A division bench of the Delhi high court has upheld an injunction that bars three operating companies of The Williamson Magor group from dealing in their assets.

The bench has dismissed appeals filed by Eveready Industries India Ltd, McLeod Russel India Ltd and McNally Bharat Engineering & Co Ltd against the restraint order issued by a single bench of the court and imposed costs of Rs 2 lakh each.

The suit was filed by KKR India Financial Services Ltd which had lent Rs 100 crore each to Williamson Magor & Co Ltd and Williamson Financial Services Ltd, the two holding companies of the Group, in 2017.

Even though the three manufacturing companies were not party to the agreement or arrangement with KKR, the nonbanking finance company had moved the Delhi high court against the borrowers, guarantors and the companies from dealing in their assets.

KKR argued that the borrowers were shareholding companies in the Williamson Magor group, possessing no assets of their own, and they existed merely for the purposes of raising funds for their group companies. In fact, the loans had been used to finance McLeod's debt.

The division bench appeared to have agreed with this argument.

“The answer to the question — whether the respondents would have provided the loans to the borrowers, if they did not have the security of assets and shareholding of the three Reference Entities, would be a plain ‘NO’,” said the judgment delivered by the bench of Justice Vipin Sanghi and Justice Rekha Palli.

The loan facility agreement had described the three operating firms as ‘reference entities’.

Sources said the companies may challenge the division bench order before the Supreme Court.

In a regulatory filing this evening, Eveready continued to maintain that the injunction order was “not legally tenable.”

“The company continues to be advised that since it is neither a party to any agreement or arrangement with the petitioner, in respect of the said alleged dues nor does any claim pertaining to the said dues arise from the company, the said injunction order against the company, should not be legally tenable,” it said in the filing.

The impact

The single bench order of 2019 had restrained the companies from selling, transferring, alienating, disposing, assign¬ing, dealing, encumbering or creating third party rights in any of its assets, and carrying out any change in its capital structure, or any corporate or debt restructuring.

The order particularly af¬fects bulk tea producer McLeod Russel which has signed an inter creditor agreement with financial lenders to carry out a comprehensive debt restruc¬turing plan, after it narrowly escaped from a bankruptcy process.

It is widely believed that the company may have to sell a few gardens to raise money to bring down debt. With the injunction in place, the process could be delayed. The gag on change in capital structure could also queer the pitch for the Burman family which may not be able to assume a longanticipated ac¬tive role in Eveready.

Moreover, the companies may find it hard to monetise their land assets.