Another Flat Tyre

WEST Bengal finance minister Ashim Dasgupta's announcement on April 7 that the state government proposed to temporarily take over ailing tyre company Dunlop's Sahagunj factory, which has been shut for some months now, took everyone by surprise. Said an important CITU leader: "Ashim has once again shot off his mouth without doing his homework." Few tears will be shed for Manu Chhabria, Dunlop chairman and 44 per cent equity holder, who allegedly siphoned off huge funds from his two blue-chip companies—Dunlop and Shaw Wallace—and who hasn't come to India for the last two years to evade questioning by the Enforcement Directorate. But why have Jyoti Basu and Dasgupta woken up to Chhabria's misdemeanours now?

The answer: political expediency. The lockout of the Sahagunj factory had become an explosive issue during the Lok Sabha elections and after the unexpected battering from the Trinamul-BJP combine, the CPI(M) isn't taking any chances in the panchayat elections slated for May 28.

Hence Dasgupta's win-win formula. If the Sahagunj factory can be taken over and reopened, it would be a great victory for the CPI(M); if the deal turns sour, the Centre can be held guilty. But unfortunately for Dasgupta, the initial euphoria among industrial labour is turning into scepticism. What's worse, if the attempt flounders, it'll strengthen Chhabria's grip over these companies.

When contacted over the phone, Dasgupta refused to answer any questions, preferring to read out this statement instead: "The state government had written to the BIFR chairman about its proposed takeover with a request not to declare the company sick. If required in the interim, the state government is prepared to be associated with the management in this, provided it's legally permitted and working capital loans are made available by the banks." A copy of the letter was sent to the government of Tamil Nadu, where Dunlop's other factory, also closed down, is located. Dasgupta also said the state is looking for a suitable industrialist to take over the company. Tamil Nadu chief minister M. Karunanidhi was taken aback by the proposal, but after some goading from the TMC announced: "We'll follow Basu's lead and reopen the Ambattur factory if the law permits the takeover of the Sahagunj factory."

But, says a senior banker: "A temporary takeover of only the Sahagunj and Ambattur units, not the company itself, won't be viable. Such sectional takeovers don't work. And if the management is replaced, what sort of managers will join these bifurcated units? If Basu and Dasgupta really meant business they should've consulted the Cen-tre and Karunanidhi, and gone into the problem in depth before announcing the proposed takeover."

Dunlop managing director P.J. Rao expressed surprise at the state government's intention to find a 'correct buyer' for the Sahagunj factory.Says Rao: "No one would want to take over Dunlop in its present state. It's one of the least cost-effi-cient tyre factories in the country with output per employee at 6 tonnes per year compared to the industry average of 17.6 and industry's best of 29." To make the Sahagunj and Ambattur units viable, the number of employees will have to be halved from the current 7,400, according to the management's revival plan. It had earmarked Rs 50 crore for voluntary retirement.

While both the consortium of banks which have a large exposure in Dunlop, and the state government, want to keep away from BIFR, the Dunlop management has declared the company sick on grounds that its net worth of Rs 93 crore has been eroded. Dunlop had run up a loss of Rs 19 crore in the first half of 1997-98. In 1995-96, the company showed paper profits worth nearly Rs 200 crore, and now the Dunlop management, which paid dividends on the basis of these fictitious transactions, wants to reverse them to declare the company sick.

If the management's contention of Dunlop being sick is accepted, it will be protected against its creditors as no recovery suit can be filed. Interest on loans will be frozen and loans will be rescheduled. Even then, there's provision for a takeover of the management but this will be a long-drawn affair as Chhabria will resist selling his holdings and litigations drag on for years. But if Dunlop is not admitted as a sick company, then under section 18AA of the Industrial (Development & Regulations) Act, 1951, the management can be taken over promptly, according to legal experts. But one wonders if the deadline will be May 28, when West Bengal goes for the critical panchayat polls?