'Sons demerge, brothers split!'

With the Company Law Board staying the board meetings of investment companies Bajaj Sevashram and Jamnalal Sons till the dispute between his father Shishir Bajaj and uncle Rahul Bajaj is disposed off, Bajaj Hindusthan Limited  CEO Kushagra Bajaj has a lot to smile about.

He spoke to Business Standard about how the family settlement hammered out some years ago still hasn't materialised. Excerpts:

Of the brothers/cousins, only your father wants to split.

The idea of carving out separate companies from the group came initially from my uncle Shekhar Bajaj. He met my father because he thought what my other uncle Rahul Bajaj was doing was unfair. While my father stuck his neck out for quite some time demanding separation, Shekhar Bajaj returned to the Rahul Bajaj fold. So much for the theory of one brother against four.

Now with serious differences between his sons, I don't know what Rahul Bajaj has to say. From what I read, he is saying his sons are two different individuals and therefore bound to have differences. Absolutely right! He could have said the same about us too. Interestingly, he is now drawing a distinction between a de-merger and a split. If your sons separate, it is a de-merger. On the other hand if your brother or your nephew wishes to separate, it is a split!

Wasn't there a private settlement?

We talked, and then wrote to Rahul Bajaj over the years -- an entire set of this correspondence is with the CLB. D S Mehta, a trusted family friend got involved in creating the family division and he conducted several meetings in Mumbai and Pune. He was finally able to hammer out an arrangement.

In his arrangement, it was agreed that Bajaj Hindusthan Ltd and Bajaj Consumer Care Ltd would be given to the Shishir Bajaj family. Besides this, a balance compensation package was also to be given to us.

However, the family trusts became a tricky issue with regard to this balance compensation. These were promoted with donations from family companies and own nearly 10 per cent of the share capital of Bajaj Auto Ltd. Today, their value would be over Rs 2,000 crore (Rs 20 billion). The Shishir Bajaj family was entitled to a fourth of the wealth of these trusts. In fact, D S Mehta insisted that we should legitimately get this share.

While we talked for more than three years, we could not arrive at any settlement, and my father was removed from the chairmanship of Bajaj Sevashram Ltd. This forced us to approach the CLB and seek redressal. Their lawyers gave an assurance to the CLB that a status quo will be maintained.

Then how was the settlement reached by the CLB?

The CLB advised us that family disputes should be settled privately and amicably. Meanwhile, serious mediatory efforts were made by S Gurumurthy who was also then advising us in the matter. He was able to patch together a settlement on June 4, 2003. Following this settlement, an MoU was put together and recorded on June 8, 2003.

Which you accepted?

Since the Shishir Bajaj Group has accepted the settlement it will be inappropriate for me to say otherwise. But if you consider the financials for the year ending March 31, 2003, you will see that while we were entitled to 25 per cent of the family's wealth, business and interests, what we are finally getting is less than 5 per cent on any count, be it net worth, turnover, control over assets or market capitalisation.

Bajaj Hindusthan's market cap was only Rs 59 crore (Rs 590 million) then; it had a turnover of Rs 391 crore (Rs 3.91 billion), gross fixed assets of Rs 309 crore (Rs 3.09 billion), and an installed capacity of only 17,000 tcd (tonnes of sugarcane crushed per day). I accepted all this in good faith (though my parents were hesitant) because I thought that if I struck a deal, I would ultimately get the freedom to pursue my own vocation as an aspiring entrepreneur and business manager.

Where did it go wrong?

It went wrong right from the beginning. It was agreed that each side would transfer its shares to the other at the agreed price. We were to transfer all our Bajaj Auto shares, even the shares held personally, to Rahul Bajaj at a price of Rs 400 plus.

He was to transfer all BHL shares held by him and his side at Rs 67 for every ten rupee share. He held 10 per cent BHL shares between Maharashtra Scooters and BAL. In order that these public limited companies do not suffer, the understanding was that these companies would get the market price from us.

The difference between Rs 67 and the market price would be made good by the Rahul Bajaj side to us personally as part of our compensation. A letter dated December 9, 2003 from Rahul Bajaj to D S Mehta confirms this.

As Maharastra Scooters and BAL were listed public companies, they could not have been parties to the family settlement. It was part of an oral understanding.

In fact, this was the proposal of Gurumuthy, and he confirmed this through an e-mail message sent to us. A copy of this e-mail message is still with me. Despite this, Rahul Bajaj backed out from the commitment. Even at today's prices, the loss to the Shishir Bajaj family is about Rs 175 crore (Rs 1.75 billion).

What are Gurumurthy and Mehta saying now?

Gurumurthy disappeared from the scene after that. D S Mehta is unable to take a public stand.

What happened to the 10 per cent shares you mentioned earlier?

We fought for this through our solicitors persistently for a couple of months, through correspondence and otherwise. But Rahul Bajaj totally stonewalled the issue. We finally had to take a call on whether we should go on litigating for that 10 per cent for another 15 to 20 years, or give it up to start our lives afresh. It was really a tough call but we decided to give it up and forget it. That was around December 2004.

Was this the only issue hindering the settlement?

No, there were many other issues, small and big. The settlement provided that Gurumurthy would be the arbitrator for interpretation and D S Mehta would be the arbitrator for deciding all other issues.

It also provided that the modalities of payment would also be decided by D S Mehta. Several issues were referred to D S Mehta and he gave his decision on them on February 26, 2004.

Did Rahul Bajaj accept the settlement?

Yes. After the Shishir Bajaj family gave up our claim to the 10 per cent of BHL shares held by Maharashtra Scooters and BAL, Rahul Bajaj filed an affidavit in the CLB on March 14, 2005 through Shekhar Bajaj and said that he accepted the settlement on behalf of all the members of the family and on behalf of all companies.

Then what happened?

There were several issues of price and properties to be settled. So tussles on various issues dragged on for some time. Meanwhile, I got caught up with the upswing of the sugar cycle. The price of the BHL share soared from Rs 7 to over Rs 450 by the time the methodology of the settlement was finalised (the market cap is Rs 3,000 crore or Rs 30 billion today).

The price of shares for determining the compensation was fixed. So the increase in the BAL share price is not at all the reason why the settlement could not be concluded. We have never asked for anything more than what was to be given to us by the MoU and the decision of D S Mehta.

How will this pan out now?

In the immediate future, Rahul Bajaj may resort to legal adventurism. While it is he who is not honouring the signed and accepted MoU, he has filed a suit in the High Court claiming damages of Rs 600 crore (Rs 6 billion), accusing us of a "breach of family settlement".