ALTHOUGH Manohar Rajaram (Manu) Chhabria, chairman of Shaw Wallace (SW) and Dunlop India Ltd, continues to be holed up in Dubai, cocking a snook at Indian authorities, the two companies are fast reaching a point of no return. And the present and previous governments will have to accept much of the blame for not taking effective action against Chhabria and trying to recover the huge funds allegedly siphoned out of these companies by him.
For the first time, a winding-up petition against SW has been admitted by the Calcutta high court. The petition, filed by Hindustan Development Corporation, will come up for hearing on December 11. The matter has also been advertised so that other SW creditors can be party to the suit, provided they serve notice by December 6. Senior lawyers say the liquor firm faces the real danger of being wound up since it will definitely be unable to generate enough funds to keep the creditors at bay.
SW's total liabilities are about Rs 425 crore, with Rs 35 lakh in interest being added every day. The pivot of the company's restructuring plan was a moratorium of three years on these payments, but the Calcutta high court has rejected this plan. The other leg of the restructuring plan was the sale of the non-liquor businesses to meet SW's liabilities. SW has negotiated the sale of its Consumer Products Division (which manufactures brands like Neem toothpaste and Margo soap) with German giant Henkel for Rs 52 crore, but the Company Law Board has put a number of conditions to the deal which will most probably end up aborting it. Even if the deal goes through, SW will first have to pay Rs 25 crore to the income tax department, leaving only Rs 27 crore to meet its liabilities. But the final IT demand, according to sources, could be as high as Rs 180 crore. That sort of claim could be the last straw that breaks the camel's back.
Dunlop too is sounding the death rattle. The unaudited financial results for the six months ended September 30 shows a net loss of Rs 19.2 crore, compared to a Rs 18.5-crore profit for the same period last year. The management says this is because banks refused to lend Dunlop money, so the company could use only 25 per cent of its manufacturing capacity and could not absorb the total overheads.
Banks have been instructed by the RBI not to lend to Dunlop because other Chhabria companies like Orson and Nihon have defaulted on loans. Analysts feel this is unfair to Dunlop and its workers, who're suffering for no fault of theirs, while the promoter, Chhabria, lives it up in Dubai. Dunlop workers' wages are linked to production, so with production down, the workers are in a desperate situation. Last week, 3,500 workers from the Ambattur and Sahagunj factories in Tamil Nadu and West Bengal, respectively, demonstrated in front of Dunlop's Calcutta headquarters shouting "Manu hatao, Dunlop bachao".The market buzz has it that Japanese behemoth Sumitomo Corporation is interested in Dunlop; if that's true, it's the best thing that could happen to this once proud blue-chip company.
The state of affairs in SW is far messier. Both the Department of Company Affairs and the All India Shaw Wallace Employees Federation have filed suit with the Company Law Board alleging that Chhabria in collusion with his executive directors siphoned off huge sums for SW for his personal gain. They allege that SW borrowed around Rs 300 crore from the market and channeled this money into a complex web of dummy subsidiaries. SW's long-standing auditors Price Waterhouse has already washed its hands of the company. At the last annual general meeting in August, the financial institution nominees on the board voted against passing the accounts and reappointing Chhabria as an SW director, but Chhabria's brute majority—he holds about 45 per cent of the equity—carried the day.
And what has happened to Chhabria after all? Nothing. He continues to defy the Enforcement Directorate's summons. Even a show-cause notice has not been served on him on the basis of the ED investigation. It is not as if the government can't act against Chhabria if it wants to, says a leading lawyer. It can take a suo motu decision to remove Chhabria from the directorship of his companies the same way as it demanded R.C. Bhargava's removal from the Maruti board. The government also has the power to investigate the alleged siphoning of funds and demand that the accounts of the subsidiaries are submitted immediately. People involved with SW and Dunlop are hoping against hope that the government and the Company Law Board will now take some defi-nite steps to remove Chhabria and save these two old companies.
