Mckinsey Sues Ril, Reliance Comm. Over Dues

[Arun 795]

Business Standard

Mumbai - July 23, 2007

Global management consultancy firm McKinsey has moved the Bombay High Court against Reliance Industries (RIL) and Reliance Communications (RCom) for non-payment of dues of Rs 27 crore.

McKinsey had signed an agreement in 2001 with Reliance Industries to roll out Chairman Mukesh Ambani’s ambitious telecom business.

According to a winding-up petition filed by McKinsey last Thursday, Reliance Industries refused to pay the dues after RCom shifted to Anil Ambani under the settlement between the two Ambani brothers in 2005. RCom, in turn, refused to pay up on grounds that it had not signed any deal with McKinsey.

The court is expected to hear the McKinsey petition on September 6. When contacted, a McKinsey spokesperson refused to comment.

“As a private firm and matter of policy, McKinsey does not publicly discuss its working, including any arrangements with clients,” spokesperson Sunali Rohra said in an e-mailed response to a query.

While RIL did not respond, an RCom spokesperson refused to comment, saying the matter is sub-judice.

According to the McKinsey petition, RIL President Manoj Modi had hired the consultancy firm to advise it on setting up the telecom company, following which the global firm set up six separate teams both in India and abroad, which cost $325,000 per month, apart from other costs.

There was also a clause that McKinsey would be entitled to extra payments as and when Reliance’s telecom business crossed the Rs 10,000 crore turnover mark.

However, when McKinsey put up the claim to RCom last year after the firm crossed the Rs 10,000 crore milestone, the Anil Ambani-controlled firm declined to pay.

RIL, on the other hand, claimed that it had transferred all the assets and liabilities of Reliance’s telecom business to the Anil Ambani group and, therefore, was not liable for any payments.

The Reliance group was split into two entities in June 2005. While Mukesh Ambani received Reliance Industries and its key petrochemical, oil and gas businesses, younger brother Anil Ambani received the group’s power, telecom and financial services businesses.

The telecom business was hived off from Reliance Industries as part of a demerger proposal approved by the Mumbai High Court on December 9, 2005.