Application in Calcutta HC to challenge 'illegal actions' to remove Lodha

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SME Times News Bureau | 19 Nov, 2020
Applications have been filed in the Calcutta High Court challenging the raft of 'illegal' actions taken by Justice Mohit S. Shah (retired) as the chairman of five investment companies of the MP Birla Group to remove Harsh Vardhan Lodha as a director of these companies.

Lodha has been a director in these companies since 2004.

Shah and A.C. Chakrabortti, as members of the APL Committee, formed the opinion that Lodha automatically ceased to be a director of these and other MP Birla Group entities by virtue of the verdict dated September 18 passed by Justice Shahidullah Munshi of the Calcutta High Court even after it was modified by an interim order of the division bench of the high court dated October 1.

The interim order of the division bench made it clear that Lodha was barred from holding office in the MP Birla Group only on the strength of the shares of the Priyamvada Birla Estate.

In four of these investment companies, Lodha was not reappointed director on the strength of the Estate. In the fifth one, Gwalior Webbing, the Estate's ownership is 50.43 per cent. In its last AGM held in December last year, Lodha was reappointed director by show of hands with three directors in favour and one against. Though Shah had raised his hand against the reappointment of Lodha, he did not demand poll and thus his reappointment was carried out by majority.

In one of these holding companies, the Estate does not hold any share at all, and in another its ownership is a mere 0.08 per cent.

Shah, as the chairman of the investment companies, decided on his own that Lodha had ceased to be director of these companies and did not send notices to him for board meetings held since October 1. These board meetings were conducted without properly appointing a chairman and without compliance with the various provisions of the law. Further, in gross violation of law, these companies were coerced by Shah into sending notices to the Ministry of Corporate Affairs removing Lodha as a director.

"All the actions taken by Shah in the past one-and-a-half months were completely illegitimate exploitation of the verdict of Justice Munshi which is under challenge. These actions were taken in gross disregard of modifications made by Chief Justice T.B. Nair Radhakrishnan and Justice Shampa Sarkar," said Debanjan Mandal, partner, Fox & Mandal, representing Lodha.

Applications challenging the illegitimate removal of Lodha from the five investment companies are to be heard at the Calcutta High Court starting November 20 for permanent and interim relief.

Harsh Vardhan Lodha has been ousted from the Boards of five investment companies of MP Birla Group after the Calcutta High Court's order that restrained him from holding offices.

The Union Corporate Affairs Ministry had on Wednesday approved and accepted the cessation of directorship of Lodha as recorded by the Board of Directors of these companies headed by the judicial member of the court-appointed APL Committee.

The decision to remove Lodha from the Boards of East India Investment, Gwalior Webbing, Baroda Agents and Trading Co, The Punjab Produce & Trading Co, and Punjab Produce Holdings, the oldest of which was founded in 1937, was based on the decision of the single bench of the Calcutta High Court dated September 18, 2020 which was approved by the division bench of the said high court on October 1, 2020. The Ministry website, which lists directors of companies, no longer shows Lodha's name as Board member of these companies.

On November 5, Lodha had chaired the Board meeting of Birla Corporation and thereafter other three cable companies on November 9 and 10 as self-appointed Chairman, sidestepping the decisions of the high court and the APL Committee, the panel overseeing the administration of the estate which holds majority stake and controlling interest in the group companies, which had barred him from acting as such following the high court order.

The extended Birla family, which is contesting a will of late Priyamvada Devi Birla produced by a former auditor of the group companies naming him as the sole inheritor of the Rs 5,000 crore business empire (presently claimed to be valued at over Rs 25,000 crore), said it will initiate contempt of court proceedings against Lodha, the concerned companies and their Directors.

"Lodha has continuously misinterpreted court orders and flouted the APL Committee decisions to cling on to the Boards of MP Birla Group companies wrongfully. We will move the court to restrain him from further action in contravention of the decisions of the court as well as the APL Committee," said a spokesperson for the Birlas.

On September 18, 2020, Justice Sahidullah Munshi of Calcutta High Court had ordered Lodha be restrained from holding office in any of the MP Birla Group entities during the pendency of the suit involving the contested will of Priyamvada Birla. This judgement by the single judge was challenged by Lodhas before the division bench which not only declined to stay the ouster of Lodha from the entities of the MP Birla Group, but also held that the order of the single bench was neither a perverse decision nor it was not in the best interest of the Estate.

Sources said that Lodha's attorney deliberately interpreted the order to limit the purview of the court order only to alleged miniscule shareholding of the Estate, ignoring the well-established corporate practice and commonly prevailing structure of control through holding of shares directly and indirectly by way of cross, chain and interlinked shareholding among the promoter group constituents.

"Thus, the way paved for him to chair the Board meetings of the group companies is illegal and violative of the court orders. The profitability of the MP Birla Group companies has eroded steadily, and in no way is comparable to their peers," sources said.