Finolex family spat, board meet raise legal quandary
The tussle between the Chhabria cousins, belonging to the founder families of the Finolex group, has taken a murky turn — with the bitter feud throwing up a tricky question of corporate law: Can the board of a company sit in judgement on one of its independent directors?
And caught in the family battle over the Rs 10,000-crore business empire is Crawford Bayley & Co — one of the countrys oldest law firms and a senior partner.
The simmering dispute between the two Chhabria factions, playing out in various courts of law over the past two years, was once again stoked at a recent board meeting of Finolex Cables which is headed by Deepak K Chhabria.
One of the agenda of the April 25th meeting was whether Sanjay Asher, the Crawford Bayley partner, can continue to function as an independent director.
ALLEGATIONS & RETORT
Finolex Cables has alleged that Asher has “abused his fiduciary position” and acted against the interest of the company by lending partisan support to the other Chhabria faction led by Prakash P Chhabria. “This is a situation where the company itself is questioning the independence of its independent director.. its unheard of,” a senior lawyer told ET, preferring anonymity.
Responding to ETs query, Asher said, “The question of my abusing fiduciary position as an independent director does not arise. In fact, it is an afterthought of Mr Deepak Chhabria as in the NCLT (National Company Law Tribunal) proceedings he has not been able to obtain any reliefs from NCLT or in the two law suits which he and his family have initiated…I have been an independent director since 1997 and was appointed by the board of directors headed by founder chairman late Pralhad P Chhabria.” (Prakash Chhabria is the son of Pralhad P Chhabria).
SUCCESSION VS INHERITANCE
According to Asher, senior counsels from whom he sought legal advice have opined that he is neither conflicted nor in breach of any provisions of law relating to independent director; these counsels also believed that a companys board of directors “cannot reclassify a director from independent director to non-independent director.”
Finolex Cables is Indias leading manufacturer of electrical and telecommunication cables while Finolex Industries is a leading maker of PVC-U pipes and fittings and the second largest maker of PVC Resin. There is cross-holding of shares between the companies. The holding company, Orbit Electricals, in which both the Chhabria factions own shares, holds 30.7 per cent and 18.8 per cent in the two listed firms, Finolex Cables and Finolex Industries, respectively.
Prakash P Chhabria told ET the allegations are “baseless”. “Mr Asher is acting independently and not on my instructions. I laud his services and his independence.” Deepak Chhabria did not respond to ETs email queries till the time of going to press.
On Wednesday, he said over telephone that he would not comment on the board meeting agenda as it was not in public domain. He refused to speak on the court cases as the matter was sub judice.
When told that rarely, if ever, does the board of a company question the role of an independent director, Asher said, “Please note that these allegations are not of the board of directors but of Deepak Chhabria and his team consisting of CFO and company secretary.”
According to a corporate governance expert, this could be long drawn fight as appointment or removal of a director has to be approved by shareholders, and any management should ideally raise the matter first with the nomination and remuneration committee. Even if such a committee is a committee of the board, it is mandated by law and got its own statutory power.
Other allegations against Asher are that he and his firm Crawford Bayley have blocked the services of leading advocates at Mumbai and Pune such that Finolex Cables and KP Chhabria group (represented by Deepak Chhabria) could not seek legal advice from some of the leading lawyers. Countering this, Asher said, “Mr. Deepak Chhabria is advised by leading law firms and leading senior counsels (including ex-officers of the country). With regard to the allegation that I have blocked the services of leading advocates, it is a bizzare statement as no one can block any person from seeking legal advice from numerous leading lawyers. I have been made a party to the NCLT proceedings and accordingly I have taken such steps as required for defending myself in the litigation.” Sharing a certificate by the statutory auditor, Asher said neither he nor his law firm has been paid any money from 1st April 2014 either from Prakash Chhabria (PC) or from any entities of the PC group, or Finolex industries.
According to the board meeting notes, it is alleged that Asher, who has been involved in the succession planning exercise of the company, is currently trying to render the exercise ineffective. In his response to ET, Asher said, “Succession planning of the company is not part of the litigation. The succession planning can be of the key managerial personnel. Succession planning is different from inheritance planning. Inheritance planning has no role to play in a publicly listed company.”
After Pralhad Chhabrias death in 2016, Deepak Chhabria initiated proceedings at the NCLT against Prakash Chhabria, Asher, other directors of Orbit Electricals.