A gift deed has turned into a bone of contention between Prakash Chhabria and his cousin Deepak Chhabria - son of co-promoter Kishandas P Chhabria - who has filed a complaint with the Pune police.
Here is another Kane and Abel story emanating from the boardrooms of India Inc.
On March 28, 2016, Finolex Group’s Pralhad C Chhabria (PCC) allegedly handed over a gift deed to his son, Prakash Chhabria.
The deed transferred 70.4 percent out of the 82.07 percent of the holding company Orbit’s shares.
Since Prahlad Chhabria passed away in May 2016, this gift deed effectively made Prakash Chhabria the majority owner in Orbit.
This has turned into a bone of contention between Prakash and his cousin Deepak Chhabria - son of co-promoter Kishandas P Chhabria or KPC – who has filed a complaint with the Pune police.
The matter is set to come up for hearing at the Bombay High Court.
Gift deeds have been put under the lens in past cases as well, most notably in the ongoing battle since 2004 between the Birlas and RS Lodha’s family over late Priyamvada Devi Birla’s will. In this will, she bequeathed Rs 5,000-crore plus an estate to noted chartered accountant and trusted aide, R S Lodha.
In the case of Finolex Cables’ Deepak Chhabria vs. Finolex Industries’ Prakash Chhabria, the former has stated in his complaint to the Pune police that the original will made by Prahlad Chhabria had put down an almost equal partnership between all family members, including Deepak, Prakash, Prakash’s sister Aruna and Deepak’s brother Vijay, in the holding company Orbit.
However, he stated in the FIR dated February 5, 2021, that while the original will had given equal rights to both families, there is an alleged forgery committed by Prakash Chhabria to execute the gift deed.
The FIR has named Prakash Chhabria and Aruna Katara, among others, as the main culprits. It has been alleged that the gift deed was forged and was an attempt by Prakash and his family to take over the entire group.
Deepak has filed a petition with the Bombay High Court, but the matter is yet to come for hearing.
In response to email queries by Moneycontrol, Deepak Chhabria refused to comment.
“The nature of your questions is in relation to ongoing disputes pending before the Hon’ble Courts and Tribunals and hence Sub judice. In these circumstances, it would be inappropriate and incorrect for us to comment or answer your questions raised in the email,” Prakash Chhabria’s family spokesperson replied.
This is not the first time that Deepak and Prakash are at legal loggerheads. Since the demise of Pralhad Chhabria, the two have been party to a handful of legal disputes on the same matter. This is the first time, however, that a formal police case has been lodged by Deepak against Prakash.
Moneycontrol has reviewed the FIR copy and the court petition.
The family background of the founders
In July 1945, brothers Pralhad C Chhabria and Kishandas P Chhabria (KPC) came to Pune from Karachi in search of livelihood. Starting as a small shop selling electrical cables, Finolex expanded to pipes, wires and cables and is now a diversified electrical goods group with multiple businesses.
The business grew over the years into two public listed companies, Finolex Cables Ltd (FCL) and Finolex Industries (FIL), with several joint ventures and a few private companies.
In FY20, Finolex Cables had total income of Rs 304.91 crore while Finolex Industries had a total income of Rs 301.68 crore. Finolex Cables had a net profit of Rs 40.25 crore while Finolex Industries PAT stood at Rs 32.42 crore in FY20.
Pralhad looked after all the commercial matters of the group including accounts, finance, sales, income tax and company secretarial matters, while Kishandas was in charge of all matters technical - production, human resources, quality assurance, R&D, technology and plants.
The FIR and petition states that in 1989, due to a new law which required wealth tax to be payable on the market share price of the company’s shares and the FCL share price being high, the outgo for wealth tax was higher than the dividend being received for the shares.
Due to this, Pralhad Chhabria proposed a structure wherein members of PPC and KPC family would gift the shares of Finolex Cables into four investment companies that were looked after by him.
The shares gifted by both families were near equal. Over the years, the Finolex Group had a maze of 15 investment companies that was created to abide by wealth tax laws and also cater to the guidelines of the Monopolies and Restrictive Trade Practices Act (MRTP), 1969.
However, by 2009-10 it was decided that it was not necessary to maintain this maze of companies and that there would be one holding company called Orbit Electricals.
Deepak Chhabria has alleged in his FIR that the original swap ratio would have given 88 percent shareholding to Pralhad Chhabria and Prakash would get 4.7 percent while the KPC family would get 7.3 percent.
