Tatas default foreign loan, lose suit in NY Supreme Court

MUMBAI, OCT 12: The Tatas-promoted Indian Hotels Company Ltd (IHCL), operators of Taj chain of hotels, has lost a suit in New York Supreme...

MUMBAI, OCT 12: The Tatas-promoted Indian Hotels Company Ltd (IHCL), operators of Taj chain of hotels, has lost a suit in New York Supreme Court filed by three public sectors banks, State Bank of India, Bank of India and Canara Bank following a loan repayment default by the company. As per an order issued by the court two months back, a copy of which is in possession with The Indian Express, the Tatas have to pay up US$ 16.70 million (approx Rs 74 crore) in Indian rupee equivalent. This amount also includes a claim made by Bank of Baroda of US $ 6.5 million, who was made party to the case run by these three banks.

Said sources familiar with the case: "The Taj group had taken these loans way back in December 1988 for setting up their Lankan operations by floating a separate subsidiary Taj Lanka Hotels Ltd. A total of US$ 10.1 million is due for SBI, BoI and Canara Bank including the principal and interest amounts. These loans were taken from these banks’ overseas branches with SBI disbursing the loan from Nassau, US branch, BoI from Grand Cayman branch and Canara from its London branch. Since their Lankan operations were not performing as expected and necessary support was not extended by the parent company, these loans went into default on or about June 15, 1989."

Interestingly, Bank of Baroda also was caught in a similar situation with the company where Taj had defaulted to the tune of $ 6.5 million for a loan disbursed in June 1989. In this matter, BoB had received a favourable decree from a London court and a request thereafter to club the matter. On February 5, 1999, the New York Supreme Court found that BoB also was a "necessary party to this action" and their claims also were included in the judgment.

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However, when contacted, BD Nariman, vice president (legal) of Indian Hotels, said: "That loan was taken several years ago and it was for setting up our Lankan operations. We are planning to find out an amicable solution with the bankers."

For all these loans, the parent company Indian Hotels Company had given corporate guarantees for an amount of $5 million, covering both interest and principal payments.

In its submission before the court, IHCL has admitted that Taj has defaulted on June 1989, though adding that under Indian law, no Indian corporation can issue guarantees in favour of a foreign corporation without the approval of the Government of India. IHCL, in its affidavit, further contended that they have already paid nearly $ 2 million out of the $ 5 million and it cannot make any payments under the guarantees in excess of the remaining $ 3 million.

When asked whether the company would go in for an appeal, Nariman replied in the negative while adding that a settlement with the lenders is being worked out.

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Moreover, the company has admitted before court that they are agreeable to any amount referred in the judgment with the payment to be made in India.The Taj group has 14 properties abroad including the prestigious St James Court, London. The company is the largest hotel chain in India with its presence in 35 cities around the country with around 44 properties.

Tatas plan acquisition
MUMBAI: While the Tatas are busy fighting Indian public sector banks in NY Supreme Court, a few kilometers away they are busy negotiating with the promoters of a 6-star delux hotel, the Carlyle, at a cost of $ 143 million.

If the deal goes through, the Tatas will acquire the Manhattan-based hotel for Rs 658 crore which would be its first big acquisition after the management led by Group Chairman Ratan Tata took over.

Earlier, the Tatas have sold out the 715-room Lexington hotel in New York for $ 105 million and Executive Plaza in Chicago for $ 47 million but failed to pay up Indian banks which are already saddled with huge bad debts.