Some relief for Khaitans as McLeod Russel gets interim stay in CIRP

In some relief for the Khaitans, the National Company Law Appellate Tribunal (NCLAT) directed the interim resolution professional (IRP) not to take any further steps in the corporate insolvency resolution process (CIRP) of McLeod Russel India till the next hearing.

On February 10, the Kolkata Bench of the National Company Law Tribunal (NCLT) had admitted an application filed by IL&FS Infrastructure Debt Fund under Section 7 of the Insolvency and Bankruptcy Code (IBC) for initiating CIRP against McLeod Russel and appointed an IRP. McLeod Russel's erstwhile promoter, Aditya Khaitan, thereafter filed an appeal in NCLAT.

On Wednesday, the appellate tribunal listed the appeal filed by Khaitan, for March 27 and said that in the meantime, in pursuance of the impugned order passed by the adjudicating authority dated February 10, the IRP shall not take any further steps in the CIRP.

However, it said that the corporate debtor (McLeod Russel) shall be run as a going concern including day-to-day operations. “The IRP shall run the same with the assistance of the suspended directors/officers/employees of the corporate debtor,” the order mentioned.

Sources close to the Khaitans said that this was a relief as the formation of committee of creditors (CoC) was stayed.

Ramya Hariharan, counsel for IL&FS Infrastructure Debt Fund, said, “The CoC formation has been stayed but the IRP continues to be in control of the company.”

It may be mentioned that IL&FS sought to initiate CIRP against McLeod Russel in connection with a default in payment in 2019. The default in payment pertained to two group companies of McLeod Russel -– Babcock Borsig (Rs 150 crore) and Williamson Magor & Company (Rs 99.5 crore). McLeod had executed a shortfall undertaking in favour of the financial creditor.

In NCLAT, the senior counsel for Khaitan submitted that the appellant had given a letter of comfort and shortfall undertaking, both of which cannot be treated to be any corporate guarantee. Insofar as the indemnity is provided in shortfall undertaking, the said clause was never invoked hence there shall be no financial debt and application filed under Section 7 could not have been maintainable, the counsel said.

The senior counsel for IL&FS refuted the submissions and contended that the letter of comfort and shortfall undertaking can be treated as guarantee. The counsel further submitted that indemnity was also invoked.

Meanwhile, even as the appeal process is being pursued in NCLAT, the Khaitans are understood to be engaging with IL&FS for a settlement.