Kolkata: The stage is set for The Chatterjee Group (TCG), one of the promoters of Haldia Petrochemicals Ltd (HPL), to legally challenge last month’s appointment of Sumantra Chowdhury, a retired government officer, as the firm’s managing director, with a two-judge division bench of the Calcutta high court on Friday upholding the validity of the joint venture agreement between TCG and the West Bengal government.

Power struggle: HPL vice-chairman Purnendu Chatterjee. Indranil Bhoumik/Mint

TCG chief and HPL’s vice-chairman Purnendu Chatterjee described the move as shocking, after he vehemently opposed it and walked out of the board meeting when he failed to convince the state government that Bhattacharyya shouldn’t be allowed to leave immediately. He was required to serve a three-month notice under a contract of employment.

The state government named Chowdhury as Bhattacharyya’s successor and introduced him to the board after Chatterjee left the meeting.

After TCG’s allegations of mismanagement of HPL and oppression of minority shareholders under the state’s control were dismissed as “not maintainable" by the Supreme Court in a verdict delivered on 30 September last year, the state government was advised by its lawyers that all agreements between the firm’s two co-promoters, including the principal joint venture agreement, ceased to be in force.

Though TCG and HPL produced several legal opinions in the past few months to establish the contrary—that the agreements between the co-promoters survived the 30 September Supreme Court judgement—the state followed its lawyers’ opinion and expanded its control over the firm by appointing a managing director.

Armed with Friday’s division bench judgement, which says both the state government and TCG have “sufficient protections" under agreements between them and HPL’s constitution (articles and memorandum of association), Chatterjee is likely to challenge Chowdhury’s appointment as the managing director, according to lawyers close to him, who did not want to be named.

Chatterjee could not be contacted because he is travelling.

TCG president Aniruddha Lahiri said, “We are studying the order but it appears that our stand was vindicated—past agreements remain valid."

HPL chairman and West Bengal’s commerce and industries minister Partha Chatterjee said he couldn’t comment on Friday’s judgement until he had gone through it. Kalyan Banerjee, a Trinamool Congress representative in Parliament and a lawyer who advises the state government on all key legal issues, said he had lately not followed the spat over HPL.

Friday’s judgement also has implications on the state’s proposed sale of its 40% stake in HPL. While the state government is insisting on an auction for fair price discovery of HPL’s shares, the joint venture agreement doesn’t have any provision for such steps to be taken. Also, the joint venture agreement gives TCG the right of first refusal on the West Bengal government’s stake and envisages the state selling it to the private partner.

The expanding legal battle between the co-promoters, who own 40-41% each, does not augur well for HPL, which has had to scale back production to 50-55% of installed capacity for want of working capital. With accumulated losses approaching Rs2,000 crore, the firm’s lenders want TCG and the state government to take firm steps to infuse cash or bring in a strategic investor. But with another legal bout looming over HPL, it could become more difficult for the company to secure financial resources.