Finolex- “Fine and Flexible”, is in a tussle between two cousins over the ownership of 15,000 Cr. Finolex Group through its holding company Orbit Electrical. The Group’s two listed entities, Finolex Cables and Finolex Industries are alone worth 12,600 Cr.
Finolex Cables Ltd. (FCL) established in 1958 is among India’s largest makers of electrical and telecommunication cables with a turnover of approximately Rs. 2,600 Cr. The company was originally formed in Pune by two brothers Pralhad P. Chhabria (PPC) and Kishan P. Chhabria (KPC) being equal partners in the business. Now, the next generation of cousin brothers have dragged each other to court for gaining control over FCL.
Prolonged Reasons for the Finolex Dispute
According to the company’s filling with BSE the two brothers. PPC and KPC had acquired Alfa Rubber Company Pvt. Ltd. which was later converted into a public limited company and its name was changed to Finolex Cables Limited (FCL). The firm was formed on equal partnership basis. Similarly over the years Finolex Industries Ltd. (FIL) and number of other firms were formed by the brothers on equal ownership basis which were finally coupled and called “Finolex Group”.
As the group grew, 15 investment firms were formed for tax planning and legal provisions under MRTP (Monopolistic and Restrictive Trade Practices) Act. Then with the course of time laws being relaxed under the act and to reduce the burden of compliance, 14 of the 15 investment firms were amalgamated into one investment company called Orbit Electrical Pvt. Ltd.
When the investment firms were in process of amalgamation, post the process of share calculation 88.10% shareholding were to be with Pralhad Chhabria due to his account entries in the investment firms and 7.30% shareholding were to be with Kishan Chhabria.
Since the journey had started on equal ownership, the shareholding was not acceptable to KPC and family. Pralhad Chhabria being the elder brother and for the benefit of both the families, it was decided that the ownership would be equal between the two families. According to FCL’s filling with BSE, PPC had agreed for putting entire share of 82.07 % held in Orbit into a private trust namely Pralhad Chhabria Trust only on condition of getting the consent for amalgamating of all investment companies by Kishan Chhabria and family.
As a result in 2011 Orbit was formed. Orbit holds 31.96% paid up capital in shares of FCL and 18.8% paid up share capital in FIL. Besides this, there is a cross holding between FCL and FIL. Finolex Cables has 32.9 % in FIL and FIL holds 14.51% in FCL.
A Gift Deed: Flashpoint of Finolex Cables’ Dispute
Unfortunate in 2016 Pralhad Chhabria passed away. After his death Prakash claimed that his father had given him a gift deed of 100300 equity share I.e 70 .4% shareholding in Orbit out of 82.07% dated on 28th March 2016. Thus, Prakash Chhabria S/o Lt. Pralhad Chhabria is the Managing Director, biggest shareholder of 78% stake in Orbit and the promoter of FCL. Deepak Chhabria S/o Kishan Chhabria is FCL Executive Chairman and holds 8% of stakes of Orbit. Besides the aforesaid, the companies have cross-holdings between them.
As a result the gift deed has been challenged by Deepak and Krishna Chhabria in Pune Civil Court along with Pralhad Chhabria’s last will, the trust deeds and more legal documents.
Then, on 25th September 2018 the matter flamed up in the Finolex Cables’ Annual General Meeting where Deepak voted in favor of his re-appointment as executive Chairman which was directly in contradiction of Orbit’s board resolution. In response Prakash has filled a case in Bombay high court against the continuation of Deepak as Executive Chairman in Finolex Cable. The two cousins are in the battle for ownership of FCL by dragging each to the court with separate fillings including dispute in the National Company Law Tribunal (NCLT).
Next Move by the Company: In the upcoming board meeting which is scheduled to happen within three months, Prakash Chhabria is looking to remove Deepak Chhabria on the basis of destabilizing the equilibrium of the group and causing negative impact on the company by multiple lawsuits.
Concerns: As per the article of Business standard dated on 20th April 2019, Mohit Saraf, Senior Partner of L & L Partner mentioned that such family disputes, puts the future of the company in doubt and generates risk for Indian Promoters, who are in hope to receive Foreign Investment.