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SAT Tells Hotel Leela Not To Declare Asset Sale Postal Ballot Results

ITC had previously argued that voting by JM Financial ARC to approve the Brookfield-Leela deal was a related-party transaction.

The iconic elephant carving at the entrance of The Leela Palace in New Delhi. (Photo: Instagram/The Leela)
The iconic elephant carving at the entrance of The Leela Palace in New Delhi. (Photo: Instagram/The Leela)

The Securities Appellate Tribunal directed Hotel Leela Venture Ltd. against declaring or acting upon the results of postal ballot resolutions seeking shareholder approval for sale of its assets to Brookfield Asset Management Inc.

This comes after ITC Ltd. moved the tribunal against the market regulator’s order rejecting its contention that the sale should not be allowed because of related-party transactions. Hotel Leela had issued fresh postal ballot notices to its shareholders on Aug. 13 and planned to declare results on Sept 18.

ITC has argued that voting by JM Financial Asset Reconstruction Company Ltd., which owns 26 percent in the company, on the postal ballot resolutions to approve the Rs 3,950-crore deal was a related-party transaction. The marker regulator didn’t agree even as it found conversion of debt to equity by JM Financial ARC a violation of the takeover code.

On Friday, SAT heard arguments from ITC, SEBI and Hotel Leela.

ITC’s Arguments

  • Structuring of a private contract between Brookfield, Hotel Leela’s promoters and JM Financial ARC can’t affect the related-party status of the transacting parties. The contract between the parties is private and cannot change or affect the interpretation of SEBI’s regulations.
  • Hotel Leela’s objection that ITC wants to derail the transaction for its own gain is incorrect, considering that ITC accumulated stake in the hospitality company over a period of time.
  • SEBI relied purely on the commercial element of the transaction while determining the status of the contracting parties.

Sebi’s Argument

Ravi Kadam, counsel for SEBI, argued:

  • Sebi’s ‘Listing Obligations and Disclosure Requirements’ regulations do not allow an automatic exemption from an open offer to any party. In order to claim an exemption, JMF ARC must have approached Sebi seeking its directions.
  • JMF ARC’s contention that conversion of debt into equity pursuant to failure of a corporate debt restructuring exempts an acquirer from open offer requirement was incorrect. No party can claim automatic exemption upon completion or failure of the CDR process.
  • Under the LODR regulations, only SEBI is empowered to determine whether a party is compliant with the open offer process or not.

Hotel Leela’s Arguments

Navroz Seervai, counsel for Hotel Leela, said:

  • The sale of assets to Brookfield will help in fulfilling Hotel Leela’s duties towards its workers.
  • Hotel Leela is incorporated and listed as a company. The regulator can exercise power by taking appropriate measures under Section 12A of the SEBI Act against an individual or a company—the provision relates to substantial acquisition of shares.
  • SEBI, however, lacks jurisdiction to pass an order against Hotel Leela under 11B(b)—the section allows SEBI to pass directions against companies in matters relating to issue of capital, transfer of securities and other matters for safeguarding the interest of investors.
  • SEBI is only empowered to impose penalties in case of infraction of the LODR regulations.

The tribunal reserved its order for judgment.