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On September 30, when the Supreme Court delivered the verdict on ownership issues of Haldia Petrochemicals, it was expected that the joint stock company — plagued by a six-and-a-half year long bitter tussle between the stake-holders — would make quick moves to set its business agenda right. Nearly two months down the line, the fate of the ailing petrochemicals manufacturer is still hanging in the balance.
The problem has cropped up due to the Ms Mamata Banerjee-led West Bengal Government dragging its feet on the transfer of 15.5 crore shares (of Rs 10 face value each) in favour of the Mr Purnendu Chatterjee-led TCG Group — thereby granting a clear 51 per cent majority to the private promoter — as was agreed to by the West Bengal Industrial Development Corporation (WBIDC), in March 2002.
‘Breach of trust'
In an apparently soft deal, WBIDC offered a loan of Rs 155 crore — repayable in scheduled annual instalments till March 2012 — to TCG to help the private promoter acquire the 15.5 crore shares from the State agency.
On paper, the shares stand “transferred” (to TCG) and pledged with WBIDC. It was expected that the shares would be duly registered in favour of TCG, in tranches, against regular repayments.
In practice however, TCG paid instalments worth Rs 37 crore until the former Left Front Government stopped accepting payments in 2006. The State's action was triggered by TCG moving the Company Law Board contesting inclusion of IndianOil in HPL. The shares were not registered in favour of TCG either.
In its appeal to the Supreme Court, TCG referred to the incident as an instance of oppression or ‘breach of trust' and sought control over the key 15.5 crore shares. The apex court, however, turned down TCG's plea on the ground that the specific sections (397/402) of the Companies Act under which the reprieve was sought, were not applicable in this case.
To put it straight, the court ruling, which had put the State in the driving seat with 43.27 per cent as against 42.79 of TCG's, did not take a position on the “private agreement” between WBIDC and TCG in 2002 — leaving the options open for Mr Chatterjee to seek legal redress for the alleged “breach of trust”.
State's dilemma
Having come to power in May 2011, Ms Banerjee had given enough indications to burry the differences with the private promoter. TCG was also allowed to manage the day-to-day operations. However, the spirit was apparently dampened following the Court ruling.
While the West Bengal Commerce and Industry Minister, Mr Partha Chatterjee maintains that the government is “awaiting legal advice”, sources in the Government suggest that the State is in the mood to off-load its entire shareholding (including the disputed 15.5 crore shares) at a market determined price.
The State's move – aimed at raising maximum resources for the cash-strapped Government and stay clear from controversy — is apparently in contravention of the agreement between the two promoters.
Legal hurdle
TCG in the meantime is learnt to have requested the Government to stand by its commitments in 2002 and allow the company to hold majority control on payment of the residual instalments.
While the State Government has yet to respond , the issue has been further complicated by a recent communication from the State Bank of India-led lenders consortium asking the HPL to abide by the conditions of the Rs 468-crore CDR (Corporate Debt Restructuring) package sanctioned in 2004. As per the CDR, Mr Purnendu Chatterjee was expected pledge 60 per cent of his elusive 51 per cent shareholding in HPL along with personal guarantee.
Clearly, unless the State transfers the 15.5 crore shares to TCG as per the previously agreed terms; fresh legal complications may arise.
HPL in doldrums
HPL's health, in the meantime, is fast deteriorating. Having begun this fiscal with an accumulated loss of nearly Rs 1,000 crore, HPL reported a loss of Rs 260 crore in the first half of 2011-12. With margins falling to a record low, due to adverse market conditions, the company may be “reported” to BIFR at the end of this fiscal for erosion of more than 50 per cent of its peak net worth of Rs 2,844 crore.
With the ownership issue yet to be resolved, the company has little opportunity to seek restructuring of Rs 3,500 crore in debt liabilities. Chances of improving margins by adding value-added products are also ruled out in the absence of project financing.
“If the promoters do not bury their differences, very soon they will be left with a pile of debris and huge liabilities, in the name of a company,” said an independent observer.
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