May 18, 1998

With a slew of cases closing in on him  both in India and abroad, yesterday's takeover tycoon and his prime acquisitions are in a shambles.

By V Shankar Aiyar

Dialling him isn't easy. While you hold on for the takeover tycoon to come on the line at his corporate headquarters in Dubai, there is no music. Instead, a well modulated voice chirpily exhorts you to shop with them -- Jumbo -- for Casio products, Sony television sets, multinational appliances and Japanese cars. And as if to punctuate the message, the voice says at the end: "We make it happen."

If only Manohar Rajaram Chhabria could say so too. Just 10 years ago, Chhabria -- previously a Lamington Road trader -- was on top of the world with acquisitions like tyre giant Dunlop, the 110-year-old liquor conglomerate Shaw Wallace and Company (SWC), Mather & Platt, Hindustan Dorr Oliver, among other names. To announce his arrival, Chhabria had told india today of his ambition in 1989: "I want to be among the Fortune 100 groups of the world."

He even donned grey flannels and cardigan to attend classes at the hallowed Harvard Business School. But the course obviously wasn't good enough. At least for Chhabria. He now finds himself virtually at the wrong end of the road. Dunlop is sick and has approached the BIFR. SWC is facing 110 winding-up petitions filed by 178 creditors. Orson, the fledgling electronics company Chhabria floated to feed the consumerist urges of a growing Indian middle class, is shut for good. At Mather & Platt, the service company, the union has petitioned the Company Law Board (CLB) to remove Chhabria from the driving seat.

There is no good news on the personal front either. Pinned down in Dubai and unable to visit India, Chhabria is barely a step away from being dubbed a fugitive by the Union Government. The charges he faces are longer than the proverbial yard (see box). He figures in a CBI case and a case filed by the Directorate of Revenue Intelligence. His creditors are hounding him. West Bengal Chief Minister Jyoti Basu has written to the prime minister seeking a probe into the affairs of Dunlop, which has failed to clear workers' dues for six months now. The Department of Company Affairs (DCA) wants nine government nominees -- virtually a takeover -- on the board of SWC. Add to this the hostile environment Chhabria has created around himself by ceaseless battles with executives, former associates and his own brother, Kishore.

If there is trouble back home, things aren't very pretty across the Gulf either. With Sony Gulf establishing a presence at the Jebel Ali free trade zone, Chhabria finds his turf being cut into. Jumbo's turnover has dropped by 400 million dirham (Rs 420 crore) to around 1 billion dirham (Rs 1,050 crore). Chhabria has had to sell a substantial part of his equity in Jumbo -- 20 per cent at $17 million (Rs 68 crore) -- to one of the biggest groups in the UAE, Al Rostamani (which the earlier partner Seddeeq was holding for him). That has given him some breathing space in terms of cash flow but his problems are growing. Last month, the DCA called for a probe of the SWC affairs under Section 408 of the Companies Act. And the capital was recently abuzz with speculation of a warrant being issued, for Chhabria has managed to dodge the summons issued by the Enforcement Directorate.

There are no easy answers to why the takeover tycoon, who boasted a group sales figure of over Rs 1,100 crore and Rs 68.5 crore profit before tax in 1989, now finds his profits shrivelling. The vice-chairman of a large corporate house who has known Chhabria for some time, says he is essentially a trader who chose the takeover route, looking for quick returns. "But acquisitions in manufacturing take some time for capital appreciation and growth, and he could not wait."

A former associate who worked as a top-level executive with Chhabria says his (Chhabria's) game plan was to borrow abroad, acquire in India and repay. "He borrowed, say, at around Rs 15 to the dollar. With the reforms, the dollar shot up, touching Rs 27 by 1992-93. That made the rupee cost of repayment unsustainable." A former Chhabria executive says Chhabria also failed to bring any managerial input in terms of talent and capabilities into the companies he took over. Worse, his management style and language sent many packing home. SWC had five managing directors in six years.

In a letter to the CLB, L.C. Gupta, a nominee on the SWC board, charged the management of the company on six counts. These include:

• Keeping the board of directors in the dark on key matters.
  
• Financial mismanagement to the extent that for two years in a row (1995-96 and 1996-97), the auditors of the company have stated their inability "to express an opinion whether the balance sheet and profit-and-loss account give a true picture".
  
• Nominee institutional directors are voted out.
  
• Mismanagement and fraud, with an investment of about Rs 70 crore in six Guwahati companies without due diligence.
  
• Inability of the company to pay creditors' dues.

Significantly, soon after he shot off the letter to the CLB chief, the SWC board managed to invoke a technicality and get the CLB to recall Gupta from the board of the SWC.

While SWC was bled white, Dunlop too saw its resources siphoned off in a series of dubious transactions. In 1994-95, Dunlop bought software worth Rs 3 crore from srg Finman and sold it at Rs 30 crore to SWC. A note to the DCA reports that while there is a cash receipt for the sum, there is no record of the transaction in the company's books. In 1996-97, Dunlop invested Rs 29.55 crore in Shaw Wallace Properties (SWP). According to company insiders, this was simply a routing transaction and SWP has no property worth a mention. Added to this are Chhabria's ceaseless battles with executives, former associates and his brother, dragging the taken-over blue chips into a dung-heap.

Speaking from Dubai, Chhabria quips: "It is your perception that things have not worked out. Not mine. Nobody can question the fact that SWC is doing well. We are the largest with 25 distilleries and 10 breweries. Royal Challenge and Haywards are the strongest brands. Who else or which other company has its produce -- 1.2 million cases -- pre-sold? What is surprising is the manner in which things have been blown out of proportion. What is happening in SWC is simply consolidation of debt, so that we can settle the matter."

What about Dunlop? "It is a labour problem. What else is it? We are trying to resolve it, which is why we went to BIFR. We have gone to the board for respite, for relief. For permission to divest so that we could put the house in order. But before that, there is talk about a takeover. How can that come through? Who owns the shares?"

However, there are other frontiers that he cannot ignore. A petition -- reportedly filed at the behest of liquor baron Vijay Mallya -- that is hanging fire in Hong Kong actually contests Chhabria's ownership of SWC. Chhabria acquired SWC in 1985 by buying out 37.8 per cent of its shares held in R.G. Shaw & Co. These shares were bought by a shell company, Carrasco Investments Limited, controlled by two other investment firms, Alexina and Keysberg (apparently a Chhabria company) which held one share each in Carrasco.

According to the papers filed in Hong Kong, Chhabria's contention of ownership has been challenged in his said control over Carrasco through Keysberg. The owners of Keysberg allegedly allotted themselves 9,998 additional shares and by taking full control of Carrasco managed the ownership of the SWC shares held by R.G. Shaw & Co. In other words, by that one deed, Keysberg had managed to convert what was a joint venture with Alexina into full-fledged ownership. The owners of Alexina then decided to file a suit in Hong Kong in 1992. The suit comes up for hearing in the next few weeks.

As for the cases in India, with such large stakes in this country, he surely cannot run the risk of having his name posted on the "wanted" list. As of now, Chhabria is playing with his cards close to his chest. For both he and his detractors know that it is the outcome of these cases that will eventually determine whether Chhabria is able to rescue his acquisitions and his own name or watch them being ground one after another.

© Living Media India Ltd