Lodhas to file appeal before Division Bench in Calcutta High Court

According to the Birlas, it was clear from the judgment of the court that the sole objective of the judgment was to protect and preserve the estate which includes the controlling block of shares in the M P Birla group.
The Lodhas are set to appeal the Single Bench order of the Calcutta High Court (HC) restraining Harsh Vardhan Lodha from holding any office in M P Birla group entities.

The appeal before the Division Bench of the HC could be filed as early as Monday.

Listed firms of the M P Birla group informed stock exchanges late on Saturday that a Single Bench order of the Calcutta HC, dated September 18 — in a probate proceeding to which the firm is not party — has inter-alia restrained Shri Harsh V Lodha, non-executive director and chairman, from holding any office in them.

The companies said they were in the process of reviewing the order. There are four manufacturing entities in the group that are listed — Birla Corporation, Vindhya Telelinks, Universal Cables, and Birla Cable. The other manufacturing company, Hindustan Gum and Chemicals, is a 50:50 joint venture with US-based Solvay Inc.

The order passed on Friday has implications on 22 third party companies, trusts, and societies holding shares in various entities of the M P Birla group, given that they would exercise their voting right in accordance with directions of the APL Committee (committee of administrators pendente lite of the estate of Priyamvada Birla) — appointed by court in 2012 — to oversee and administer the estate of Priyamvada Birla.

"Several third parties are shown as part of the promoter group of the MP Birla Group of companies. The Estate is certainly not the only promoter as the judgement has wrongly held in our view. There are as many as 22 entities, each with independent board of directors, trustees or managing committees to decide on shares held by them," said Debanjan Mandal, Partner, Fox & Mandal, advocates for Lodha

A Probate court deciding the genuineness of the will of a person, who had a miniscule share as part of the promoter group, cannot direct all other entities on how they should vote. More so, when the verdict itself acknowledges several times that no orders can be passed against third parties.  Any interpretation that the administrators will decide on manner of voting by these other entities is absurd, he added.

Lodha is likely to argue that the order takes away the voting right of the third party entities without hearing them or without the court giving them notice.

The order mentioned that the APL Committee had the right to exercise all such powers and perform all such acts that the late PDB (Priyamvada Devi Birla) would have exercised.

PDB had a controlling stake in the investment firms, either by way of direct investment, or with other investment firms and PDB. Further, the investment firms along with manufacturing companies — through cross shareholding — had a controlling interest in all those manufacturing units.

M P Birla group firms have a pyramid structure of control, under which Priyamvada Birla directly controlled the apex investment firms. Through a mechanism of chain and cross-holding of shares, the manufacturing and operating companies were controlled.

While the Lodhas’ stand is that the estate of Priyamvada Birla has only 16.04 per cent shareholding (both direct and a small part of indirect) in Birla Corporation, the Birlas and the APL Committee were of the view that it had a controlling interest of 62.09 per cent (both direct and indirect).

Birla Corporation is the flagship of the M P Birla group. The 62.09 per cent reflects promoter shareholding in the company.

According to the Birlas, it was clear from the judgment that the sole objective was to protect and preserve the estate, which includes the controlling block of shares in the M P Birla group.

“In the interest of the estate and M P Birla group, the court has passed strictures and injunctive orders against Harsh Vardhan Lodha, including his removal from all positions in the M P Birla group,” said the Birla camp.

Lodhas would argue that shareholders of all relevant companies at their annual general meetings elected the board of directors with more than 99 per cent and the probate court has no jurisdiction over who will be the director of a company. Disqualification of a director is only as per the Companies Act.

Listed entities in the M P Birla group are also expected to raise the matter legally, saying that shareholders had voted in favour of Lodha’s reappointment.

  • Tierwise broad structure of M P Birla group companies through key companies
  • Estate of Priyamvada Birla
  • Tier1: East India Investment Co Pvt Ltd, Gwalior Webbing Co Pvt Ltd
  • Tier 2: The Punjab Produce & Trading Co Pvt Ltd, Baroda Agents & Trading Co Pvt Ltd, Punjab Produce Holdings Ltd
  • Tier 3: Universal Cables Ltd, Vindhya Telelinks, Hindustan Gum & Chemicals Ltd
  • Tier 4: Birla Cable Ltd, Birla Corporation

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