An injunction on the sale of assets by McLeod Russel India Ltd (MRIL) and Eveready Industries Ltd has been lifted by a division bench of Calcutta High Court, paving way for the promoter Khaitan family to cut down the group’s debt.

A bench of Justice Sanjib Banerjee and Justice Kausik Chanda vacated an interim order of a single bench of the same court passed on September 3, 2019, restraining McLeod Russel and Eveready, the two operating companies of the Williamson Magor group, from transferring, alienating or encumbering any tangible or intangible asset.

The previous order came in the way of the debt restructuring exercise undertaken by the lenders of the group to keep the companies, especially McLeod and McNally Bharat & Engineering Co Ltd, out of the bankruptcy process. While MRIL was looking to sell its tea gardens, Eveready is believed to be in talks to dispose of the dry cell battery business as part of the exercise.

ICICI Bank, the lead lender of the group, has mandated SBI Caps to carry out the work. It has also asked LSI Financial Services Ltd to evaluate a sustainable business plan for MRIL.

The single bench had passed the restraining order based on a plea of IL&FS Financial Services Ltd, which had lent around Rs 120 crore to various promoter group companies, especially Williamson Magor & Co Ltd.

Further, Rs 100 crore was to be infused by IL&FS, which is itself in a financial mess, into McNally by way of compulsory convertible preference shares. However, such conversion was based on certain parameters, which the Williamson Magor companies could not fulfil, prompting IL&FS to recall the loan.

The division bench found that MRIL and Eveready were not part of the IL&FS loan agreement with the other group firms. The single bench had sought to lift the corporate veil of the group and held all companies, including those two who were not part of it, responsible for the default.

“There was nothing stopping the plaintiff (IL&FS) in this case to decline to make the credit facilities available to McNally Bharat or to the group as a whole without the two flagship companies taking responsibility thereof. In such flagship companies being excluded from transactions, the inevitable conclusion is that such companies were deliberately kept outside the purview of the transactions and could not, subsequently, be made liable for the obligations that the other members of the group failed to discharge,” the judgment read.

The bench observed that the principle of lifting of the corporate veil is invoked usually in the case of fraud to nail the real owner to hide under independent juristic identity.

“In the present case, what is singularly lacking in the plaintiff’s narrative is that neither MRIL nor Eveready has done anything wrong or improper,” the bench noted, before vacating the injunction.

However, the order came with a rider. The money coming from the sale of assets by the two companies cannot be received by the promoter group firms till the entire debt of IL&FS is discharged.

Given that most of the shares and assets of MRIL are already pledged with various institutions, the efficacy of the rider needs to be seen.