Hotel Leela asset sale case: SAT upholds an order passed by Sebi

In April, the board of debt-ridden Hotel Leela had floated an ordinary resolution for sale of its assets to Canadian investment firm Brookfield for Rs 3,950 crore

FMCG major ITC has failed to obtain any relief from the Securities Appellate Tribunal (SAT) in the Hotel Leela asset sale case. The tribunal, on Thursday, upheld an order passed by capital markets regulator Securities and Exchange Board of India (Sebi) in the matter. The SAT also vacated its stay on Hotel Leela declaring the results of a postal ballot. ITC is likely to move the Supreme Court challenging the ruling. 

In April, the board of debt-ridden Hotel Leela had floated an ordinary resolution for sale of its assets — which included hotel properties in Delhi, Bengaluru, Udaipur, and Chennai — to Canadian investment firm Brookfield for Rs 3,950 crore. 

ITC, a key minority shareholder, had opposed the deal stating that it violated provisions of related party transactions (RPT), and should be cleared only through a special resolution.

Sebi had issued an order in July stating the sale of assets and intellectual property (IP) — except the deal involving transfer of the ‘Jamavar’ trademark — didn’t amount to RPT. 

ITC had challenged Sebi’s ruling, stating that the entire Brookfield transaction should be viewed as a composite deal and treated as an RPT.

It further argued that JM Financial ARC, which holds 26 per cent stake in Leela, shouldn’t be allowed to vote on the transaction. This is because the Sebi order states it has failed to ensure compliance with Takeover Regulations.

ITC had also moved National Company Law Tribunal (NCLT) alleging oppression and mismanagement by Leela and JM Financial.

Following the complaints, Sebi launched an investigation into the deal and ordered 

Leela not to proceed with the postal ballot. Sebi had directed Leela to provide all relevant details of each of the sale transactions with Brookfield. Leela had to provide the valuation methodology used to arrive at the valuation.

Had Sebi or SAT held the transaction between Hotel Leela and Brookfield as a related party deal, the transaction would have required the approval of ‘majority of minority’ investors. 

This could have made the sale difficult given key minority shareholders ITC and LIC were opposed to it.