McNally Sayaji Engineering Ltd is going to face bankruptcy, the first casualty of the financial turmoil at Williamson Magor Group.

The company is an unlisted subsidiary of McNally Bharat Engineering Ltd, which is at the heart of the woes in the group. The Calcutta bench of the National Company Law Tribunal admitted McNally Sayaji for the corporate insolvency resolution process (CIRP) at the behest of ICICI Bank.

McNally Bharat managing director Srinivas Singh said the company was examining the order. “The next course of action will be decided based on the legal counsel.”

Further, the NCLT appointed an interim resolution process to carry out the CIRP process and declared a moratorium on new cases against the company under Section 14 of Insolvency and Bankruptcy Code, 2016.

McNally Sayaji owes a little more than Rs 75 crore to ICICI Bank, including principal and interest, court document shows. The company cumulatively owes Rs 213.18 crore in secured and unsecured loans, excluding outstanding interest and default in paying interest, as on March 31, 2020.

ICICI Bank had moved an application seeking CIRP before the court in January 2020. However, the matter could not be heard because of the lockdown in March.

The matter was listed again in November.

The order passed on February 12 noted that the McNally Sayaji counsel sought to impress upon the fact that the promoters had been pursuing several debt restructuring initiatives. An investor named ANGCC Capital Management, Iceland, had submitted a proposal but it was not possible to follow it through because of the pandemic.

A revised plan was submitted by the foreign investor in August. However, the consortium of lenders, including ICICI Bank, asked the company to revise the plan further.

Rishav Banerjee, who appeared on behalf of ICICI Bank, submitted before the court that the proposed resolution plan did not in any manner curtail or limit the financial creditor in its individual capacity to enforce its rights against the corporate debtor as McNally Sayaji has not disputed either the default or the debt on the same.

The court agreed to the submission noting the default has taken place, triggering insolvency. “In these circumstances, we have no hesitation in admitting the application and in ordering initiation of CIRP against the corporate debtor,” the order read.

McNally Bharat, which is a listed entity, holds an 81.86 per cent stake in the subsidiary with a part of it pledged with the lenders. ICICI Bank had invoked around 18 per cent of the pledged stake in November 2020.

Close ties

The parent had a close tie with the subsidiary which supplied machinery for the EPC contract McNally Bharat was executing but dependency has come down substantially. McNally Sayaji has four plants at Kumardubi (Jharkhand), Asansol, Bangalore and Vadodara employing close to 1,000.

It manufactures metallurgical machinery such as crushing and screening plants, and material handling and conveyor plants. During the last fiscal, the company had a total income of Rs 186.68 crore and a net loss of Rs 6.51 crore on a consolidated basis compared with a Rs 259.97-crore income and a Rs 37.76-crore net loss in 2018-19. McNally Sayaji has a subsidiary, MBE Coal & Mineral Technology India Pvt Ltd.
Impact on the group

At least two group firms, bulk tea producer McLeod Russel India Ltd and investment arm Williamson & Magor Co Ltd have been taken to court for loan default but none of them has been admitted for CIRP.

To cover the losses in McNally, the promoters borrowed heavily on the balance sheet of stronger companies such as McLeod and battery maker Eveready Industries.

In return, they pledged promoters’ shares to creditors as collateral. As McNally defaulted in payment, a cascading ripple effect was witnessed on the two otherwise strong companies.

While McLeod also defaulted in debt payment obligation, Eveready witnessed the invocation of promoters’ stake and sale in the market.

Singh said he didn’t expect any significant impact on McNally Bharat. “They are two independent companies. It has got a good business, order book is strong. There may be a little confusion in the market place initially because of the McNally name. We have to sensitise the customers,” he explained.

He also informed that the proposal by the overseas investor is still in play for both the companies.