Finolex promoter feud: Shareholders boot out two directors

Over 93% of promoter votes were cast against the resolutions ratifying the appointment of Achyut Dhadphale as non-executive non-independent director and Kshtija Wadatkar as non-executive independent director, voting data from a stock exchange disclosure showed. Orbit Electricals Pvt. Ltd, a promoter entity controlling nearly 31% stake in Finolex Cables, likely voted against the resolutions. Prakash Chhabria, one of the promoters battling his cousin, holds a majority stake in Orbit.

At Finolex, two opposing camps led by Prakash and his cousin Deepak Chhabria have been battling for over seven years over control of the ₹16,000-crore company. They have been consistently voting against proposals backed by their respective rival camp, casting a cloud over interests of minority shareholders and sparking complaints over corporate governance.

Interestingly, another instance of promoter infighting affecting board composition at a listed entity happened at Hikal, where the Hiremath and Kalyani families are sparring over the ₹3,800-crore chemicals company. Voting in Finolex ended on 22 December, while that in Hikal ended three days later.

Veteran industrialist Baba Kalyani was evicted from Hikal’s board after a 31-year-long stint as over 50% of the promoter votes were cast against a special resolution to re-appoint him. This, even as a majority of the public shareholders voted in his favour.

When contacted, Sameer Hiremath, managing director, Hikal said Kalyani’s absence has no bearing on the operations of Hikal as he was a non-executive director and had no active role in the company’s operations. “We have a sound leadership team delivering a consistent year-on-year growth of revenue and will continue building new capabilities for technology and digitization," he said.

Experts say such promoter conflicts hurt the performance of a company as it makes it difficult to get resolutions past shareholder scrutiny. “Minority shareholders will unnecessarily suffer if these promoter conflicts do not get resolved soon," said Shriram Subramanian, the founder and managing director of InGovern Research Services.

“Any special resolution that needs to be passed will be blocked by rival camps. This can stunt the growth of the company," he added. Subramanian called for professional management at family-owned companies to minimize the impact of such conflicts.

Ordinary board resolutions need 50% votes in favour to pass, while special resolutions need 75%. Passing special resolutions becomes especially difficult at companies where promoters holding large stakes are at loggerheads.

The conflict at Finolex Cables traces its roots to a gift deed from 2016 that gave one cousin an outsized control over Orbit. Finolex Group founder Prahlad Chhabria, who passed away that year, gifted his son Prakash majority shareholding in Orbit. However, the gift deed was contested by Prahlad’s cousin Kishan and his son Deepak Chhabria.

The two camps have been engaged in one-upmanship ever since. In September this year, Deepak’s candidature as executive chairman of Finolex Cables was rejected by shareholders after Prakash voted against the resolution.

The ouster of the two directors on Friday and Deepak Chhabria earlier leaves a five-member board at Finolex Cables, including one executive director, three non-executive independent directors and one non-executive, non-independent director.

The conflict at Hikal has a similar genesis. According to public disclosures made by the company, its promoters Sugandha and husband Jai Hiremath had entered into a family arrangement with Baba Kalyani, brother of Sugandha, in 1994. As per this arrangement, the Kalyani Family was to transfer all its stake in Hikal to Sugandha Hiremath.

Companies led by Baba Kalyani have disputed the existence of such an agreement in separate disclosures.

As per a disclosure made by Hikal, the Hiremath family and the Kalyani family own about 35% and 34% respectively in the company.

After Kalyani’s ouster, Hikal has a nine-member board, including Amit Kalyani, the son of Baba Kalyani.