Land Wars

Recently, at SV Global Mills Limited (which is a Binny Group Company), the Promoter group led by M Ethurajan and his son E Shanmugam has wrestled control of the company from its veteran director Mr Natarajan who is another promoter of the Company. At the AGM, the shareholders recently rejected the resolution for re-appointment of Mr Natarajan as a director to the company’s board. Given that SV Global is a publicly listed company, this triggers the speculations that SEBI may step in and ask for Open Offer process to be implemented in accordance with SEBI Take Over code because control of the board has been effectively transferred. At the heart of the whole issue is land and properties owned by the company to a tune of Rs 2000 crores (which was earlier a part of Rs 6000 crore land bank held by the Binny Group).


When John Binny founded the Binny and Co in 1797 as a clearing and forwarding agency (which later ventured into textile business as Buckingham Mills in 1876 followed by the Carnatic Mills in 1881). He would have never imagined in his wildest dreams that the company he founded, would one day, be valued and fought over, not for the business of Yarn or textile, not for efficiency of logistics business he was proud of, but purely based on the real estate the company holds. Two Centuries later the Land Bank held by the Ex-BIFR Binny Group Companies exceeds well over 6000 crores.


The Binny Story – A short history


John Deaf Binny arrived in India in 1797 to work for the Nawab of Carnatic. He established Binny & Dennison (with Robert Dennison) in 1799. The firm with its headquarters on Armenian Street, was an agency house representing British interests in South India. During British India and after Independence, Binny Group was progressively formed over the years by amalgamation of various textile and allied companies like the Buckingham & Carnatic, The Banglore woollen, Cotton & Silk Mills, Madura, The Ganges Transport & Trading, Binny & Company and Binny’s Engineering works.


Since the Britishers had never modernised the mills, this led to its products becoming uncompetitive in the market due to reasons of Technological Obsolescence. Also there were huge floods which went on to further affect the company’s fortune. The mills closed since 1970s with no operations whatsoever. In the early 1980s, a Coimbatore based group wanted to operationalize the company but looking at the huge labour issues, the unrelenting attitudes of the unions, the debts which could not be re-structured they called it a day.


Later in the 1990s the Udayar group, entered the business. However, their interest was not in textile or logistics or engineering but primarily in the huge real estate bank the company held. The Udayar management too couldn’t do much as the operations were simply infeasible because of obsolete machinery, huge debt pile-up and most importantly various unrelenting labour issues and union problems. The Company was declared a sick unit by the Board for Industrial and Financial Reconstruction (BIFR) in 1993. It then came out of the purview of the BIFR by the order of the Madras High Court.


Demerger to settle the ownership issues


In the year 2012, the shareholders of Binny Group voted for a demerger to amicably settle ownership issues in the company. The goal was to distribute the company’s land bank amicably and in fair measure to promoters who were the large shareholders of the company. This would be done by splitting the company into 3 different companies (including the existing Binny company). The demerged businesses are called Binny, Binny Mills and SV Global.


As per the demerger scheme, S V Global Mill went to M Ethurajan and his son E Shanmugam, Binny Mills to V R Venkatachalam (son of late N P V Ramaswamy Udayar) and the existing Binny to M Nandagopal. The fourth promoter, S Natarajan, remained the common promoter with nearly 19% stake in all the entities. All four promoter groups together hold 75% while the rest 25 percent was held by general public. After the demerger, the promoters transferred shares to each other so that each promoter had majority control over the demerged companies. The promoters transferred shares in companies which he did not control in favour of the one who would be controlling it. Public shareholding in all the three demerged remained at 25% as usual.


The Present promoter feud at SV Global Mills


The present feud at SV Global Mills arises because the promoter group led by M Ethurajan and his son E Shanmugam, Binny Mills believe that they rightfully own the company based on the demerger scheme approved by the shareholders earlier which was done to settle the ownership issues. It is believed that the group wants to retain the entire control over the company. However, this does not seem to go down well with Mr Natarajan, a veteran promoter director who was also one of the original four promoters of Binny when the Udayar group took over the sick textile company in 1987.


