Rumble in the Palace

Rumble in the PalaceThe Arrest of the Registrar of Companies of Chennai, Mr Manuneethi Chozhan, by the CBI, on charges of corruption raises some very serious questions. If the Allegations of the CBI are true then the Registrar of Companies, a very senior officer of Indian Corporate Law Service, for illegal gratification, has acted as a pawn in a brewing corporate power struggle between a father (Dr Ramasamy) and his adopted son (Mr MAM Muthiah) to take over the reins of Chettinad Group.


The Chettinad Group:The Chettinad Group is a business conglomerate based in Chennai. The group has a finger in every pie. From companies that manufacture cement and silica to interests in construction, transport, power, coal, health care, plantations and textiles. The Family run empire also extends to education as well. The family established India’s first private university “the Annamalai University”. It was founded by the group’s founder Sir Raja Annamalai Chettiar. Today, the group is run by Raja Annamalai Chettiar’s son Dr Ramasamy and Dr Ramasamy’s adopted son Mr MAM Muthiah both of whom are chairman and Managing Director of the group respectively.


The Kings and Pawn in a corporate power gameAccording to information available in the public domain and the CBI, a rival group in the Chettinad company (one led by Mr M.A.M Muthiah) had allegedly planned to take control of the Chettinad Group of Companies from Dr Ramaswamy, the chairman of the group during the AGM of the Company. This was to be done by removing Dr Ramasamy from the post of chairmanship of the group. Apparently, Dr Ramaswamy had fallen out of favour with his adopted son Mr MAM Muthiah who, as the managing director of the group, has taken complete control. It is alleged that in order to make his control total and absolute, Mr Muthiah has proposed a resolution at the AGM to remove Ramaswamy from all positions of power in the Chettinad Group. This he claims in his interview to a newspaper “done in the interest of shareholders and the employees of the group” because Dr Ramasamy had “others interest to cater to” than the companies under his chairmanship.


On learning of this proposed resolution, Dr Ramasamy had sought the illegal services of Dr Chozhan, the Registrar of Companies to reject the resolution approved by the shareholders for an illegal gratification. As per the CBI, Dr Chozhan had taken a bribe of Rs 10 lakhs for not approving the decision for removal of Dr Ramasamy at the AGM. The CBI had received a tip-off from an unnamed source about this illegal gratification and the CBI intercepted his vehicle and recovered Rs 10 lakh from his car. The arrest was made as Dr Chozhan was leaving Ramaswamy’s palatial residence in Chennai. The CBI also recovered Rs 20 lakh from Dr Chozhan’s residence and several incriminating documents after a search was made in the office of Chettinadu House and the chamber of Dr Chozhan.


Now, what caused the rift between the father and the son is not for us to comment or speculate. Perhaps the ambitions of youth and dreams and desire of seeking new pastures and greater heights for Chettinad group at a rapid pace did not gel well with the cautious yet sturdy administration of his able godfather. Consider for example that the resolution sought to be expunged by Dr Ramasamy by adopting illegal means was finally passed by the shareholders in the AGM and the shareholders also approved the group’s new investments in the new projects to a tune of over 3700 crores for the future which would otherwise not seen the light of the day under the old chairmanship.


Now, in all fairness, it is for shareholders to decide in a democratic manner who should hold offices at the helm of their company’s administration. If shareholders side with the glorious plans and youthful leadership of Mr Muthiah than with Dr Ramasamy, perhaps that is the right course of action for the company as the same represents collective democratic wisdom of the shareholders.

 

Another look at the murky episodeBut that’s not all. There is another way to look at this murky episode. Consider that the Registrar of Companies under the Companies Act 2013 is vested with large powers. His powers encompass plenary powers of administration, control and investigation of companies and passing of orders. For example the Registrar of companies is vested with powers to approve and reject forms filed under the companies act and even has power to strike out the names of delinquent companies. The Registrar of Companies for all practical reasons has the power to make or break a company. This is why the case must be scrutinised with extreme diligence.


Now, it is one thing for corporate lords to fight amongst themselves for power and control of their empire, but it is completely another for a senior class I officer of Indian Corporate Law Service to play the fiddle and use his office as an outpost of a corporate empire.


Is venality a revelation for a deeper rot within?Again consider the sheer levels of venality of the whole episode is a dangerous revelation. Consider for example that a very senior ICLS officer aka the Registrar of Companies, an officer at the helm of Company law takes bribe in his own car, at the house of a corporate lord, as though he was buying a soda from a departmental store or drawing money from a bank. The sheer venality is revealed with the fact that the officer did not even try to hide his intentions and veil his illegal gratification through a mediator or a third party or a complex web of receipts. This only reveals a deep rot in our system.


The venality of the whole episode casts a deep and a dark shadow which does not augur well for our corporate democracy and efficacy of company law as a whole. In future, genuine questions will be raised and rightly so on whether the action of the ICLS officers are free of corporate influence and are really taken in an unbiased manner? It is necessary that those at the helm of ICLS act with speed to redeem that faith again. At stake is the interest of shareholders (especially interests of the small shareholders) and the public at large.


Our RecommendationIt is recommended that the leadership at ICLS orders a thorough internal departmental investigation to ensure that various decisions taken by Mr Chozhan and the likes are re-examined for propriety and issue remedial orders as may be necessary. It’s also time that the leadership at the Indian Corporate Law service send a strong message to its officers that those at the helm and in charge of running the Companies act shall act only in public interest and follow scrupulously and conscientiously the rule book.