Eveready's plan to sell battery business to pare debt tied in legal knots

Battery division sell-off may be delayed

Eveready initiated discussion early this year with some companies, including Energizer and Duracell, to sell its battery business to pare debt. Though Eveready informed the stock exchanges last week that no definitive decision had been taken, Duracell is believed to have emerged as the frontrunner and an offer of Rs 1,600-1,700 crore is under discussion. A latest legal twist, however, is likely to delay the plans.

The Calcutta High Court on September 3 passed an ad-interim (temporary) order of injunction restraining Williamson Magor & Co, an investment company of Williamson Magor Group (WMG); McLeod Russel, the bulk tea company; and Eveready Industries India, the battery maker, from transferring, alienating, or encumbering any of their tangible or intangible assets till the application filed by Infrastructure Leasing & Financial Services (IL&FS) was disposed of. 

As mentioned in the order, IL&FS had granted a term loan of Rs 170 crore to WMG through Williamson Magor & Co. The terms and conditions of the loan were recorded in the loan agreement dated March 29, 2017. 

McLeod and Eveready had made a prayer for a stay on the order, but it was considered and rejected. WMG companies are likely to file an appeal against the order because neither McLeod nor Eveready was party to the agreement with IL&FS. Eveready did not comment on the matter.

The court, however, said McLeod and Eveready as constituents of WMG were liable to pay the dues under the put-option agreement and IL&FS had made out a prima facie case to obtain ad-interim protection.

In February last year, WMG approached IL&FS again for financial assistance and Rs 100 crore was advanced to the group by investing in compulsory convertible preference shares of McNally Bharat Engineering and a facility agreement was struck on March 27 last year.  A put-option agreement was also executed between the Khaitans, the promoters, and different entities of WMG. The facility agreement and put-option agreement had several clauses which, IL&FS said, were breached. The suit filed by IL&FS is against the promoters and companies under WMG.

WHAT THE HIGH COURT SAID

• There shall be an ad-interim order of injunction restraining respondent nos. 4 (Williamson Magor & Co), 6 (McLeod Russel), and 9 (Eveready Industries India) from transferring or alienating or encumbering any of their tangible or intangible assets till the disposal of this application
• A prayer is made by respondent nos. 6 and 9 for stay of operation of this order. Such prayer is considered and rejected
• The order of injunction passed herein shall not prevent respondent nos. 4, 6, and 9 from operating their respective bank accounts for the purpose of carrying on their regular business

The court has, however, clarified that the order of injunction would not prevent the companies from operating their bank accounts. The respondents have been asked to file their affidavit-in-opposition in three weeks and a reply, if any, would have to be filed by November 8 this year.

The order is likely to affect the group’s deleveraging plans. The Kolkata Bench of the National Company Law Tribunal (NCLT) has ordered a temporary status quo on assets of McLeod Russel India in a separate case. Over the past year, WMG has been undertaking a group-level restructuring that involves sales of assets.   Eveready is in talks to sell its battery business on a slump-sale basis, McLeod has been selling gardens. Of its 52 gardens, around 16 had been transferred.  McLeod’s debt is around Rs 1,700 crore and a debt-restructuring plan is pending with the lenders.

The restructuring plan was to convert short-term debts into long-term ones.  However, the shareholders’ approval was required to raise borrowing and lending limits beyond legally permissible norms, and, at McLeod’s recent annual general meeting, the resolution was defeated by the shareholders.

On the other hand, McNally Bharat Engineering Company, the troubled engineering entity of WMG, has signed an agreement with a consortium of investors led by Turbovent Industries for infusing Rs 150 crore, subject to an approval of a resolution plan outside the scope of the NCLT.