A labour union on Thursday alleged many irregularities in the 2004-05 sale of Larsen & Toubro's cement business to Grasim and accused outgoing chairman AM Naik of cornering Rs 600 crore from the transaction. The allegations were made by a union called Loyal Tigers Welfare Association at a press meet where they also claimed that a public interest litigation has been filed in the Bombay High Court on March 21 against the top L&T management, including Naik who is retiring in September. When contacted an L&T spokesman said the union is not recognised by the company and they are yet to receive any communication from the court on the matter. Loyal Tigers alleged that during the sale of L&T's cement business to the Birlas-owned Grasim in 2004-05, the engineering firm received shares from the Birla firm directly into a foundation called the Employees Benefit Foundation of L&T, which owns 12.5 per cent equity in the engineering major. "These shares should have been with L&T as a treasury stock and would have benefited all L&T shareholders. Also, the bogey of hostile takeover was created to go ahead with the sale process and government was told that this was done to prevent future takeover bids, which amounted to a virtual takeover by Naik," the union alleged. Under the sale agreement, Grasim was to divest its entire 12.5 per cent holdings in L&T to a trust/foundation that was to be created for the purpose. But the union alleged that Naik and his men, who are mostly ex-L&T employees, have been controlling this foundation from day one. It can be noted that L&T is the only large company in the country that is majority owned by employees. The Employees Benefit Foundation is the largest shareholder in L&T after government which owns around 30 per cent in L&T through PSUs like LIC which holds 16 per cent. Explaining the personal benefit that Naik got from the complex cement sale deal which involved a demerger, the union alleged that its roots lie in employee stock options scheme to the top management including Naik, which was priced at low Rs 7 a share, against a prevailing market price of Rs 185, making Naik richer by over Rs 600 crore. "This is dubious and questionable as at the time of the cement business sale the same share was valued at Rs 360 per share of which the cement business was at Rs 178.
This was conveniently overlooked and full advantage was taken of the mispricing of the stock in the market due to confusion over the demerger and sale," the union said quoting information from a secret finance ministry report.The union further said the foundation has a board of trustees that elects itself through a collegium system, whose members are mostly former L&T employees. "There is no employee representation on Employees Benefit Foundation of L&T and one seat on the board has been kept vacant to accommodate Naik when he retires (this September) so that he can continue to call the shots in L&T even after retirement," union president Uttam Ahire claimed. "Moreover, purchase of these shares from Grasim by the foundation was entirely financed by an interest free loan from L&T along with commercial loans from banks and the loan from L&T was repaid from dividends it received. Naik thus used L&T funds to acquire control over a large chunk of the company," Ahire alleged. The union said they filed the PIL as it wants the court to issue a direction to the authorities to take action against all concerned under the Companies Act. It also wants the court to restrain Naik from leaving the country during the pendency of the case. "Our PIL seeks a direction from the court to order a time-bound investigation into the issue and also issue an order restraining Naik from leaving country during pendency of this matter," Ahire said.