MUMBAI: The family dispute rocking the Rs 15,000-crore Finolex group
has taken a dramatic turn as Deepak Chhabria-controlled Finolex Cables Limited alleged
that his cousin Prakash “surreptitiously” concocted documents placed before the
promoter company Orbit Electricals Private Limited to try to gain control of
the Pune-based entity.
This has come to light in an official clarification given by Finolex Cables to BSE which asked the former to explain story carried by The Economic Times on 2March 25, 2019 about Prakash Chhabria moving Bombay High Court against Deepak.
The Finolex Cables’ communication to BSE gives a history of the family bonds between Pralhad and Kishan Chhabria, the founders of the group and their hard work in building the brand Finolex. The Chhabria brothers, market observers say, came to Pune as refugees from Pakistan after the partition with nothing in their pockets and they slogged their way up, leading to the setting up of two listed entities –Finolex Cables and Finolex Industries which are jointly controlled equally by the two founders of the Group, with both the companies having mutual cross holdings, and other companies.
The filing to BSE, signed by R G D’Silva, Finolex Cables company secretary and president (legal), explains that the founder brothers had formed many investment companies which after their merger into one investment company called Orbit with 30.7% stake in Finolex Cables and 18.8% in Finolex Industries. Besides, Finolex Cables has 32.39% in Finolex Industries and the latter has 14.51% in the former. Orbit also has stakes in other group companies.
The two listed entities and the various investment companies all started out as equally and jointly controlled by the two founding members. However, after the merger of the various investment companies into Orbit, Pralhad had 88.1% shareholding while younger brother Kishan and his family only 7.3%. Kishan objected to this since both the brothers contributed equally to the various companies and worked together for years in the success story. Pralhad admitted the lacuna and said that he would ensure equilibrium between the two families and his remaining entire stake of 82.07% (after his gifting 6.03% equally to his son and daughter) held in Orbit would be transferred to Pralhad Chhabria Trust which would have the next generation of both the families as its trustees and beneficiaries. Due to tax planning requirements, Pralhad provided in his last Will, the Articles of Orbit and in the Trust Deed for automatic transfer of his 82.07% shares held in Orbit only to the family trust after his demise although to all intents and purposes he had already done this during his lifetime, the BSE filing narrates.
The letter to BSE also says the founder brothers through a series of documents such as a memorandum of understanding, settlement of a private trust and its supplementary trust deeds and the Articles of Association of Orbit have ensured that the control of the group companies are neither split among the second lineal descendants nor will they be able to sell their stakes as all the shares would be held in the family trust. This Succession Planning was put in place over many years from 2011 to 2014. The shares of the beneficiaries in the family trust are : Prakash 34%, Aruna 20%, Deepak 29% and Vijay 17%. The final seal on the succession plan was Pralhad’s Will, the communiqué to BSE said.
The clear succession planning put in place for the Finolex Group was for the management control of Finolex Cables to be with Deepak Chhabria, of Finolex Industries with Prakash Chhabria, of Finolex Plasson Industries with Vijay Chhabria and of I2IT and I2IT to be with Aruna Katara. To ensure the same, not only did Pralhad put the respective clauses in the Trust Deed, Will, but also clearly defined the voting powers for the respective companies in the Articles of Association of Orbit. Pralhad also took care to enclose copies of his last and Final Will and the final AoA of Orbit in sealed envelopes, leaving them with Mr. R.G. D’Silva to keep in the company fire-proof safe and attend to his instructions post his demise, which was duly done by him. These separate sealed envelopes were addressed to Prakash, Deepak, Dr. Vachha (Audit Committee Chairman of FCL), Mr. S.N. Inamdar (Audit Committee Chairman of FIL) with instructions for them to be opened in Finolex Cables and Finolex Industries immediate board meeting after his demise. These documents were to be brought on record of the listed companies’ Minutes due to the succession planning put in place by Pralhad with a letter of request to the Audit Committee Chairman to keep a close watch on the smooth implementation of this succession planning as provided for in his Will and Orbit’s Articles of Association.
Pralhad passed away on 5th May, 2016 after which apparently the family dispute came to the fore as Prakash claimed, contrary to the succession planning documents, that his father, before his death, had bequeathed him through a gift deed 70.4% stake held in the promoter company, Orbit, instead of the same going to the family trust. An Orbit board meeting was called on 31st March, 2016 at which the so-called transfer was “surreptitiously” taken on record which itself is invalid, the letter to BSE clarifies.
The letter of clarification to BSE says Deepak himself was present for the board meeting of 31st March, 2016 when no other director was present. “Thus the entire minutes of the meeting of the Board of Orbit ……is a sham and has been concocted to give effect for an illegal transfer of shares purportedly done by PPC (read Pralhad Chhabria) (who at that time was suffering from stage III liver cancer and under heavy medication) to Prakash Chhabria.”
The letter pointed out that the so-called Gift Deed to Prakash was not valid on many grounds such as non-tallying of signatures of the late founder, his extreme health condition due to stage III liver cancer and being under heavy medication, non-registration of the document and inadequate stamp paper of Rs.500/- only. Above all, it goes against the elaborate succession planning put in place for Finolex companies over many years and of the very spirit of Pralhad’s Will. Pralhad had specifically recorded in the Trust deed and his last Will that he wanted both the families to stay together and had appointed two persons from each families as trustees and beneficiaries of the family trust. Pralhad also provided that if any beneficiary or trustee tries to claim more than his given share, then he shall lose his entire entitlement and his share shall be divided equally amongst the remaining beneficiaries.
Deepak and his father Kishan have since challenged the Gift Deed and the Orbit Board’s “concocted decisions” in Pune civil court and proceedings are on there. The agreement between the two founder brothers, the trust deeds, the Articles of Association of Orbit, transcripts of recordings, reports of Forensic experts and Pralhad’s Will are all part of the court proceedings and ET has the documents.
The controversial saga raises few questions:
· Why and how Prahlad would have signed away 70.4% of his stake to his son after making an elaborate succession plan for the Finolex Group?
· As Prahlad was under heavy medication as he suffered from an advance stage of cancer, could he have signed the questionable documents now presented in Court?
· Why would he not sign away all 82.07% if he wanted to gift it to his son? Why leave only 12% to go to the Trust and expect the Trust to control Orbit and the listed companies forward as per the documents? Why would he not change his last and final Will?
Media reports say Prakash’s camp has denied all the allegations and maintained that he has rightfully inherited the rights of control as per his father’s gift.
It will be interesting to watch how the story takes twists and turns as the courts will hear the petitions from Chhabria cousins. Watch this space.
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