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Small investors set to sue CIL

After the government passed a presidential decree asking Coal India Ltd to provide long-term fuel supply to power majors, its own investors are preparing to file a petition against the company in the Supreme Court or the Bombay high court. Mahua Venkatesh reports. Shareholders cry foul, govt stands firm

business Updated: Apr 04, 2012 23:06 IST
Mahua Venkatesh

After the government passed a presidential decree asking Coal India Ltd to provide long-term fuel supply to power majors, its own investors are preparing to file a petition against the company in the Supreme Court or the Bombay high court against the move.



CIL is looking to meet the rising demand by entering into fuel supply agreements (FSAs), protecting larger public interest, but the move could erode the company’s bottomline due to pre-determined prices and markets, the investors worry. http://www.hindustantimes.com/Images/Popup/2012/4/05_04_pg-biz1.jpg

They feel it is a breach of corporate governance laws under the Companies Act, 1956 as the government, which is the largest shareholder in the coal major with 90% stakes, has acted unilaterally.

Besides the Companies Act, as per the Securities and Exchange Board of India’s investor protection guidelines and listing agreements there cannot be any distinction between investors in public sector or private sector.

A UK-based minority stakeholder has indicated that it would file a petition against CIL “The central government’s decision for Coal India to enter into long-term fuel supply agreements with private and public power producers is violative of corporate governance and violative of minority shareholder rights,” legal expert and managing partner at Hammurabi & Solomon, Manoj Kumar, told Hindustan Times.

“The largest shareholder cannot unilaterally decide on the company’s course of action,” Kumar said.

As per the current legal framework, even if a majority shareholder holding 90% shares acts in a manner prejudicial of the company’s interest, the minority shareholders have a right to stop the same.

“Unless the government compensates the consequential loss to CIL by way of subsidy, its action, although in public interest, will still be violative of corporate governance and minority shareholder rights,” Kumar said.

The Companies Act 1956 does not provide such an exception for ‘oppression and mismanagement’ by a majority shareholder, he said.