McLeod Russel promoters seek to settle with Techno as way out of insolvency

Sources say talks between the two parties are on, finer details of a settlement being worked out; top brass of both sides refuse to comment

The Khaitan family, promoters of McLeod Russel India, are in discussions for a settlement with financial creditor, Techno Electric & Engineering, that would take the country’s largest tea producer out of insolvency proceedings.

Multiple sources close to the development said that negotiations between the two parties were on and finer details of a settlement were being worked out.

Aditya Khaitan, promoter, McLeod, and P P Gupta, managing director, Techno, did not comment.

A settlement deed would have to be signed, which would then be placed before the National Company Law Tribunal (NCLT) for its nod.

Discussions for a settlement between the two sides were initiated after the first hearing of the appeal filed by Aditya Khaitan in the National Company Law Appellate Tribunal (NCLAT) on August 25. The appeal was filed against the NCLT order initiating insolvency proceedings.  

The appellate tribunal admitted Khaitan’s appeal, but did not grant an immediate stay on the constitution of the committee of creditors (CoC).

Senior counsel for Khaitan, Abhishek Manu Singhvi, had said in NCLAT that the appellant had a good case in appeal, therefore the constitution of the CoC may be stayed. However, the tribunal said that it would consider the application for stay after filing reply by the respondent (Techno). Techno was given 10 days to file the reply.

The McLeod Russel stock has been touching the upper circuit every day since the order came to light. On Wednesday, it closed at Rs 24.45 on the Bombay Stock Exchange, up 4.94 per cent.

There were limited options before the McLeod promoters to take it out of insolvency proceedings without an interim stay. A settlement with Techno was one.

“Time was running out because the CoC had to be constituted,” said a source aware of the matter.

According to the Insolvency and Bankruptcy Code (IBC) rules, the CoC is to be constituted after verification of claims. The last date for submission of claims was August 20.

On August 6, the NCLT New Delhi Bench, admitted an application filed by Techno for initiating CIRP and an interim resolution professional was appointed.

The trigger for the application was a loan agreement of 2018 with Techno for providing Rs 100 crore inter-corporate deposit (ICD). The agreement was subject to the condition that it would be utilized for the purpose of repayment of all loans relating to four estates due to banks and financial institutions to ensure that encumbrances created on the estates were released. McLeod had also mortgaged a property.

However, the title deeds relating to estates were not handed over to Techno and the loan amount was not repaid by the due date of March 31, 2019.

Sources close to the development said that a settlement with Techno would pave the way for McLeod’s debt resolution with banks. Banks had initiated the resolution process under the Reserve Bank of India (RBI) circular dated June 7, 2019. McLeod owes banks around Rs 1,800 crore.

Most of the banks had signed inter-creditor agreement for arriving at and implementing the resolution plan. Some were in the process of being approved when McLeod was admitted for CIRP.

The process can be completed once the CIRP is closed, indicated sources.