CG Power scraps royalty pact with Avantha Holdings

By: |
November 30, 2019 1:58 AM

CGPL had entered into a brand licence and support agreement with AHL for use of 'Avantha' brand for a certain consideration, which was based on a specified percentage of its annual consolidated net operating revenues (ANOR)

cg power, avantha holdingsLegal experts believe after the cancellation of the royalty agreement, CG Power will now look to recover the pending dues from AHL and may even initiate insolvency proceeding against AHL.

CG Power and Industrial Solution (CGPL) has scrapped its Rs 411.2-crore royalty agreement with Avantha Holdings (AHL) that was partially used to settle the outstanding dues from AHL, the company said in a statement.

“The company has intimated AHL of rescinding the royalty agreement and consequently does not have any liability towards payment of brand royalty including the monetisation proposal,” CG Power said in a statement. As per the royalty agreement, a 50% brand loyalty was to be paid by CG Power to AHL in perpetuity aggregating to Rs 411.2 crore.

This was for the partial settlement of outstanding loans due from Avantha group of companies and for reducing the regular royalty payments to 0.5% of the company’s annual consolidated net operating revenues, it added in the statement.

According to the November 12 disclosure by CG Power, the company has a total pending receivable or dues of Rs 680 crore from AHL, which was to be partially settled against the royalty payment.

Legal experts believe after the cancellation of the royalty agreement, CG Power will now look to recover the pending dues from AHL and may even initiate insolvency proceeding against AHL.

Manoj Kumar, managing partner of Hammurabi & Solomon, a Delhi-based law firm, said the November 28 statement by CG Power clears the decks for recovery of loans or dues of about Rs 680 crore from AHL. The royalty agreement had been entered into to shield AHL against recovery of dues by CG Power by permitting CG Power to use the brands of AHL and set off the outstandings dues and loans of AHL. “Now, CG Power would be in a position to even initiate insolvency proceedings against AHL apart from other legal remedies available to it. The termination, however, would be subject to the terms of the royalty agreement and may be contested by AHL in a bit to check any recovery steps by CG Power,” Kumar said.

CGPL had entered into a brand licence and support agreement with AHL for use of ‘Avantha’ brand for a certain consideration, which was based on a specified percentage of its annual consolidated net operating revenues (ANOR). Till September 2018, the specified percentage was 1% of ANOR and royalty was accrued until September 2018 and not thereafter.

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