Shareholders’ fight to save erstwhile Vijay Mallya firm Mcdowell Holdings from insolvency

A Supreme Court bench has asked the financial creditor of Mcdowell Holdings Ltd why it would have any issue if the entire debt is being repaid by the shareholders of the corporate debtor. The Supreme Court bench comprising of Justice Sanjiv Khanna and Justice M M Sundresh has said the matter required re-consideration as the facts of the case appear doubtful.

The shareholders of Mcdowell Holdings had moved supreme court against the corporate insolvency resolution process brought in by Sunstar Hotels and Estates Ltd after the former defaulted on a payment of Rs 16.80 crore. The insolvency plea of Sunstar Hotels against Mcdowell Holdings was admitted by the Bengaluru bench of the NCLT in April 2022.

The SC Bench, thereafter, issued notice and directed that the matter may be heard by the NCLT, Bengaluru but no final order be passed on the approval of the Resolution Plan. The Court further directed the Sunstar Hotels to file their replies within six weeks and rejoinder, if any, would be filed within a further period of six weeks.

Some shareholders (representing 15.51% shares) of Mcdowell had moved the Chennai bench of National Company Law Appellate Tribunal against the NCLT order initiating CIRP against the corporate debtor.

The submission of the shareholders before the appellate tribunal was that Sunstar Hotels and Estates initiated illegal and fraudulent Corporate Insolvency Resolution Process’ with mala-fide and ulterior motives.

The shareholders also argued in the tribunal that NCLT passed an unreasoned order without dealing with the arguments raised by the shareholders in both the petitions before the ‘Adjudicating Authority’ and also ignored the maintainability issues raised by the shareholders therein.

Aggrieved Shareholders

However, the NCLAT dismissed the appeal sought by the shareholders, on the ground that the shareholders did not have the locus standi to file an appeal under Section 61 (1) of the Insolvency and Bankruptcy Code (IBC), 2016 as shareholders cannot be termed as “a person aggrieved” as per the law and thus, the Corporate Insolvency Resolution Process (CIRP) as admitted by the Hon’ble National Company Law Tribunal (NCLT) was not interfered with by the Hon’ble NCLAT.

About Mcdowell Holdings

Mcdowell Holdings was earlier managed by Vijay Mallya along with United Breweries Limited, whose shares in the company were attached by the Enforcement Directorate and in order to regain control of Mcdowells Holding Limited, Vijay Mallya appointed three directors who were acting on behalf of the Corporate Debtor even after being ousted by 99.24% votes in the Annual General Meeting of the Corporate Debtor.

Mcdowell had availed Inter Corporate Deposit (‘ICD’) from Zuari Fertilisers and Chemicals Limited (ZFCL) which was later merged with Zurai Agro Chemical Limited (ZACL) and the Corporate Debtor entered into a settlement agreement on 17 June 2019 with ZACL and Mangalore Chemicals and Fertilizers Limited (MCFL) according to which, a sum of Rs. 10.6 crore along with interest being outstanding ICD was to be repaid in two tranches: (i) By way of sale and transfer to ‘ZACL, 11,85,151 shares of MHL in MCFL; and (ii) By procuring release of shares of United Breweries Limited and amounts realized from the sale of shares of United Breweries Limited. Rs. 8.37 crore was interest outstanding on the date of settlement agreement and the repayment of borrowing was to be completed within 18 months (16 December 2020). This timeline further extended twice and the payment was to be made by 16 September 2021. However, despite extended timeline, the Corporate Debtor was unable to meet repayment obligations towards ZACL.

Sunstar Hotels entered into a formal agreement on 19 November 2021 with ZACL and agreed to discharge the entire liability of the MHL which entitled Sunstar to enter into shoes of ZACL by way of right of subrogation for Recovery of Dues from the Corporate Debtor.

Total claims submitted by the creditors of Mcdowell is Rs 18.65 crore only. K Prasanth Raju is the resolution professional in the case.

Five firms — Anirudh Agro Farms Pvt Ltd, Kundan Care Products Ltd, Khandwala Finstock Pvt Ltd, Phoenix Theme Infra Projects LLP and SSGVD Enterprises LLP – have shown interest in acquiring the assets of the company.

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