Kolkata: US-based venture capitalist Purnendu Chatterjee and the West Bengal government, co-promoters of Haldia Petrochemicals Ltd (HPL), have squared off for another legal battle for control of the firm, and the company may not survive this one, fears managing director Partha S. Bhattacharyya.
Based on legal opinion obtained by it, the West Bengal government has decided to determine the “fair valuation” of its 675 million shares, or its 43.27% stake, in HPL through a public auction, according to the state’s commerce and industries minister, Partha Chatterjee.
“We can’t allow a repeat of the 2G scam,” he said in an interview, referring to the controversy over telecom spectrum allocation.
Fight for control: Haldia Petrochemicals chairman Purnendu Chatterjee. Photo: Indranil Bhoumik/Mint
HPL chairman Purnendu Chatterjee will oppose this legally because, according to him, there is no provision for auction to determine a fair valuation under past agreements between the shareholders. The venture capitalist’s The Chatterjee Group (TCG) owns 690 million shares, or a 44.23% stake in HPL.
The cash-strapped state is exploring ways of securing the best value for its shares in HPL. Under the shareholders’ agreement signed between the two key promoters in 1994, TCG has the right of first refusal on the state government’s stake in HPL.
With the probability of another long-drawn legal battle looming over HPL, Bhattacharyya, the firm’s newly appointed managing director, has sent a note to the state government saying HPL wouldn’t survive another legal battle between its promoters.
HPL, according to Bhattacharyya’s note, needs to expand to stay afloat, and to raise cash for growth, the promoters must resolve outstanding disputes. The company has been making losses for the past few years.
“I am aware that there is no provision for auction under past agreements,” said Partha Chatterjee. “That is why we obtained legal opinion.”
Kalyan Banerjee, a lawyer and a Trinamool Congress lawmaker at the Centre, has advised the state government that it need not honour any past agreement following the 30 September Supreme Court order. “In our view, no past agreement has any value in the light of the Supreme Court order,” Partha Chatterjee said.
Asked about the concern expressed by Bhattacharyya in his note to the state government, the minister said, “If the company doesn’t survive another legal battle, so be it.”
After six years of legal battle, the apex court on 30 September issued a judgement quashing TCG’s claim to 155 million shares that were to be transferred by the West Bengal Industrial Development Corp. (WBIDC) under a March 2002 agreement.
WBIDC aborted the transfer of 155 million shares after TCG, according to the state government, failed to fulfil its commitment to infuse fresh capital into HPL.
“But the problem of the Supreme Court order is its brevity,” said a lawyer who has in the past represented Indian Oil Corp. Ltd, a stakeholder in HPL. “Neither does it quash the past agreements nor does it enforce any of them. It only says TCG’s complaint of mismanagement and oppression of minority shareholder under sections 397 and 398 of the Companies Act isn’t maintainable.” The lawyer didn’t want to be identified.
HPL, too, obtained a legal opinion from a Supreme Court lawyer, and, according to it, all past agreements have survived the 30 September verdict. Asked about it, Bhattacharyya declined to comment. He, however, confirmed that he had written to the state government that HPL’s promoters must resolve their differences to prevent the firm from running aground.
Credit rating company Icra Ltd recently downgraded its outlook on HPL’s long-term loan facilities from “stable” to “negative” with a BBB- rating, citing the dispute over ownership as having delayed strategic initiatives and infusion of fresh capital into the company.
TCG, according to a commerce and industries department official, has been arguing that WBIDC’s aborted transfer of 155 million shares is “irreversible” because it had begun paying for it in instalments as agreed upon.
“If the state government agrees to transfer 155 million shares to TCG, it may not oppose the government’s efforts to determine a fair price for its remaining 520 million shares,” said this person, who, too, did not want to be named. But the transfer of 155 million shares will give TCG a 54% stake in HPL and a clear majority control. “The battle is for control,” said this official.
Meanwhile, former commerce and industries minister Nirupam Sen said Reliance Industries Ltd (RIL) had made a “formal approach” to the state government seeking to take over its stake in HPL. “I even visited its Jamnagar plant at the invitation of (RIL chairman) Mukesh Ambani,” Sen said. “But we stood firmly by our commitment to offer WBIDC’s shares first to TCG.”
“This no surprise,” said S.P. Tulsian, an independent stock market analyst who tracks RIL. “It is widely known that Reliance is interested in HPL...because it will enable it to service the South-East Asian market.”
RIL didn’t respond to an email sent to its spokesperson.
Past agreements must be honoured, according to Sen, but “it is the state’s prerogative” to decide how to determine the fair price for its stake in HPL.
It isn’t immediately clear whether or not the state government will honour TCG’s right of first refusal. Partha Chatterjee refused to elaborate. He said, “Past agreements were with the previous government; we have the right to write new ones.”