Chhabria vs Chhabria: A battle between cousins for ownership

Majority shareholder claims business, brand disrupted by lawsuits

In the ongoing battle for ownership of Finolex Group’s shares through its holding company, Orbit Electricals, promoter Prakash Chhabria is looking to remove his first cousin Deepak Chhabria, who runs Finolex Cables (FCL), in the next board meeting, expected within three months, sources say. 

Prakash Chhabria, managing director of Finolex Industries (FIL) as well as the majority shareholder of Orbit Electricals, is moving to dismiss Deepak Chhabria, accusing him of destabilising the equilibrium of the group and tarnishing the brand via multiple lawsuits. 
 

Finolex is derived from "fine" and flexible", the words that are supposed to project the attributes of the company's products, but its next generation of promoters are anything but fine or flexible with each other. 

The dispute began when their fathers, who jointly started the company, created a shareholding structure whereby Orbit held 31 per cent shares in FCL and 19 per cent in FIL. In turn, the two listed companies had cross-holdings, with FCL owning 32 per cent of FIL, and FIL owning 15 per cent of FCL. Additionally, both Orbit and FCL own 10 per cent each in Finolex Plasson, a drip irrigation company. FIL, however, owns 46 per cent in Plasson, run by Deepak’s younger brother, Vijay Chhabria.

None of the feuding promoters responded to queries for comments on the issue.

According to legal claims made by Deepak Chhabria, the ownership between brothers Pralhad and Kishan Chhabria was structured on the basis of an informal agreement decided to split a business into a structure where one had majority shares in order to consolidate paperwork, streamline tax matters, and make corporate decision-making simpler. For some reason, neither of the two acted on demarcating the company's equity structure straight down the centre, even though the Monopolies and Restrictive Trade Practices (MRTP) Act and other regulations had evolved and changed. According to a source close to FCL, there was a tacit understanding that Pralhad Chhabria was going to split share ownership of the company in accordance with his original agreement sometime around 2011, when the matter was brought up again by his brother.

“The overriding intent was to keep the family together and structure the group in a way that no single person could control the company without consent of the other directors and promoters,” the source said. That is being overturned in a manner that goes contrary to his plan for a business group that would last for generations.

Sources close to FIL, however, indicated that the patriarch knew that he was not going to be able to get his son and nephew to see eye-to-eye, and hence considered the possibility of trust deeds with rotating control to govern the group. Later, he changed his mind and decided to hand over his shares to his only son, something contested in court.

However, what is undisputed is that legally Pralhad Chhabria was the patriarch, and that he was fair. “Pralhad and Kishan may have argued but actually sat together and ate their office lunch together for almost three decades,” said a Finolex executive, adding that the brothers were on the same page. The founder even wrote in his letters that “his relationship with his brother was unassailable”.

Can the cousins make peace? One Chhabria in legal filings says the company is his natural inheritance. The other in his filings questions the legitimacy of the share transfer. The bottom line is that those who know Deepak Chhabria say he’s open to a peace accord if he is given what is rightfully due to his father.

His cousin’s camp, however, says that if his uncle’s family did feel he had a rightful share and they have oral recordings, why didn't they go legal earlier in his lifetime? The response is that there was a sense that a division of some sort was being carved out. The counter-argument to that is in 2011, the founder told his brother in a letter dated August 8 that he denied any arrangement for equal rights, and that the Trust which held the shares was personal and not going to be given to his brothers’ family. The back and forth goes on and on.

Maybe, despite his wisdom, Pralhad Chhabria realised that keeping peace amongst the next generations would be a challenge. He had multiple ideas. A trust deed followed by two supplements, then a final will all with a view to ensure perpetuity and division of authority. The allegedly final decision was an outright share transfer of majority shares to his son. Given he was ailing, which document he would have picked if he was well, will never be known but a line written by him in one of his letters to heirs says it best: “Let it be known that your progress will be watched by our invisible spirit.”