However, Deepak also stated in his FIR that Pralhad Chhabria had assured that there would be a correction in this gap. Following this, the families signed amalgamation documents where Pralhad allegedly stated that he would give away half of his 88 percent shareholding to Kishandas.
Once the amalgamation order was received from the High Court, an Orbit board meeting was called on August 20, 2011, to issue new shares of the amalgamated entity, as per the swap ratio calculations.
On this date, a new share certificate of 100,300 shares was issued to Pralhad Chhabria. This was to be equally divided, but have now gone to only one family member, the FIR alleged.
Following this board meeting, it was decided by Pralhad Chhabria that Prakash would run Finolex Industries while Deepak would manage Finolex Cables.
Considering the close family ties, there is cross holding across all businesses even though Orbit continued to be the holding company for Finolex Industries and Finolex Cables.
Formation of the Trust
Prahlad had proposed that he would set up a Trust called Pralhad Chhabria Trust (PCT) to vest his shareholding. This Trust was formed in March 2012 with Aruna and himself as the first trustees.
The FIR states that Prahlad Chhabria executed a Second Supplementary Trust Deed on January 4, 2014, wherein he decided to make the three members of the family - Deepak, Prakash and Vijay - trustees with immediate effect and bequeathed his entire 116,922 shares (82.07 percent) of Orbit into the PCT.
A will is also said to have been executed on the same date. Here, Pralhad Chhabria executed a final Articles of Association of Orbit on September 30, 2014.
The FIR stated that Pralhad Chhabria had clearly defined in Article 59 how after his demise, the voting rights of Orbit for FCL will be voted by Deepak and the voting rights for FIL by Prakash, and so on for the other companies.
He is further said to have included Article 60, which restricts the change of any Article for the next 60 years, the life of the Pralhad Chhabria Trust, followed by another extension of 60 years.
As per the FIR, a final will was executed on October 15, 2014, wherein Pralhad once again bequeathed his entire shareholding of 82.07 percent into PCT to be automatically transmitted on his death.
Pralhad Chhabria’s death and gift deed
Pralhad Chhabria passed away on May 5, 2016 following a brief illness. However, on March 28 2016, he allegedly executed a gift deed and share transfer form in favour of Prakash, shifting unto him 100,300 shares of Orbit then held by the former.
The FIR stated that as Pralhad Chhabria was the older brother, he had the final say in all matters till his death in May 2016. Kishandas Chhabria who is now 87, does not play an active role in the business.
The official cause of death of Prahlad Chhabria has been stated as a brief illness. However, Deepak Chhabria stated in his court petition that his uncle died of cancer and not due to jaundice, as perceived.
Following Pralhad Chhabria’s death, the gift deed was revealed by Prakash Chhabria, which gave him ownership to Prahlad’s shares.
Deepak Chhabria has stated in his FIR that the gift deed was forged and that there was an oral arrangement between PPC and KPC that there would be a 50-50 split. In his petition filed in the Bombay High Court, Deepak has also stated that there was an independent audit done of the signature on the gift deed, which showed it to be an alleged forgery.
Since November 2016, there have been a slew of cases filed by Deepak Chhabria against Prakash Chhabria on this matter and no final decision has yet been reached.
During the past hearings, the Prakash Chhabria side has maintained that a board meeting was convened in March 2016 where Prahlad Chhabria gifted his shareholding to his son Prakash. It was stated that Deepak Chhabria was also present at this board meeting.
However, Deepak Chhabria has claimed in the FIR and court petition that while a board meeting was convened where he was present; it was not pertaining to any gift deed but of general company matters.
In an interim order dated October 15, 2019 in the Bombay High Court on this same matter, Justice SC Gupte said that the court did not grant any interim relief to Deepak Chhabria. The court order also said that it cannot possibly sustain an interim injunction restraining the lawful putative owner of the shares, Prakash, from exercising his voting rights thereon.
“Deepak Chhabria, after failing to secure any relief from the Courts or Tribunals in the last four years has now filed the ‘complaint’. Evidently, it is an afterthought to harass Prakash Chhabria and Directors/employees of Orbit,” said the family spokesperson of Prakash Chhabria.
Considering the case is Sub judice, both the parties did not comment on the nature of the allegations. The case will come up for fresh hearing in the Bombay High Court.
The main items to be considered by the court is the oral arrangement between Prahlad Chhabria and Kishadas Chhabria on the equal division of shares, the will that was executed, the board meeting that took place and what was approved, as well as the gift deed and its legality. Clearly, past history of corporate battles suggest a long road ahead before an agreement can be reached.