Refund Allahabad Bank Rs 21.49 Cr, Ms Shoes Told

Additional information provided by the company subsequently has been incorporated at the end of the report

The Pawan Sachdeva-promoted MS Shoes East Ltd has been ordered to pay Allahabad Bank Rs 21.49 crore as repayment of the bridge loan extended to the company against its abortive public issue in February, 1995.

 

The ruling has been given by the Debts Recovery Tribunal on an application filed by the bank. The amount includes future interest at 18 per cent per annum and interest tax levy at the rate of 0.75 per cent per annum besides the application fee and legal charges.

 

 

R M Sharma, presiding officer of the tribunal, has, however, made the recovery certificate subject to the outcome of a suit filed by MS Shoes in the Delhi High Court in which the company has claimed that it has no liability towards Allahabad Bank.

 

In the event the suit of the defendants before the Delhi High Court is finally decreed, and in the meanwhile, the amount has been received by the applicant bank under this recovery certificate, the applicant bank shall have to return that amount along with interest to defendants in terms of the judgement/decree of the Delhi High Court, says the order.

 

The case pertains to the bridge loan of Rs 20 crore extended by Allahabad Bank to MS Shoes on February 9, 1995, against the abortive public issue of the company floated at that time.

 

The loan agreement envisaged repayment within four months or till the basis of allotment was finalised, whichever was earlier. Other conditions were: the company will not raise bridge loan against the proposed public issue beyond the permissible ceiling of 75 per cent of the issue; the money collected by the bankers to the issue will be utilised for liquidating the bridge loan first; Allahabad Bank will have a lien on the equivalent amount in respect of the bridge loan on application money received/retained by the bankers to the issue; and the bridge loan will be utilised only for the purposes mentioned in the issue.

 

The issue opened on February 14, 1995, and closed on February 18, 1995. It was reported by the company to have been over-subscribed.

 

However, it was later found that the issue amount had fallen below 90 per cent, and the issue was declared devolved on March 17, 1995. Later, the company requested the collecting banker to refund the balance amount to the subscribers.

 

Allahabad Bank, through a letter dated May 18, 1995, demanded repayment of its loan. When MS Shoes did not pay, the bank moved the tribunal.

 

In its submission before the tribunal, the company admitted the sanction of the loan but denied any liability on the ground that Allbank Finance Ltd, a subsidiary of Allahabad Bank, had entered into an agreement with the company for underwriting part of the public issue. This, said the company, was under the same arrangement through which the bridge loan was granted.

 

The company argued that Allahabad Bank was obliged to pay a portion of the issue (about Rs 3 crore) that was underwritten directly by Allbank Finance. It was alleged that Allbank Finance did not pay any part of its underwriting obligation despite notices.

 

The applicant and its subsidiary are directly responsible for the delay in allotment and alleged failure of the issue, and therefore it is not open for the applicant to take advantage of its own wrong and recall the loan. The bridge loan has already been employed in the project, and hence it would be impossible to withdraw it without undue prejudice to the defendant and its 45,000 shareholders, claimed the company.

 

However, the tribunal left it to the high court to decide the merit of the defendants claim. If there are contradictory findings, a legal complication would arise, said the order, confining itself to the fact that the defendants had admitted to the advance of the loan as well as the interest claimed in the application.

ADDITIONAL INFORMATION
In May 2014, MS Shoes informed us of the subsequent developments in the company which are as follows:
MS Shoes had repaid the entire loan amount to Allahabad Bank in May 2009.