Brothers Ambani: Fighting for power or money?
That’s a Rs 90,000 crore question. The fight between Ambani brothers - Mukesh and
Anil, who run the country’s largest business group in the private sector, is threatening
to be a full blown legal brawl that may take many years to settle, write ANIL CHAKRADEO
from Mumbai and DILIP MAITRA in Bangalore.
A business historian had once said that family run businesses do not survive beyond
the third generation. While his theory may well apply to several businesses run by
families where professionals are required to take a backseat and a son or a nephew
or a niece of the founder calls the shots, one thought the business empire built
by the Ambanis would be an exception to the rule given its huge size and professional
attitude shown by the Ambani brothers. For that matter even when Dhirubhai Ambani,
the founder of the Rs 90,000 crore (market capitalisation) Reliance group was alive,
he had always entrusted the task of building the business with professionals. He
would literally poach on the top notch officials working in efficient government
companies and got them to work for him.
Started in kitchen
But events that have taken place over the last few days indicate that things are
not exactly what they appeared to be for the outside world. It is not that things
were always smooth between Mukesh, 47, the elder brother and Anil 45. According to
those who have access to the inner circles of the Ambani family, differences between
the brothers first started because of the differences between their wives, namely
Tina Ambani, formerly Tina Munim, a former Hindi film star and Nita, wife of Mukesh.
Anil managed to marry Tina despite opposition from the other family members.
When Dhirubhai was at the helm, there was no question of the brothers fighting with
each other. Even at the time of demise of Dhirubhai Ambani two years ago, the brothers
managed to put up a united face and they did not give any impression that they were
not getting along well. Though a section of the media did express doubt whether the
brothers would hold together.
The Infocomm fiasco
The outside world first came to know that all was not well between Anil and Mukesh
at the time of inauguration of Reliance Infocomm's facility at Thane, on the outskirts
of Mumbai in December 2002 when Anil was absent. It was a big occasion for the company
and the inauguration was to be done by the then prime minister, Mr Atal Behari Vajpayee.
When asked about Anil’s absence, the Reliance officials underplayed it and ensured
the media did not read too much about Anil skipping the inauguration. Now, it is
also known that Anil developed a cold-feet for the Infocomm project and objected
to the flagship Reliance Industries Limited (RIL) investing huge sums (around Rs
13,000 crore) in the company.
According to highly placed sources, it was Anil’s decision to become a member of
the Rajya Sabha which made Mukesh extremely unhappy and was a major reason that made
him curb his power. Initially, Anil was to get elected to Rajya Sabha as a candidate
of Samajwadi Party. It was certainly not a wise decision because an industrialist
cannot afford to openly side with a particular political party and certainly not
Mulayam Singh’s Samajwadi Party which is at loggerheads with the Congress which is
running the governments at the Centre and also Reliance’s home state Maharashtra.
With much cajoling, Anil decided to get elected to RS as an independent. But the
whole world knows that it was only with the backing of Samajwadi Party from Uttar
Pradesh that he could enter Rajya Sabha. In fact, soon after getting elected, Anil’s
company Reliance Energy announced a Rs 10,000 crore gas-based power plant for Uttar
Pradesh. Sources close to Mukesh also point out that it was no coincidence that within
a couple of months of Anil joining Rajya Sabha, the Department of Telecommunication
(DoT) slapped a notice on Reliance Infocomm for illegally diverting international
calls as local calls causing huge loss to state-owned companies Bharat Sanchar Nigam
Limited and Mahanagar Telecom Nigam Limited (MTNL).
DoT’s move, it initially slapped a Rs 200 crore fine on Reliance Infocomm, was considered
by Mukesh camp as an effort to disparage Reliance group on some petty illegal practice.
Logically, such notices should have meant nothing to Reliance which is used to sort
out such things with ease. But the fact that the news about DoT's action was systematically
leaked out to media, allegedly by Anil’s people to cause embarrassment, irked the
Mukesh camp. Mukesh, the chairman of RIL, whose pet project is Reliance Infocomm,
therefore, decided to show Anil his place by clipping his powers. And that is what
has culminated in the present crisis.
The latest flare-up
Though Mukesh last week clarified that the “ownership issue reported by the TV channel”
does not exist and he was chosen as the successor of Dhirubhai Ambani by himself
before his death, Anil, clearly was not ready to accept that.
