NCLT Orders Insolvency for Gstaad Hotels Over ₹666 Cr Default

The National Company Law Tribunal (NCLT) has initiated a corporate insolvency resolution process (CIRP) against Gstaad Hotels Pvt Ltd, the owner of JW Marriott Bengaluru, following a default of Rs 665.74 crore. The order comes after a prolonged legal battle and marks a significant development in India’s hospitality and real estate sectors.

Background: The Debt Trail

Gstaad Hotels and its group company, Neo Capricorn Plaza Pvt Ltd, originally received a Rs 600 crore loan from Piramal Capital and Housing Finance Ltd in December 2017. This included a Rs 450 crore term loan and a Rs 50 crore revolving credit line. During the Covid-19 pandemic, the group also availed loans of Rs 98 crore and Rs 65 crore under the Emergency Credit Line Guarantee Scheme (ECLGS), designed to support businesses facing liquidity crises during the pandemic.

In December 2022, Piramal Capital assigned the outstanding debt to Omkara Asset Reconstruction Pvt Ltd, which later issued a recall notice in February 2023. The notice demanded repayment of the entire outstanding amount within three days, citing a default as of November 15, 2022.

Legal Battle and Key Arguments

The insolvency proceedings were triggered after Omkara Asset Reconstruction filed a petition with the NCLT, claiming a substantial and undisputed default. Senior advocate Prateek Seskaria and counsel Ryan D’Souza who are representing Omkara, argued that the debt was acknowledged in Gstaad Hotels’ audited financial statements for 2022-23 and that there was no dispute regarding the existence of the debt disbursed by the original lender.

Gstaad Hotels, however, challenged the proceedings on two main grounds:

• The assignment of the debt to Omkara was improper.
• Excess interest was levied without proper resets in line with prevailing benchmark rates.

The company also raised concerns about the management of the debt service reserve account and the end-use of ECLGS funds, issues that were flagged by the National Company Law Appellate Tribunal (NCLAT) during an earlier appeal.

NCLAT Intervention and Rehearing

Earlier this year, the NCLAT set aside the initial admission of CIRP, citing procedural gaps and instructing the NCLT to rehear the case. The appellate body emphasized the need to examine the cash management agreement, the debt service reserve account and the utilisation of ECLGS funds before proceeding further.

NCLT’s Final Ruling

After fresh hearings, the NCLT dismissed Gstaad Hotels’ objections. The tribunal found that:

• The loan agreements allowed lenders full discretion to assign debt without the borrower’s consent.
• Financial stress was evident from the admitted dues in Gstaad Hotels’ 2022-23 audited accounts.
• Failure to replenish the debt service reserve account, non-servicing of interest and principal and valid recall rights under the loan agreement justified the initiation of CIRP.

The court notably stated that the existence of default was independent of the company’s operational revenue, underscoring that insolvency law prioritises debt obligations over business performance.

Immediate Impact: Moratorium and Resolution Professional

With the NCLT’s ruling, a moratorium under Section 14 of the Insolvency and Bankruptcy Code has come into effect. This halts all enforcement actions and legal proceedings against Gstaad Hotels during the insolvency process.

Jayesh Natvarlal Sanghrajka has been appointed as the interim resolution professional, tasked with overseeing the company’s affairs and facilitating the resolution process.

Industry Implications

The insolvency proceedings against Gstaad Hotels highlight the ongoing financial stress in India’s hospitality sector, which continues to grapple with the aftershocks of the pandemic. The case underscores the importance of robust debt management and compliance with loan covenants, especially as lenders and asset reconstruction companies become more proactive in seeking legal remedies for large defaults.

What’s Next for Gstaad Hotels?

The CIRP will determine whether Gstaad Hotels can be revived through a resolution plan or if the company will face liquidation. All eyes are now on the resolution professional and the Committee of Creditors, who will play a pivotal role in shaping the future of the company and its flagship property, JW Marriott Bengaluru.