Delhi HC intervenes for release of 73.59% Jindal India shares pledged with banks

The power company had moved a writ petition in the high court saying that although it had fully paid the resolution amount of ₹2,450 crore before the scheduled date of payment the lenders had refused to release the pledge on the shares.

The high court has directed the lenders to hold a joint meeting at the earliest to work out the modalities for transferring 10% of Jindal’s equity among themselves and releasing 64% of the pledged shares to the company.

Afterward, the banks have been instructed to upgrade the status of Jindal India’s account to standard from non-performing asset and to update the same in the Central Repository of Information on Large Credits.

The court suggested that JITPL should have pursued its grievances through a civil suit in a civil court, considering the dispute a breach of contract under the master resolution agreement, or MRA, which warrants remedies such as specific performance or damages, rather than a writ petition.

The origins of the dispute lie in JITPL’s utilization of various financing facilities from a consortium of banks, with PNB as the leading institution. These facilities, including term loan facilities, working capital loan, and fund-based and non-fund-based facilities, were governed by multiple agreements and facility agreements.

However, in 2016, JITPL’s account was declared as a non-performing asset, or a bad loan. Subsequently, JITPL approached the banks for the resolution of its debts, leading to the negotiation and eventual agreement on the MRA dated 29 May, 2021. 

The MRA allowed JITPL to deposit a resolution amount of ₹2,450 crore to the lenders, with ₹1,080 crore as an upfront payment and ₹1,370 crore to be paid within four years. 

JITPL fulfilled its obligations by completing the payment of the entire resolution amount in April 2022, as confirmed by the lenders. However, despite JITPL’s compliance with the payment terms, the lenders did not release the pledge over 73.59% of the equity shares, prompting JITPL to file the writ petition. 

According to Jindal thermal Power, it had fulfilled all its obligations under the MRA promptly by pre-paying the entire resolution amount of ₹2,450 crore. In a joint lenders meeting on 28 February, the lenders unanimously agreed to release the assets of the company, according to Jindal.

It also argued that despite paying the entire resolution amount, its account was still classified as a non-performing asset. 

During the proceedings, Axis Bank, one of the lenders, argued that since JITPL is an unlisted company, a share purchase agreement or a shareholder agreement must be entered into for the purpose of transferring the 10% equity shares to the respective lenders. 

Axis Bank also raised objections regarding the release of assets, stating that the banks had not unanimously agreed to release the assets of JITPL. 

In response, JITPL argued that PNB was authorized to act on behalf of all the banks as the lead financial institution, and all lenders had agreed to be bound by the actions of PNB as a lead banker. JITPL further argued that the appointment of a special auditor by the respondents during the pendency of the petition did not yield any adverse findings against the company. 

JITPL also said the MRA did not provide for entering into a share purchase agreement for the purpose of transferring 10% equity shares. 

The court noted that the MRA itself stipulated that the transfer of 10% equity shares must be done validly as per the law of the land. The court highlighted the importance of safeguarding public money held by the lenders, particularly in the context of JITPL being an unlisted company.

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Published: 16 Apr 2024, 08:41 PM IST