019, for the next hearing.

On March 18, Hotel Leelaventure Ltd (HLVL) had announced sale of its four hotels located in Bengaluru, Chennai, Delhi and Udaipur, as well as a property to Canadian investment fund Brookfield for Rs 3,950 crore. It had sought shareholders approval and voting is scheduled to end on April 24.

The Securities and Exchange Board of India (Sebi) said it has received representations from ITC, which has also moved the National Company Law Tribunal against Hotel Leelaventure alleging "oppression and mismanagement", and minority shareholder Life Insurance Corporation (LIC).

ITC has made certain allegations against HLVL, its promoters and JM Finanacial Asset Reconstruction Company Ltd with respect to postal ballot notice seeking shareholders nod for the sale, the letter by Sebi to HLVL said.

"...While representations are being examined by Sebi, in view of paucity of time involved and in the interest of investors in securities, you are advised to ensure that none of the transactions proposed in the postal ballot notice dated March 18 are acted upon till further directions from Sebi," Hotel Leelaventure said in regulatory filing.

ITC, in its petition filed before the NCLT has alleged that HLVL decision to sell its four hotels and other assets to Brookfield Asset Management would leave the hospitality firm as a "shell company" alleging that the transaction was "prejudicial, oppressive and even fraudulent." After the deal, Hotel Leeleventure would remain a company "with only liabilities" and it would benefit only the promoters who, will receive at the least "Rs 300 crore in contemporaneous and concomitant side deals that are inter-linked with the disposal of the undertakings of the company, ITC said in the petition filed before NCLT Mumbai.

According to ITC, the minority shareholders including it "will receive nothing and will be left holding worthless shares with no underlying business or assets left within Hotel Leelaventure." ITC has further alleged that the valuation report was not tabled either in the meeting of audit committee or the board meeting on March 18, 2019 when decision to sell the properties was taken.

"At neither meeting was any valuation report tabled despite the fact that the lenders, whose approval to the transaction had been sought, had questioned whether any valuation report(s) had been obtained and what process had been followed before deciding to go ahead with Brookfield," alleged ITC.

It further said that even if any valuation report existed Hotel Leela "did not provide inspection of any valuation report(s) in respect of the Transaction." During the proceedings of NCLT, senior advocate Darius J Khambatta, resprsenting ITC told the tribunal:"We were suppressed of our rights as a shareholder. The postal ballot notice has not addressed many issues. It is a classic case of majority acting against minority shareholders using oppressive means, as they own 73 per cent.

"We want protection for our shareholding so that the promoters cannot get away with a fraudulent deal," he added.

Khambatta noted that in 2017, JM Financial ARC bought the debt of Hotel Leela from banks and got 26 per cent shareholding after converting the debt into equity. This led to the dilution of ITC's shareholding to below 10 per cent.

On March 18, HLVL had entered into a binding agreement with a Brookfield Asset Management sponsored private real estate fund to sell, by way of slump sale, four owned Leela hotels located at Bengaluru, Chennai, Delhi and Udaipur and the property that it owns in Agra.

The transaction included assignment of all hotel management contracts currently in operation as well as all under-development, along with the employees of the hotels, it added.

Proceeds of the sale "will be paid to the lenders of the company towards repayment of dues," the filing on March 18, had said.

"After completion of the aforesaid transaction, all borrowing of the company from all banks and financial institutions would stand repaid," it had added.

Shares of Hotel Leelaventure Ltd Wednesday settled at Rs 10.97 on BSE, up 4.38 per cent from the previous close.

(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)