Hardly Spic And Span

The facts of the case are simple: MRL and SPIC signed a Memorandum of Understanding (MoU) on January 17, 1989 for a joint venture, National Aromatics and Petrochemicals Corporation Limited (popularly called Arochem). But the project could not take off due to various reasons till 1993. Meanwhile, following liberalisation, several petrochemical products like PTA (ptereph-thalic acid) were allowed to be imported at a lower duty, forcing Arochem to revise the scope of the project by including value-added products like polyester fibre yarn (PFY), thereby resulting in cost escalation. MRL had to obtain fresh approvals from the Public Investment Board and the Cabinet Committee on Economic Affairs. Meanwhile, Muthiah wrote to the Union Petroleum Ministry in November 1993, seeking permission to implement a similar project without the participation of MRL, contrary to the terms of the MoU which clearly stated the project to be a joint venture. The Government, however, did not grant permission.

MRL alleges that, without its knowledge, Muthiah, with the help of his colleagues on the Arochem board, incorporated a new company called SPIC Petrochemicals Limited (SPC) for implementing the PTA/PFY project. By fraudulent and false representations, claims MRL, he and SPIC-nominated Arochemdirectors P.R. Sundaravadivelu, R. Soun-dararajan and Arochem Project Director K. Govindarajan illegally obtained the reallocation of the developed portion of the land from Arochem to SPC. Of the 600 acresallocated to Arochem, about 170 acres had already been reallocated to SPIC. It also asked for an additional 200 acres from the government for implementing another competitive project called SPIC Aromatics and Chemicals Limited (SACCL).

MRL further contends that SPIC allowed the technology transfer agreement for Aro-chem with Japan's Mitsui Corporation to expire, and entered into a new agreement with it for SPC. Claims MRL, SPIC gave the impression these two new companies were a replacement for the Arochem project.

MRL has prayed for an interim stay of SPIC's twin projects. The Madras High Court has issued notices to Muthiah and seven other defendants returnable by February 16. SPIC filed a petition on February 5 saying that under the terms of the MoU, any dispute between the two partners has to be settled by arbitration and not in a court of law. MRL's reply is that since two more companies—SPC and SACCL—other than the two promoters are now involved in the dispute, the arbitration clause doesn't hold.

In fact, MRL further inten-sified its battle against SPIC by filing one more suit on February 6, regarding the land acquisition, seeking the retransfer of the land back to Arochem. MRL contends that by transferring the land from Arochem, "A.C. Muthiah, Sundara-vadivelu and Soundararajan acted collusively and enriched SPC and themselves at the expense of Arochem and MRL". MRL has asked the court to restrain SPC from any fur-ther construction or activities on the disputed site. Justice Rangaswamy has issued notices returnable by February 23.

Whatever the outcome, there's a key question that the dispute throws up. If SPIC feels it should go ahead with the project independently, what prevents it from quitting the joint venture agreement with MRL? Why should it insist on both the joint venture and a parallel project of its own? The most likely answer forms the very crux of all that is different between yesterday's licence raj and the new rules of the game introduced by liberali-sation. If you belonged to the licence raj, feeding it and feeding on it, you would be uncomfortable with competition. If SPIC pulls out of the joint venture, MRL would bring in an eager Reliance immediately. By being a joint venture partner and stalling the project, while pushing its own ventures, SPIC can grab a monopoly in the PTA and PFY market in the south.

Study carefully Muthiah's rise and rise, and you begin to discern a pattern. For, strangely enough, this pre-eminent industrialist's career seems to be a series of failures and mishaps ( see box ). Tamil Nadu Petrop-roducts is the only company under the M.A. Chidambaram (MAC) group of companies that is doing well. Consider the dividends record of this Rs 2,500-crore group. Tuticorin Alkali Chemicals, Southern Agri-furane, SPIC Electronics and SPIC Fine Chemicals have not paid dividends for years. The Rs 100-crore Manali Petrochemicals is yet to come into the dividend list. Even SPIC's stock price declined from Rs 210 in 1992 to the present low of Rs 47. Says a stockbroker: "There's a lot of inter-transfer of resources among the group and family concerns. For instance, nearly Rs 1,200 crore of the contracts entered by SPC are awarded to compa-nies over which the promoters hold total sway; then come the other associate companies like Foresight Financial Services (a lead manager for the Rs 455-crore issue of SPC), Cameo Share Registry (registrar to the issue), Profad (advertising agency) and so on."

 Consider also the strange relation between Muthiah's fortunes and the party in power in Tamil Nadu. Reportedly, MRL, though livid at Muthiah's private agenda, couldn't do much in the initial stages due to Muthiah's political connections. The Petroleum Ministry and the PMO were reportedly reluctant to initiate proceedings against Muthiah. Says a merchant banker: "These Congress leaders, who raised the issue of breach of contractual obligation in Enron, were mute spectators to Muthiah's flagrant violation." But with elections round the bend, the bureaucrats came into their own. The MRL petition was filed, and revealed to a great extent Muthiah's game-plan for the profitable PTA and PFY market.