The Company Law Board (CLB) has rapped Harsh Lodha-run Birla Corporation for entering the capital markets business without clear approval from its shareholders, opening a new front in the long-running corporate battle between the Lodhas and the Birla family.
The board passed an interim order blocking the cement company?s foray into markets as a new line of business. It also appointed Ernst & Young as investigating auditors to look into the money market operations of Birla Corporation ?not authorised by the memorandum of association of the company?.
CLB chief Vimla Yadav passed the 45-page order on Friday, based on an application moved by the minority shareholders including the Birla Education Trust, against Birla Corporation.
When contacted, a Birla Corporation spokesperson told FE: ?The company is advised that the order is contrary to a large number of judgments in the matter delivered by the high court and CLB earlier. The company will file an appeal in Calcutta High Court challenging the order.?
The Lodhas are involved in a long-running feud with the Birlas since 1999 over the purported will of Priyamvada Birla which bequeathed the MP Birla estate to RS Lodha. After Lodha?s death, his son Harsh Lodha has been running Birla Corporation, the flagship of the MP Birla Group.
The case before CLB refers to a postal ballot notice from Birla Corporation last month, seeking shareholders? permission to enter the business of dealing in futures and options, other money market instruments and in commodity exchanges. The Birla Education Trust ? which was set up by the Birla family with interests in several group enterprises including Birla Corporation ? complained to the CLB that the company has already been in the business since 2008.
Judge Verma in her order said: ?The applicants have succeeded in making out a prima facie case that (while) the new business is ?not to commence? as stated in the postal ballot notice, it has already commenced, though illegally, since 2008.?
She also directed E&Y to ascertain profits made by Lodha Capital Markets and its wholly-owned subsidiary PLC Securities. The audit will be completed within three months and a report submitted to the CLB.
The judge held that while a business decision was the prerogative of the shareholders and directors, those rights are not above law. In this regard, she pointed out that there was prima facie evidence to suggest a clear violation of Company Law.
She also said that if the proposed amendment was allowed to be carried out, the shareholders other than those in control, ?shall wake up to be shocked that a cement manufacturing and trading company is perilously venturing into money market getting lost in speculative business akin to ?phatka? and trading of a kind equivalent to gambling in commodities and currencies.?
She concurred with the contention that the cement company had no experience as a securities company and the presence of surplus funds with the company was not reason enough for such a venture.
