Lodhas set to file appeal before division bench in Calcutta High Court after Birla group ouster

The Lodhas are looking to file an appeal as early as 21 September against the Single Bench order of the Calcutta High Court stopping Harsh Vardhan Lodha from holding any office in M P Birla Group entities.

The Business Standard newspaper reports that the Lodhas are planning this move after a court order restrained Harsh Vardhan Lodha, non-executive director and chairman of the company from holding any office in the M P Birla Group. The group informed stock exchanges late Saturday that a single-judge bench of the Calcutta High Court passed the ruling on September 18, in a probate proceeding to which the company is not a party.

The Birla Corporation, the flagship entity of the group, said on September 19 that it would look into Calcutta High Court judgment and take necessary steps, including filing an appeal, because the verdict had ignored shareholders’ democracy and the right to elect by majority of their votes a person as a director of the company.

The order that was passed on September 18 has an impact on 30 companies, trusts and societies holding shares in various companies of the Birla group. The companies are supposed to exercise their voting right in accordance with the directions of the Administrator Pendente Lite (APL) Committee, formed in 2012 with court-appointed administrators to oversee and administer the estate of the late Priyamvada Devi Birla.

Read: Birla-Lodha dispute: Calcutta HC shuts out Harsh Vardhan Lodha from Rs 25,000-crore MP Birla Group

According to the order, the APL Committee had the right to exercise all such powers and perform all such acts as the late Priyamvada Devi Birla would have exercised had she been alive.

Priyamvada Birla had a controlling shareholding in the group's companies either by direct investment or along with other investor companies. Together, the investment companies and Birla via cross-shareholding held the controlling interest in all those manufacturing companies.

The Birla Group's pyramid structure 

There are four manufacturing entities in the M P Birla group that are listed: Birla Corporation, Vindhya Telelinks, Universal Cables and Birla Cable.

The M P Birla group companies have a pyramid structure of control under which Priyamvada Birla directly controlled the apex investor firms. She used a mechanism that allowed a chain and cross-holding of shares across the group.  This is how Universal Cables, Vindhya Telelinks, Hindustan Gum & Chemicals, Birla Cable, and Birla Corporation were controlled, the report said.

The Lodhas’ stand is that the estate of Priyamvada Birla has only 16.04 percent shareholding, both direct and indirect, in the Birla Corporation. The Birlas and the APL Committee argue that it had a controlling interest of 62.09 percent, via the system of cross-holding of shares, as the promoter stake.

“In the interest of the estate as well as the M P Birla group, the court has passed strictures and injunctive orders against Harsh Vardhan Lodha including his removal from all positions in the M P Birla group,” the Birla side said.

These listed companies of the M P Birla group are also expected to raise the matter legally that shareholders had voted in favour of Lodha’s reappointment, according to the report.

Lodha was reappointed to the position of chairman with a majority of 98 percent votes in favour. Even in other companies like Vindhya Telelinks and Birla Cable, where the APL Committee had opposed reappointment, he was reappointed with more than 97 percent of the votes in favour.