Hikal ownership dispute: Kalyani family spar over 1993 agreement

Baba Kalyani's sister Sugandha, husband move court against the Bharat Forge promoter for full ownership of chemical company Hikal; Kalyani points to intervening agreements and statute of limitations

The Pune-based Kalyani family, owners of Bharat Forge, rarely makes headlines. But the family, led by 74-year-old Baba Kalyani, is now witnessing an intense court battle with the patriarch’s sister Sugandha and her husband Jaidev Hiremath moving the Bombay High Court against Kalyani to take full control of chemical firm Hikal.

At present, both the families own 34 per cent stake each in Hikal and, according to the Hiremaths, Kalyani has to sell his stake in Hikal to them based on a 30-year-old family settlement.

Despite reminders, the Hiremaths contend that Kalyani did not transfer Hikal shares. Fearing that Kalyani may have instead bought an additional stake in Hikal from the market, Sugandha and Jaidev Hiremath moved court. Sugandha Hiremath has not sought any shares in Bharat Forge, which has a market value of Rs 36,000 crore as of today. The Kalyani family owns 45 per cent in Bharat Forge.

Hikal, which is named for the first two letters of Hiremath and three letters of Kalyani, is a Rs 2,000-crore company with a market valuation of Rs 3,526 crore. The company was set up by the Hiremath family in the early nineties after taking a loan from Neelkanth Kalyani, the father of Baba and Sugandha.

Neither Sugandha nor Baba Kalyani commented on the ongoing litigation.

For the Kalyani family, court battles are not new. Earlier in November 2015, Baba Kalyani’s niece Sheetal, daughter of his brother Gaurishankar Kalyani, filed a suit against nine members of the family demanding one-ninth share of the family properties. The matter is sub judice.

In his affidavit filed in the Bombay High Court in the Hikal case, Kalyani said the main purpose of Hiremath’s plaint is not to seek specific performance of the 1994 family arrangement but to thwart an attempt by him to acquire additional shares in Hikal.

Kalyani said barring a few letters written by Hiremath between 1994 and 2000 for enforcement of a buyback agreement, they have not raised the issue of transfer of shares in the past 29 years. Kalyani said the buyback agreement, which expired in 2000, never referred to the purported family arrangement. Kalyani argued that the entire matter is barred by law of limitations, since 29 years have elapsed.

According to Kalyani, their family via Surajmukhi (a promoter entity) advanced loans to Hikal, part of which was converted into 500,000 shares of Hikal that became a 100 per cent subsidiary of Surajmukhi. These investments were made in consultation with all Kalyani family members. Baba Kalyani continued to monitor the performance of Hikal and was consulted from time to time in all the operations, irrespective of the board meetings and shareholder meetings.

In 1992, Kayani’s affidavit said, a buyback agreement was signed for Hiremath to buy back 220,000 shares of Hikal. Of this, he exercised the rights for 110,000 shares. Later in July 1993, Hikal held a rights issue, in which Surajmukhi renounced its rights pertaining to 135,000 shares, which conformed to the buyback agreement.

Baba Kalyani was aware of the October 1993 family arrangement, where Hikal shares were to be transferred to Hiremath but that agreement was superseded by a buyback agreement. Baba Kalyani also argued that since family patriarch and his father Neelkanth Kalyani sold the shares of Bharat Forge that were otherwise supposed to be transferred to him, the family agreement stood repudiated (the family agreement mentioned Bharat Forge and Hikal shares).

As regards Hikal shares, Baba Kalyani said he was only required to give effect to the buyback agreement. The last letter by Surajmukhi to Hiremath on January 22, 2001, unequivocally stated that no further action was required to be undertaken by Surajmukhi since 245,000 shares were already transferred to the Hiremaths (i.e. original 110,000 and 135,000 via the rights issue), which is more than their entitlement, and that there was no further response by the Hiremaths till date.

Baba Kalyani’s affidavit also referred to an agreement dated August 17, 1994, which gives co-promoter status to Surajmukhi and gives pre-emptive rights to purchase/acquire shares in Hikal by both sides. This is reflected in the prospectus of Hikal in 1994 at the time of its IPO.

In 1997, a memorandum between Hikal and its partner Sumitomo indicated that the shareholding of Surajmukhi in Hikal would be 34.7 per cent following a subscription of shares in Hikal by Surajmukhi. There were certain pre-emptive rights as well after which certain shares of partner Sumitomo were sold to Surajmukhi in 2000. After that the shares of Sumitomo were sold to the investment companies of the Baba Kalyani group.

In his affidavit, Kalyani denied any family arrangement that involved the shares of Hikal be transferred to the Hiremath family and alleged that the correspondence between both sides shows that Hikal was always to remain in joint control between the Hiremath and Kalyani families.

A long and winding legal battle is clearly on.