McDowell shareholders, creditor battle it out for Rs 920-cr UB shares

Mumbai: A battle is brewing between shareholders of McDowell Holdings and a creditor over control of the company that's worth hundreds of crores of rupees amid charges of attempts by fugitive borrower Vijay Mallya to regain by proxy the entity that was once the holding company for various businesses of his family.

Shareholders of McDowell Holdings have decided to invoke Section 12. A of the Insolvency and Bankruptcy Code, to pay up the ₹16.8 crore dues to Sunstar Hotels & Estates, after the creditor declined to accept the payment as part of the settlement of the insolvency process, said people familiar with the matter. Section 12 A of the Insolvency and Bankruptcy Code (IBC) provides for payment of dues by promoters to withdraw proceedings provided 90% of creditors agree to it.
A group of McDowell Holdings' minority shareholders, including Nirej Paul, Kushal Sengupta, and several others, have moved the Supreme Court against the National Company Law Tribunal (NCLT) decision admitting insolvency proceedings against the company.

These shareholders allege that there was little need for the company to borrow and default since it was a holding company. They allege that it was by design to wrest control of the company which owns shares worth ₹920 crore in United Breweries.

"There seems to be a team led by the former CFO of the company and certain Mallya-associated entities attempting to get control of the company to siphon out nearly ₹1,000 crore worth of its investment in United Breweries and other companies," said Porinju Veliyath, founder & MD, Equity Intelligence. He directly controls nearly 5% of the company.

McDowell did not respond to ET's query.

In April this year, the Bengaluru Bench of NCLT admitted the plea filed by Sun Star Hotels and Estate, a financial creditor of the erstwhile Vijay Mallya-promoted McDowell Holdings, claiming a default of ₹16.80 crore. The insolvency tribunal has also appointed KR Raju as the interim resolution professional of the company.

Although the company has no business, it holds 6.3 million shares in United Breweries worth ₹920 crore. But these shares are either pledged or attached by the Enforcement Directorate. The minority shareholders demand the company sell shares of United Breweries and distribute the money to shareholders.

In the NCLT, minority shareholders argued that the corporate debtor is not an insolvent company and it has sufficient means to repay the debt.

Earlier this year, a group of minority shareholders, including US-based private investment firm Acacia Partners and Porinju Veliyath's Equity Intelligence, requested an extraordinary general meeting and proposed appointing five members to the board after the stock exchanges suspended its trading. Investors have accused the current management of working against the 47,000 shareholders by not appointing board members on time.

In a letter dated February 16, the nine large investors holding 15% of total voting rights have called an EGM and proposed the names of former MD & CEO of Bank of Baroda PS Jayakumar, Zibi Jose, Adv. Bobby Arakunnel, Adv. VM Doiphode and Niraj Paul as board members. The company is -yet to call the EGM.

Legally, the board should consist of at least three members. In December last year, the shareholders voted out three board members, and the company was left only with two board members. On January 18, the NSE gave a one-month suspension notice citing the insufficient number of directors. Since the company did not take action, its shares were suspended from trading at NSE and BSE from February 18.