Delhi HC says GTL Infrastructure may challenge share seizure by IFCI

MUMBAI: The Delhi High Court has ruled that IFCI can sell GTL’s pledged shares of GTL Infrastructure by issuing sufficient notice. However, its recent sale of GTL shares under the non-disposable undertaking can be challenged in a civil court as IFCI did not give sufficient notice to GTL. The court has also ruled that seizure of GTL Infrastructure shares was incorrect, and is to be reconverted into a pledge, allowing GTL time to repay the loan if IFCI issues notice.

GTL Ltd, the flagship company of the Global Group, had approached the Delhi High Court to challenge IFCI’s seizure of a 18% stake in sister concern GTL Infrastructure. In July, IFCI that had lentRs 250 crore to GTL Infra, backed by some assets of the company as well as a sharebacked guarantee from GTL. GTL had signed a non-disposable undertaking with IFCI. The instrument is similar to a pledge but it is not declared as one under regulations by the Securities and Exchange Board of India.

In the agreement, GTL Infra was expected to maintain the value of collateral at two times the loan. When GTL shares plummeted, losing nearly 60% in a single day, a default on the undertaking occurred resulting in the IFCI action. Once this limit was breached, IFCI converted the undertaking into a pledge and sold shares to itself worth aroundRs 250 crore, converting debt issued to GTL into equity.

The judgment by Justice Manmohan Singh said GTL could challenge IFCI’s sale under law of torts, a civil lawsuit. GTL may claim damages for shares sold, the fall in its share price due to the sale, and any other reputation damages. Global Group declined to comment, while email to IFCI spokeswomen went unanswered. On other counts, the judge said the agreement enables IFCI to sell GTL Infra’s shares that were placed in the escrow account if the cover drops below two times the debt.

GTL Infrastructure has approached all its lenders to change the terms of its debt, a process known as corporate debt restructuring. The company has not been able to fully service its debt after a change in business environment, resulting in lower usage of towers, and steady increase in lending interest rates. IFCI’s move secured its loan to GTL Infra from the corporate debt restructuring process.