Mumbai, July 14: In ruling that would clarify stance on moratorium on bonds, the Bombay High Court has dismissed a petition by Zee Learn, an Essel Group company. Zee Learn had moved a writ petition seeking a moratorium on payment of non-convertible debentures (NCDs) dues to UTI Mutual Fund.
“Zee learn’s petition seeking moratorium on payment under NCDs issued by the company was dismissed by Bombay High Court today,” said Shankh Sengupta, partner, Trilegal and counsel for UTI, Livemint reported. A detailed order is yet to be uploaded by the court.
Two funds of UTI Medium Term Fund and UTI Credit Risk Fund have exposures of 3.02% and 9.24%, respectively, to Zee Learn. The two funds have assets under management (AUMs) of ₹118 crore and ₹466 crore, respectively.
These funds were due to receive ₹44 crore on 10 July. Zee Learn in its petition had argued that moratorium provisions granted by Reserve Bank of India (RBI) extends to bonds as well and should be granted by the fund house. However, UTI argued that the RBI circular for moratorium applied to banks and not mutual funds and was limited to only term loans.
This ruling is likely to set a precedence for mutual funds as many issuers were considering to take the court route to get relief on bond repayments. Indiabulls Housing Finance Ltd had moved Delhi High Court in April seeking a moratorium on its NCD dues. It had been able to get an interim relief on 21 April from the court on grounds of peculiars of the case. The interim relief was stayed on 1 May and finally Indiabulls withdrew its petition.
On 12 April, Mint reported that Sebi is reluctant to offer a moratorium to nearly ₹1 trillion of commercial paper and bonds coming up for repayment.
UTI mutual fund on 8 July had side-pocketed its exposure to Zee Learn, after a rating downgrade by CARE Ratings, from AA (CE) to B.
Side-pocketing is the separation of a fund’s portfolio in lieu of bad debt. It allows investors to exit the fund without giving up their ability to benefit from the recovery.
Zee Learn’s was downgraded due to its failure to fund debt service reserve account (DSRA), an account used to make up for any shortfall in principal or interest payment.