The National Company Law Tribunal's Kolkata bench has approved a resolution plan of INR 301 crore, which will allow Shri Ram Multicom to purchase Sarga Hotels. The resolution plan was approved with assistance from main creditors, JC Flowers Asset Reconstruction Company and Rare ARC, despite claims from creditors totaling INR 816 crore. Sarga Hotels, a division of Shristi Infrastructure Development Corporation, had to navigate legal obstacles twice before facing insolvency. For JC Flowers ARC and Rare ARC, the recovery is at 39%. This case emphasizes how complex the creditor relationships, court rulings, and bankruptcy procedures are within the IBC framework.
Shri Ram Multicom is set to acquire Sarga Hotels through the Insolvency and Bankruptcy Code (IBC), having secured approval from the Kolkata bench of the National Company Law Tribunal. The resolution plan, amounting to INR 301 crore, is in response to admitted claims totaling INR 816 crore from creditors, employees, and trade creditors. Notably, the Kolkata bench granted approval despite the disparity between the resolution plan and the admitted claims. Shri Ram Multicom, a prominent player with developments like the Fairfield Hotel and operations in Dhanbad, Jharkhand, managed to garner support from key creditors.
Sarga Hotels, a wholly-owned subsidiary of Shristi Infrastructure Development Corporation, finds itself entangled in the aftermath of the financial struggles of Srei Infrastructure Finance and Srei Equipment Finance, both sold under the IBC to the government-backed National Asset Reconstruction Company. The Kanoria family, erstwhile promoters of Srei Infrastructure Finance and Srei Equipment Finance, holds ownership of Shristi Infrastructure Development Corporation.
Under Shri Ram Multicom's proposed resolution plan, the recovery for creditors JC Flowers Asset Reconstruction Company and Rare ARC stands at 39%, marking a notable development in the insolvency proceedings. This move underscores the intricate nature of financial distress and resolution within the framework of the IBC.
It is crucial to understand the context surrounding the insolvency proceedings of Sarga Hotels. Initially admitted for corporate insolvency in August 2020, it exited this status a year later following a decision by the National Company Law Appellate Tribunal (NCLAT) to set aside the admission order. However, the company found itself back in the insolvency process in February 2022, marking its second admission.
The involvement of Rare Asset Reconstruction Company in this case adds complexity. Yes Bank and Rare Asset Reconstruction Company were the only two creditors that had filed claims, amounting to INR 370 crore and INR 393 crore, respectively. Interestingly, Yes Bank assigned the loans to JC Flowers ARC last year, setting the stage for further problems in the creditor dynamics.
The rejection of Rare ARC's claims during the second initiation of the corporate insolvency resolution process was a key point. The resolution professional, Avishek Gupta, took the position of dismissing Rare ARC's claims, emphasizing the related party nature of the transaction. The assigned loans had shifted hands under a 15:85 structure, with Rare ARC offering 15% in cash and the remaining 85% in the form of security receipts (SR). The rejection hinged on the perceived related-party nature of the transaction, as Srei Infrastructure Finance/Srei Equipment Finance held 85% of the SRs for the loan.
Rare ARC contested this decision, asserting that the assignment occurred before the NCLT admitted Sarga Hotels in 2022, challenging the notion of connected transactions. However, the RP presented evidence indicating that the assignment agreement was dated September 9, 2020, with a retrospective effective date of August 12, 2020—the same date as Sarga's initial admission for insolvency. Despite legal back-and-forths, NCLT ruled in favor of the RP's decision not to admit Rare ARC's claim, citing the related-party nature of the transaction.
Notably, NCLAT intervened, providing relief to Rare ARC and overturning the decision in its favor. Consequently, Rare ARC's claims of INR 393 crore were admitted, leading to its pivotal role in approving Shri Ram Multicom's resolution plan. The complex interplay of legal decisions, creditor dynamics, and the broader insolvency landscape showcases the intricacies of corporate resolution under the IBC.
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