Delay in JSW-JSPL deal brings family charters under scanner
Sajjan-led JSW Energy wants to buy a power plant from Naveen’s JSPL so that the latter can pare its Rs 42,000-crore debt but experts say it is difficult to enforce all aspects of the agreement legallyUpdated: May 01, 2016 22:12 IST
Family charters — an agreement or constitution that marks out a family’s vision, plan and responsibilities — as a way of enforcing succession plans and business values has been present for long. But whether all aspects can be legally enforced is something that is still evolving. This came to the fore in the recent delay in the closure of a proposed transaction between Sajjan Jindal’s JSW Group and his sibling, Naveen Jindal’s JSPL, where the former was supposed to acquire a unit of JSPL in a deal to reduce the overall debt that JSPL owed to banks.
The deal, according to group sources, was backed mostly by the spirit of a charter that patriarch OP Jindal had drawn in the 90s. According to the charter, the four Jindal brothers — Prithvi Raj, Sajjan, Ratan and Naveen — would come to each other’s rescue if any one of their businesses was in distress.
“It is a grey area,” said Prof Kavil Ramachandran, Thomas Schmidheiny chair professor of family business and wealth management at the Indian School of Business. “A bailout can be a part of the shareholders agreement. Promoters can agree to bring in capital and that can be part of a contract. But the extent and the route of support can vary. It may be difficult to enforce a right of first refusal clause,” he added.
According to people close to the negotiations, JSW Energy was to acquire JSPL’s Chhattisgarh power plant for an estimated Rs 5,000-6,000 crore, and transfer part of the debt on to its books as part of a bailout package for JSPL, whose finances were stretched after its coal blocks were cancelled and customers defaulted on electricity payments.
A press conference to announce the deal was postponed at the last moment reportedly due to differences in valuations and on terms of the bailout. Analysts tracking the metals and power sector said since the two companies were listed, all shareholders, including foreign, had to be taken on board.
“As long as such terms are limited to bailout of a company and not related to an individual, there should not be any problem,” said Dileep Choksi, veteran chartered accountant and a director on boards of several large listed companies. “Capital market allows inter se transfer among promoters,” he added, without commenting on the proposed transaction between JSW and JSPL.
The succession dispute in the Rs 1,000-crore Oswal family business also has raised similar issues. Pankaj Oswal, eldest son of Oswal group founder Abhey Oswal, claimed his right to lead the group after the unexpected death of his father. While there is no will to support his claim, Pankaj said that at a previous family function, his father had tied a turban on him indicating that he is the heir. This is being contested by Abhey Oswal’s wife Aruna Oswal, who was subsequently made the chairperson of the group.
“Traditions and family practices as part of a charter may not be enforceable, but such instances are limited these days. Such documents are now guided by professional firms who assist in the preparation of a concrete charter, which contains terms to be enforced and is part of a shareholders agreement as well,” said Rishabh Shroff of Amarchand & Mangaldas, who has specialised in family constitutions and trusts. “While bailouts are not common, a pool of fund nowadays is more popular for business families.”