According to an emotional and angry letter written by Anil on October 25, 2004 (leaked
out to press) to the chairman of RIL, (Mukesh), the former has accused that his power
and responsibilities have been curtailed through a improperly passed board resolution
of RIL. In resolution passed on July 27, 2004, Mukesh took away most of the power
of Anil as a managing director of RIL through a last-minute item (the item 17) introduced
at the tail-end of the board meeting.
According to a newspaper report this resolution 17 reads “Shri Mukesh D Ambani, as
Chairman and Managing Director, being accountable and responsible to the Board, will
exercise the specific power to allocate, delegate or assign specific duties, responsibilities
and powers to Managing Director(s), whole time Director(s) and all executives and
employees,…And to confirm, modify or countermand any actions or decisions taken by
any such persons.” In simple words this means that as Chairman of RIL, Mukesh has
overriding power to revoke/ change any action and decision taken by Anil or any other
executive in the company.
Questionable intent
It is this resolution and the way it was passed in a hurry without any discussion
by the RIL Board, Anil objected to. Said his letter “The minutes incorrectly state
that after discussions, all Directors (other than the CMD, who did not participate)
unanimously approved of the resolution. The fact is that there were no discussions,
and there was no vote, and the question of the resolution being passed unanimously
thus does not arise.”
Anil also pointed out that the passing of the resolution raises serious corporate
governance issues. “The issue of variation of powers of the Managing Directors, Executive
Directors, and committees of directors, is a matter of great importance, vitally
affecting the corporate governance structure of the company, and impacting its various
stakeholders, including investors, banks, financial institutions, lenders, employees,
and others, besides having consequences on diverse agreements to which the company
is a party. These ramifications were neither discussed nor thought through at the
Board meeting.”
Keeping aside the method the way this contentious resolution was passed, the Reliance
Board seems to have sided completely with Mukesh. According to a news agency report
soon after Anil’s letter was made public by the media, a RIL spokesperson said “The
RIL Board did not accept points made by Anil Ambani…and finds no case for Mukesh
to respond to the note.” Sources close to Mukesh also point out that the resolution
that Anil has objected to, is nothing but reinstating the normal powers of Chairman
and Managing Director and other executives in a company. “The CMD in a company (under
the guidance of the Board) is the supreme decision-making authority and above other
executives, including managing director. Anil is not accepting this simple fact of
corporate hierarchy.”
Meanwhile, in another related move, six directors (four were in executive position)
of Reliance Energy Ltd, resigned from the company’s board together on Thursday last.
Reliance Energy, formerly BSES Ltd, is run by Anil and majority of its shares are
held by RIL. Though it is not clearly known which of the brothers was behind the
move, the resignations are certainly connected with the power struggle between the
brothers.
Mute spectators
While the family soap opera of ownership has come out of the private domain for public
viewing through the media, the lenders and shareholders are helplessly watching how
their shares held in four listed Ambani companies are losing value.
RIL, Reliance Energy, Reliance Capital and IPCL together have lost around Rs 10,000
crore in market capitalisation. As usual, the regulators, like Securities and Exchange
Board of India (Sebi) and Company Law Board are yet to wake up and direct the brothers
to resolve the issues quickly for the protection of shareholders and lenders.
A long haul
It is totally uncertain at this point of time the future course the most keenly-watched
family drama will take. There are unconfirmed reports that Anil is already preparing
for a legal course and may even spill more beans to put pressure on his brother.
Mukesh being the Reliance boss does not need to take legal action first, but will
certainly retaliate if drawn to court. Meanwhile, family friends, well wishers and
senior board members in the group companies are trying to convince the brothers to
give up the confrontation and go for a reconciliation.
But that has to happen within certain limitations. Anil, for example, cannot expect
to be made the chairman of RIL replacing Mukesh, who is elder. It is unlikely that
two brothers will be able to forget everything and work together again.
Logically then, a split in the business is more likely solution. But given the complex
holding structure in the group companies (see box) and lack of clarity on ownership
of investment companies, arriving at an acceptable wealth-sharing formula could be
difficult and time-consuming. The warring brothers will do a great service to their
shareholders and financiers, who helped them to become what they are today, if they
resist from trading charges against each other publicly.
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