The New Delhi bench of National Company Law Tribunal (NCLT) has admitted an application against bulk tea manufacturer McLeod Russel under the Insolvency and Bankruptcy Code (IBC) for defaulting on the repayment of a loan worth ₹100 crore.

In a stock market notification on Friday, McLeod said that NCLT, New Delhi has appointed Kanchan Dutta as interim resolution professional.

McLeod Russel, a Williamson Magor group company, is considered to be the largest bulk tea producer in the country. It currently operates 33 tea estates in Assam and West Bengal and produces close to 73 million kg of tea each year. It also has estates in Africa and Vietnam.

The application was filed by Techno Electric & Engineering Co Ltd, which had provided an inter-corporate deposit of ₹100 crore to McLeod in 2018. The funds were given for repayment of loans relating to four of its estates, which was due to banks and financial institutions and to ensure that all encumbrances created on the four tea estates were released.

The loan amount, which carried an interest of 14 per cent, was to be fully repaid on or before March 31, 2019.

In its application Techno Electric said that not only did McLeod failed to hand over the original title deeds relating to the four tea estates to the company but also could not repay the entire loan amount within the due date.

It is to be noted that multiple banks have filed petitions under IBC with NCLT, Kolkata bench. However, these are yet to be admitted.

Mounting debt

According to McLeod’s last annual report (2019-20), the total indebtedness of the company stood at around ₹2,245 crore as on March 31, 2020. The company had sold multiple tea gardens in Assam and West Bengal to pay off certain high cost debt. However, it was not really enough to overcome the challenge.

In the notes to accounts along with its financial results for March 2021 quarter, the company said that certain lenders including those concerning another group company have obtained injunction against disposal of its assets, pending settlement of their dues.

“The company has taken various measures to overcome the financial constraints, which inter-alia include reduction in operational costs, monetising the company’s/group’s assets including holding of other group companies; a proposal for restructuring/reducing the borrowings to make them sustainable and rationalising the costs thereof; and infusing liquidity in the system over a period of time,” it said.

Based on a 2019 circular issued by Reserve Bank of India, the lenders have initiated resolution process of stressed assets and have also appointed an independent professional for carrying out a Techno Economic Viability (TEV) study. Further, SBI Capital Markets has been appointed by the lender to work out and recommend a resolution plan and a possible course of action on the matter.

A draft resolution plan is pending before lenders for their consideration. The company’s management is confident that with the lenders support in restructuring debt, related cost reductions and other measures taken, it would be able to reduce its outstanding amount of loan receivable and generate sufficient cashflow to meet its obligations and strengthen its financial position over a period of time.

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