Heading For The Yard

The 78-year-old Scindia Steam Ship Navigation Company Ltd is in troubled waters. After struggling to stay afloat for years, the company is sinking under the burden of rising debts, labour trouble and poor management. As liabilities crossed Rs 240 crore in February this year, the company is pinning its hopes on a rescue operation by an outsider.

But at the moment, even that possibility seems bleak. Two attempts, one by the Ruias of Essar and another by the erstwhile chairperson emeritus of the company, Sumati Morarjee, to rescue the company after its 1987 takeover by the government, failed. The workers protested against the Essar deal being negotiated in May 1988 on the grounds that it was not transparent. Sumati Morarjee contested the governments takeover and even bid for the company in 1992, when the government invited offers from the private sector. But she was unsuccessful as she failed to pay up the offer amount of Rs 2.5 crore. Subsequently there were rumours that the company would be merged with the Shipping Corporation of India, but these were denied by the latter.

 

The company was set up way back in 1919 with 47 ships by Walchand Hirachand and Narottam Morarjee. It has lost a significant amount of goodwill and assets over the years. Scindia Steamship sold its last ship last month. The sale proceeds were close to Rs 100 crore and has been used to repay interest and loans taken from the erstwhile Shipping Credit and Industrial Corporation of India (SCICI). The money was adjusted in the order of penal interest, interest and the balance was adjusted against the principal amount, says an employee.

Despite the pay-offs, the liabilities are high. As of February 28, 1997, these include the loan principal amount of Rs 130.3 crore, interest of Rs 75.46 crore and penal interest of Rs 21.3 crore. The liabilities also include a current account with the Bank of India for Rs 2.43 crore and deposits of leased floors worth Rs 18.63 crore. Understandably, then, as one ex-employee remarks, The company rea-ched a stage where clearing the liabilities was first on its agenda. There was no money to pump back into the company for its revival.

Worse, there were times when the company was pushed into adverse business decisions so that it could repay its mounting debt. For instance, a profit making vessel `Jala Vihar met with an accident in 1994. The ship, which used to bring in a profit of nearly US $8,000 a day (operational cost was US $18,000 a day), was kept idle for six months due to lack of funds. It was later repaired and put back into operation for a few months. But at the time of the general survey, no money was sanctioned and the ship was put up for sale instead, says one employee.

According to the Scindia Employees Union, the responsibility for the present state of affairs lies partly with the management and to a great extent with the government agent, SCICI. At times we felt that the management was just following government directives. Some of the top level officials beh-aved as if they were supervisors appointed for the sale of ships, says one ex-employee.

To make matters worse, workers and the management have been at loggerheads for a long time. Union members accuse the management of never taking the rehabilitation exercise seriously. The company has been continuously shedding its workforce. The number of employees in the shipping division has seen a sharp fall from 553 to 59. Scindia Workshop Company, a 100 per cent subsidiary, employs only 84 people compared to their earlier strength of 700. The union met the finance minister, P Chidambaram, earlier this month to apprise him of their problems including non-payment of wages since February 1988 and lack of management interest in the companys revival. The management, however, denies this, and asserts that workers dues have been cleared up to 1990.

According to Jujhar Singh, former secretary of the employees union, after the companys takeover in 1987, there have been a number of malpractices. For instance, the co-mpany paid brokerage of 3.5 to 4 per cent for every ship sold, which was much above prevailing market rates. The management, however, denies this and says that circumstances forced them to pay higher commissions.

The shipping industry came under the throes of a recession in the early eighties as the price of crude oil shot up nearly 400 per cent. Shipping companies like Dempo, Chowgule, Tolani and Scindia Steamship buckled under the pressure. Says an industry analyst, The industry suffered due to lack of planning for the future and the recession. Matters worsened for Scindia when one of its vessels sank in 1982. The companys turnover slid during the period from Rs 99 crore in 1986 to Rs 42 crore in 1987 and they could never recover from the blow.

Scindia Steamship did not venture into the areas where business was booming, such as tanker, bulk carrier or product carrier services. Companies like Essar and Great Eastern grabbed the opportunities in these segments but Scindia continued to operate its liner services in the US even when it failed to profit from it, says an ex-employee.

In 1987, the government took over the company under the Shipping Development Committee (Abolition) Act. But no real attempts were made to put the company back on its feet. Even the four rehabilitation proposals that the company put forward to the SCICI were not taken up. The board had N S Parulekar as its chairman, while S Parthasarathi, director of SCICI, H M Patel, former union minister, vice admiral K K Nayyar and N S Kulkarni from the State Bank of India, were the other members.

As proof of the boards lack of interest in their case, employees point to a report drawn up in November 1988 by H T Parekh. The report said that the company was viable provided the numbers of vessels and employees were reduced. However, this report accumulated dust for well over a year. After the government-nominated board took over, no immediate decision was taken for more than a year and a half. Shipping operations were suspended between July 1987 and September 1988 causing a loss of nearly Rs 50 crore, says Singh.

Another report was submitted by V M Parikh, the first managing director of the company, after the takeover. He managed to persuade the companys creditors to forego 80 per cent of their dues, which amounted to Rs 21 crore. Twenty per cent of this amount was to be paid up in three instalments. Employees also agreed to a 20 per cent cut in dearness allowance.

In addition, the companys offices in London, Calcutta, Jamnagar, Mangalore and Saurashtra ports were closed down to cut costs. Parikh also suggested retrenchment. Employees protested and there was a lock-out for 18 months in 1988, at the end of which the workers were more amenable to the proposal. But now the SCICI decided to junk the proposal without citing any reason for its actions. Parikh subsequently resigned from the board.

The government then came up with its own rehabilitation scheme and sanctioned a loan of Rs 30 crore at 10 per cent interest, to put the ships back in the trade. However, only Rs 24.25 crore of this was released. While the actual reactivation expenses came to Rs 35.47 crore, the amount that came in hand was far less, says Singh. Employees are also sore about the treatment meted out by SCICI to other shipping companies, like India Steamship and Chowgule. The rehabilitation loans extended to these companies were interest free, while for Scindia, the loans were mortgaged against the companys real estate in Scindia House, Scindia Sadan, Scindia Colony, Laxmi Mahal Flat in Mumbai and Panchagani Health Resort in Satara. The total value of the real estate is estimated at over Rs 334 crore.

As debt mounted, the company found both real estate and ships slipping out of its books. When asked about how the company could get back on its feet, a company official says: If someone comes to take over the company, it will survive. Even otherwise the company will be in existence for a few years to meet its liabilities. We have told the CBDT that we will sell off the real estate and pay off our debts.

Even as the company waits for a white knight, the last ship, Jalatapi, has returned from its last voyage to Colombo. The ship has been sold to a Dubai-based shipping company. The ship is 18 years old and there is no point in keeping it any longer, says a company official. Still, it is a sad end to one of the oldest shipping companies in the country.

In 1987, the government took over the company under the Shipping Development Committee (Abolition) Act. But no real attempts were made to put the company back on its feet. Even the four rehabilitation proposals that the company put forward to the SCICI were not taken up.