Cox & Kings Vs Taj With Kerkar In The Middle

Tatas allege conflict of interest; Several deals under scrutiny

The shareholding pattern of Cox & Kings (India) Limited, the Rs 110-crore travel and tours company, underwent a significant change between 1993 and 1996. The change, which never got publicised, resulted in the consolidation of the stake held by the family of Ajit B. Kerkar, till recently the chairman and managing director of Indian Hotels Limited (IHL), which runs the Taj group of hotels.

The result of the shareholding changes is that what was seen as a Taj group company became in effect a company controlled by Mr Kerkar and his family. In a parallel development, several deals between Taj group companies and Cox & Kings (and associate companies) resulted in significant business benefits to Cox & Kings.

 

In one instance, the Taj Trade and Transport Company (TTT), a subsidiary of Indian Hotels, signed a 25-year agreement with Cox & Kings in June last year, virtually handing over its business at Taj hotel travel desks, to Cox & Kings (see accompanying story on page 16).

The agreement is renewable for two further periods of 25 years each, at Cox & Kings choice. The agreement in effect ties TTT down to a 75-year agreement under which the Kerkar-controlled company will run travel desks in all Taj group hotels, in return for 50 per cent of the profit.

Cox & Kings also runs a subsidiary company, Cox & Kings Travel and Finance Ltd (CKTFL), whose directors initially were employees of Indian Hotels. These directors were subsequently changed, new directors brought in who had no links with Tatas, and a public issue floated. Most of the earnings shown by the company in recent years were the result of large advisory fees paid by Taj companies or profits from the sale of shares of Taj group companies. The companys profits saw a significant jump in profits in these years. During this period, the company is said to have had only a handful of employees.

The company in fact got a letter of intent for a banking licence in 1995, but it is understood that this was subsequently cancelled.

What has attracted the most attention in a very dismayed Bombay House is that Indian Hotels in 1995 paid Rs 9.35 crore for shares in the public sector India Tourism Development Corporation (ITDC) for shares to be allotted to CKTFL.

Sources in the Tata headquarters believe that all these transactions involved a clear conflict of interest between Kerkars role as chairman and managing director of Indian Hotels, and as the man who along with family and associates controlled the Cox & Kings group of companies. It is reliably understood that this was one of the main reasons why Tatas lost confidence in Kerkar.

Attempts over three days to establish contact with Kerkar and get his comments on these transactions, failed as Kerkar was not available. Attempts to contact his daughter, U Kerkar, were similarly fruitless. His son, Peter Kerkar, responded in general to faxed questions and spoke briefly to Business Standard, but did not address several specific issues, and was subsequently not available for further comments.

The key to the entire operation lay in the share transactions. According to reliable sources, the Kerkar family had a 17 per cent stake in Cox & Kings in 1992. But by the end of March 1996, the holding of the Kerkar family, including some companies owned by it, went up to 30.12 per cent. The increase in Kerkar familys stake was achieved by buying shares from some Taj group companies at what is described as a small premium.

Top Bombay House sources charge that the transaction took place without the knowledge of Tata Sons chairman, Ratan N. Tata and in almost all cases without formal clearance by the Indian Hotels board made possible by the fact that the transactions were only between the subsidiaries of Indian Hotels. These subsidiaries had their own boards, comprising essentially employees of Indian Hotels who were answerable to Mr Kerkar as the company chief.

The former IHL chairman, informed sources conjecture, had anticipated the end of his managing directorship in June 1997 as per the new retirement policy of the Tatas and wanted to consolidate his holding in Cox & Kings before he lost his executive powers.

Cox & Kings has been IHLs business partners for several years. As much as one third of the total annual business of Cox & Kings comes from Indian Hotels Limited, according to information available from the company.

Chief Executive Officer of Cox & Kings Peter Kerkar, son of Ajit Kerkar, confirmed that the share transfers took place at a premium. But he added that these shares were bought back from individuals and not from any Taj group companies. Also, according to him, the Kerkar familys share in Cox & Kings was only 11 per cent.

Documents available with Business Standard, however, show some connection between the Kerkar family members and three companies owning shares in Cox & Kings, Liz Investments, Sneh Sadan Graphic Services, Full Moon Films and Video Production and Gilbert Trading. If the shares held by these companies are counted as part of the Kerkar family holdings, then the stake of Kerkar family in Cox & Kings does go up to over 30 per cent.

For instance, till March 1994, Ajit Kerkar was holding 9.5 per cent share in Cox & Kings. But by the end of March 1996, he had divested all his stake in the company. Co-incidentally, Gilbert Trading emerged as a new shareholder of Cox & Kings with an identical stake of 9.5 per cent in the same year.

Similarly, Liz Investments, which had 12.37 per cent share in Cox & Kings till March 1994, reduced its stake to 8.62 per cent by the end of March 1996. The divested shares (3.75 per cent) were picked up by Full Moon Films & Video.

The Kerkar familys stake in Cox & Kings went up from 17 per cent to 30 per cent after it picked up 5..75 per cent stake of Taj Holdings Limited and another 6.88 per cent stake from a clutch of seven individuals, namely Prithviraj Singh, Tejender Singh, Kamlesh Kumari, Padma Singh, Satyendra Singh, Giriraj Singh and Virendra Singh. These are members of the Jaipur royal family, with which Indian Hotels has business dealings.

Following these transactions, the shareholding pattern of Cox & King showed 40 per cent stake held by Cox & Kings (UK), 30 per cent held by the Kerkar group, four per cent held by employees of the Taj and 26 per cent held by Piem Investment companies, which are a part of the Indian Hotels group.

But the Kerkar familys control over Cox & Kings is even more because it also controls Cox & Kings (UK), though indirectly. Peter Kerkar, son of Ajit Kerkar, is the 50 per cent beneficiary of the shares held by Cox & Kings (UK) in Cox & Kings (India). This was confirmed by Peter Kerkar in a telephonic conversation with Business Standard.