Here's what led to a standoff at Usha Martin's board

The board was in favour of ousting non-executive chairman Prashant Jhawar

The proposed sale of the wire ropes division of Usha Martin that partly caused non-executive chairman Prashant Jhawar his job was, ironically, mooted by him in 2016.

Jhawar, however, had valued the division at Rs 1,350 crore, lower than the Rs 2,000-2,500 crore discussed by investment banks.

On Tuesday, when the board of directors at Usha Martin voted in favour of ousting Jhawar as non-executive chairman, on the basis of a written requisition from the nominee director of the State Bank of India (SBI), it was primarily on two grounds. One of these was the difference on the sale of the wire ropes division.

Interestingly, however, the other promoter group, the Brij-Rajeev Jhawar faction, were on the same page as the lenders as far as sale of the wire ropes division was concerned.

The other part that led to the extreme step by the lender was the pledge of shares by SBI. It had extended a term loan of Rs 290 crore and a corporate loan of Rs 900 crore to Usha Martin in 2015, on the basis that Prashant Jhawar would create a pledge of 13 per cent of Usha Martin shares, to secure present and future borrowings.

According to a director in Usha Martin, Rajeev Jhawar had also pledged a 13 per cent share for extension of the term loan. Although both of them consented to pledge 13 per cent of their shares each to SBI, Prashant wasn't comfortable with SBI's format of share pledging. SBI wanted the promoters to pledge their shares to cover future borrowings as well, objected by Prashant. However, Rajeev had agreed to the terms.

"Naturally, this led to development of tension between Prashant and SBI," the company director said.

However, after the disagreement over the pledge between SBI and Prashant Jhawar, the documentation process was never completed but SBI went ahead with sanctioning the term loan. Some sources in banking circles questioned why SBI did this.

A retired chairman of a public sector lender stated that banks can pull up the management and, in some cases, propose to remove senior personnel on the board on feeling its exposure to the company can become a bad debt. "Such occurrences are rare. Further, only if there is a consistent default by the company to service the loan, can such events take place," the retired chairman said.

The company's annual report for 2015-16 showed it had paid Rs. 558.05 crore as finance cost. During the nine months ended December 31, 2016, its finance cost stood at Rs 403.64 crore.

SBI had appointed a nominee director, Venkatachalam Ramakrishna Iyer, on the company's board to monitor the situation. Based on his recommendation, eight of the nine members of the board, present in the April 25 meeting, decided to oust Prashant Jhawar.