It must be noted that Mr Natarajan who holds 19 percent in the company and has been director of the Binny Group for the last 25 years. He is widely acclaimed for reviving the fortunes of the 200-hundred-year-old textile company and also credited to have taken the company out of the clutches of BIFR thereby unlocking the potential of the company’s real estate. To him the credit must go the solving of various management, legal and labour problems of the company which enabled the company to have been able to enter into ‘the demerger process’ in the first place.


If the company was still with BIFR, every decision by the shareholders or the board of the company required approval by the BIFR board, under the BIFR law, which in business terms made any deal simply unworkable.


Resolution Re-appointing Mr Natarajan is Defeated


The battle lines were drawn when recently, at the Annual General Meeting of the Company, the shareholders and promoter group led by Mr M Ethurajan and his son Mr E Shanmugam defeated the resolution for re-appointing Mr Natarajan as the director of the company which virtually ends any control that he can exercise over the company. All decisions of the company will be henceforth taken by the former promoter led group and its nominees.


While it is not for us to comment on the propriety of Mr Natarajan’s ouster, however if all the procedures of Companies Act 2013 have been duly followed and the majority of shareholders have decided to side with Mr M Ethurajan against his re-appointment, then in all fairness, that decision must be respected as it represents the democratic mandate of the majority shareholders of the company.


Under the extant Company law, the shareholders of a company, acting in a collective manner, have the right to appoint or remove whomsoever they please as the director of a company. However if procedures have been violated then Mr Natarajan can approach the Company Law board or National Company Law Tribunal as the case may be.


Will SEBI Take Over code kick in resulting ‘a public offer’?


Since SV Global is a public listed company, many company law experts believe that this ouster of

Mr Natarajan will kick in the SEBI Take over code aka SEBI (Acquisition of Shares and Take Over) Regulations 2011 which defines the term ‘control’ in a very broad sense. They believe that the ouster of Mr Nataran has resulted in transfer of board control from joint control by promoters to sole control of Udaya group. Also, if the SEBI (take over code) comes into play, the minority shareholders would gain as the valuation for share price would need to be done on market value which will increase manifolds due to increased market value of land the company now holds.


If SEBI take over code comes into play then Open offer will increase the share price substantially from the existing 371 crore of market capitalization to at-least 2000 crores which is based on market value of land held by the company.


However other experts also believe that the SEBI (Take over code) may not kick in as removal of director is provided as an exception in the SEBI (take over code) itself under Regulation 2(e) which reads “Provided that the director or officer of a target company shall not be considered to be in control over such target company, merely by the virtue of holding such position”. Therefore the other set of experts argue that since the director under the code is not considered as a person who is control of the target company, his removal cannot be equated to transfer of control or ‘a Take Over’


While these legal issues are for courts to solve, one feels that surely the Udaya group would have obtained legal opinion on this matter before proceeding with it as their move of removing

Mr Natarajan could potentially lead the company into SEBI’s legal jungle or long court room battles both of which starkly diminishes the Udaya group’s prospects of unlocking of real estate deals which lie ahead for the company.


How to solve the dead lock at SV Global?


Again, the whole issue is about the land and properties held by SV Global. Instead of a prolonged legal battle which may take years to solve, Udaya Group can sit with Mr Natarajan and identify lands which can be transferred to Mr Natarajan for his 19 percent stake in the company. The company can again be demerged into two new entities with the approval of court. Courts generally accord approvals unless creditors or any other stake holders raise objections. Thus the company can go in for another round of demerger and the two new demerged entity would be led by Udaya Group and Mr Natarajan separately both in their own forts as majority share holders. This way the group can solve its problem rather than enter into long legal battles which helps only their law firms.


Any other similar compromise is likely to happen. If compromise happens, in a year’s time we can hope to see ‘new gated premium real estate projects’ with swimming pools and jogging tracks on the Binny mills properties. Ofcourse the Tamil film industry that had been shooting various movies inside the Binny Mills would have to find another place.