Purnendu Chatterjee receives a set back as the Bengal Government remains the single largest shareholder at Haldia Petrochemicals Ltd

Purnendu Chatterjee

The Supreme Court threw out an appeal filed by Purnendu Chatterjee, ending a six-year slugfest between the then state government under Buddhadeb Bhattacharjee and the man who breathed life into the project. The case was one of several contentious battles that the Left Front bequeathed to the Mamata Banerjee regime. Based on the court’s initial short order and conversations with the stakeholders, journalists with The Telegraph newswpaper tracked the legal battle and try to gauge the implications of the order.

What was the key dispute about? 
Control of Haldia Petrochemicals Ltd, the biggest industrial project that was born in Bengal. Started with a paid-up equity of Rs 80 during Jyoti Basu’s time, HPL has now grown to a company with an annual turnover of Rs 10,000 crore. 

What was the case about? 
The crux of the issue was the ownership of 15.5 crore shares, amounting to a 9.93 per cent stake in HPL. Whoever owns this slice will have majority control over the company. 

The case also involved a dispute over the government’s sale of 15 crore shares to Indian Oil Corporation. 

Why was there confusion about the 15.5 crore shares? 
In 2002, the then Left Front government agreed to sell the 15.5 crore shares to Purnendu Chatterjee, the NRI investor and one-time fund manager for the Hungarian-born billionaire George Soros, so that he could gain majority control. The shares were priced at the face value of Rs 10, totalling Rs 155 crore for the entire slice. The WBIDC, the government’s nodal agency, gave Chatterjee a loan of Rs 147 crore (or nearly 95 per cent of the requirement) to buy these shares. The loan was supposed to be repaid over 10 years. 

In 2005, the government decided to completely exit from HPL by selling its remaining 52 crore shares. This deal fell through because of differences between the government and Chatterjee over the valuation of the holding. 

The government then stopped accepting repayments for the Rs 147-crore loan given to Chatterjee. This meant that the 15.5 crore shares were not registered in Chatterjee’s name in the books of HPL. 

The same year, Chatterjee went to the Company Law Board, a quasi-judicial body, for the 15.5 crore shares. 

What did the CLB say? 
The CLB ruled that the entire government stake, not just the 15.5 crore shares, should be sold to Chatterjee. The CLB said the 52 crore shares should be sold at a price of Rs 28.80 per share. Alternatively, a fresh valuation should be made. What happened then? The then Bengal government moved Calcutta High Court. The court set aside the CLB order. It also paved way for IOC’s entry into the company. Chatterjee appealed against this order in the Supreme Court. 

What happened in the Supreme Court? 
“Appeals dismissed. The high court judgment upheld,” the Supreme Court bench said in its short order on Friday. The bench said the CLB could not have passed the orders it did as no case of oppression and mismanagement was made out, according to corporate lawyer Jay Savla. 

This means the state government continues to hold the 15.5 crore shares and thus remains the majority owner. 

How did Chatterjee react to the Supreme Court verdict? 
The Chatterjee Group (TCG) feels the Supreme Court viewed the case as a dispute between two shareholders, and HPL is not involved in the matter. Under the circumstances, the court has opined the dispute is not maintainable under Section 397 of the Companies Act. 

TCG says the rights of Chatterjee’s companies as shareholders are in no way compromised by the order. What is of significance is that the government and the group are working towards mutually resolving the differences outside the ambit of the court and a quick resolution will best serve the interests of HPL. The court order does not impair the process in any way, TCG officials said. 

What did the Bengal government say? 
Industries minister Partha Chatterjee said: “Since I don’t have the judgment in whole, I cannot comment at this time. But the valuation process will continue. We are trying to get SBI Caps to do the valuation. As far as I know, we have 51 per cent stake and IOC 7 per cent. 

TCG will still have the option of first refusal (to buy the shares). The verdict will have no impact on the relationship with HPL. We want the company to operate smoothly.” (However, company figures suggest the government stake is a little over 43 per cent, excluding preference shares). 

How did Nirupam Sen react? 
Sen, who was industries minister in the Left Front government, said: “I am happy that our stand has been vindicated. If the present government wants to exit, they must do so at the best possible price. If they stay together, the two must now ensure the growth of the company since the disputes are behind them.” 

What are the options before Chatterjee now? 
He can start afresh on the legal front by filing a case under a law other than Companies Act. But that will be time-consuming. Instead, he can try to persuade the government to complete the sale of the 15.5 crore shares and become the majority owner. He can also try to buy the rest of the state’s share at a value derived through an independent valuation. 

What are the options before the government now? 
It can transfer the 15.5 crore shares to Chatterjee since the government has so far maintained that the private promoter is best suited to run the complex business. For the rest of the shares, it may opt for competitive bidding. Chatterjee can be asked to match the highest price offered since he has the right of first refusal. If he does not match it, the highest bidder will get the shares. 

However, the current government is going in for a fresh valuation that may throw up a lower figure because of the heavy losses suffered by HPL over the past two years.



October 2011

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