As part of the Hotel Leela-Brookfield deal, four hotels will be sold to the Canadian fund, barring the Mumbai property. (Image: Hotel Leelaventure website)

NCLT Asks SEBI To Conclude Probe Into Allegations Against Hotel Leelaventure

The Mumbai bench of the National Company Law Tribunal on Tuesday directed the Securities and Exchange Board of India to conclude its probe into allegations against Hotel Leelaventure Ltd. by the company’s two minority shareholders—ITC Ltd. and Life Insurance Corporation of India.

The NCLT’s Mumbai bench, comprising VP Singh and Ravikumar Duraisamy, said Sebi should conclude its examination on the matter before the next date of hearing—July 8.

ITC had in April sought a waiver of the 10 percent minimum shareholding requirement to file a petition alleging oppression and mismanagement against Hotel Leela’s management and its lender JM Financial ARC Ltd. It also sough to prevent the sale of Hotel Leelaventure to Brookfield Asset Management for Rs 3,950 crore.

“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 percent,” ITC counsel J Khambatta had told the NCLT. “We want protection for our shareholding so that the promoters cannot get away with a fraudulent deal.”

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

As per the information available with the bourses, ITC holds 7.92 percent stake in Hotel Leelaventure as of December 2018 quarter.

Under Section 241 of the Companies Act, 2013, a minimum shareholding of 10 percent is required to file such cases.

The tribunal had issued notices to JM Financial and Hotel Leelaventure to reply within three weeks and file rejoinders in two weeks thereafter.

ITC said all major hotels of Hotel Leelaventure are being sold off, excluding the flagship Mumbai property, which is facing a legal battle with the Airports Authority of India over land lease, and also a land parcel in Hyderabad, which the hotel group is developing with Prestige Developers.

According to the Hotel Leela-Brookfield deal, the hotel chain’s promoters will get over Rs 300 crore from the buyer under royalty and management consultancy agreements for the next five years.

“We are seeking details of the Hotel Leela-Brookfield deal or the valuation report but the company is not co-operating,” the ITC counsel had added.

SEBI had in a letter to Hotel Leelaventure said it has received representations from ITC apart from LIC.

On March 18, Brookfield agreed to acquire Hotel Leelaventure’s four hotels in New Delhi, Chennai, Bengaluru and Udaipur, and a land parcel in Agra for Rs 3,950 crore. The deal is yet to go through.

The flagship Mumbai property is not part of the Hotel Leela-Brookfield deal.

The five hotels being sold have over 1,400 rooms.

JM Financial ARC had filed insolvency application against the Mumbai-based hotel chain in January, which owes around Rs 5,900 crore to lenders.

The Hotel Leela-Brookfield deal will also entail purchase of the Leela brand, existing and all its upcoming management contracts, apart from absorbing the employees of these four hotels being taken over by the Canadian fund.

Also read: SEBI Bars Hotel Leelaventure From Selling Properties To Brookfield Asset Management

Bloomberg Quint

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