Harsh Vardhan Lodha has been restrained from holding any position in the MP Birla Group by Calcutta High Court, handing the Birla family its most significant victory in the 16-year long legal tussle. The trial court judgment on Friday also restrained Lodha from drawing any benefit from the estate of the late Priyamvada Devi Birla. Lodha is the chairman of all manufacturing companies of the MP Birla Group.

Lodha is seeking probate of a will of late Priyamvada Devi Birla, wife of Late Madhava Prasad Birla, which handed the control of the group to late Rajendra Singh Lodha, father of Harsh Vardhan.

A testamentary suit is being heard in the high court at present.

The leash on Lodha will remain till the pendency of the suit, the judgment said, citing the requirement “to prevent apprehended wrong or anticipated mischief”.

“Following this order, Lodha has ipso facto vacated his office either as a director, or as a trustee or governing body member from all entities of MP Birla Group, which includes flagship Birla Corporation,” N. G. Khaitan, senior partner of Khaitan & Co and counsel for Birlas, commented.

Fresh Twist in Battle of Wills

• Birlas win big in trial court, Lodhas to appeal
• Calcutta High Court restrains Harsh Lodha from holding any post in MP Birla Group entities
• MP Birla firms include Birla Corporation, Vindhya Telelinks, Universal Cable and Birla Cable
• Three-member committee of administrators can direct investment companies to vote in the manner it wants
• Committee can take a decision by majority; turns down Lodha plea on the need for unanimity
• Investment companies hold the key to control over listed entities of the MP Birla Group
• Verdict ignored shareholders’ rights to elect a director, says Birla Corp
• Lodha was elected director of key MP Birla companies by a majority of over 90%

The Lodhas said the order passed by Justice Sahidullah Munshi “does not appear to be lawful”. Debanjan Mandal, partner of Fox & Mandal, advocates for Harsh Lodha, said the orders passed on Friday were not even asked for and will be challenged on this ground.

“Our client’s confidence in the system remains completely unshaken and our client will challenge the judgment in the appeal court for immediate and long term relief,” Mandal said.

Administrators

Even as a three-member committee of administrator pendente lite (APL committee) was appointed by the court in 2012 to oversee the estate of late Priyamvada till the
pendency of the probate matter, a significant disagreement arose in 2019 when the committee asked all investment companies, trusts and societies to vote against the reappointment of Lodha on the boards of Vindhya Telelinks and Birla Cables.

This year they again asked, by a majority decision, to vote against Lodha’s appointment in Birla Corporation and Universal Cables.

Lodha maintained that the APL Committee must decide unanimously and its direction is limited to only those shares the directly held by the estate. In flagship Birla Corporation, the estate cast its voting rights against only 1,260 shares, while the promoters’ block consists of 62.9 per cent share.

Justice Munshi rejected both the Lodha contentions which may have long term impact on not only how the companies are managed but also many public institutions such as schools and hospitals are run.

The judgment read: “It is thus apparent that within its power and authority, the APL Committee has the right to exercise all such powers and perform all such acts as late Priyamvada Devi Birla would have exercised had she been alive.

“Priyamvada Birla had a controlling share in the investment companies either by direct investment or along with other investment companies.”

“This view has been confirmed by both the division and single bench of this court and, in view thereof, the APL Committee is well within its powers to ask all entities which were under the control of Priyamvada Devi Birla to exercise their voting rights with regard to their investment in the share capital of any of the companies which were under the control of Priyamvada Devi Birla, in the manner considered by the APL as beneficial to the interest of the Estate,” it added.

“All these entities of the group would have exercised their voting rights in accordance with the directions of Priyamvada Devi Birla had she been alive.

“Accordingly, now such entities would exercise their voting rights flowing from their investment in the companies controlled by Priyamvada Birla in the manner to be guided by the APL Committee,” the judgment said.

Khaitan said: “It has been established beyond doubt that the majority decision of the Administrators is binding on the Lodhas and their decisions have to be implemented in full.

“Justice Munshi has further held that all the companies and entities holding shares of MP Birla Group have to vote in accordance with the direction of the Administrators. This is a path-breaking judgment which was necessary for protection and preservation of the estate.”

Decision by majority

The judgment suggested that Lodha should have raised his objection to the APL committee taking any decision by majority long ago and by not doing so thus far, he cannot agitate now.

“In my view once the parties allowed themselves and they participated in the meeting without raising any objection that its decision if not unanimous cannot be deliberated in the meeting and after resolution has been adopted by majority it is no more open for the plaintiffs to agitate that the APL’s decision ‘by majority’ is not binding on them,” the judgment read.

Shareholders’ right

The Lodhas said the judgment did not uphold the right of the shareholders.

“It has all along been the case of the Lodhas that the probate court examining the validity of a Will has no jurisdiction over any company in which late Priyamvada held shares. Though the inherent lack of jurisdiction was observed in the verdict in respect of the companies, Lodha has been injuncted from holding office of directors in the board of companies which the court itself said was beyond its remit,” Mandal said.

All resolutions pertaining to Lodha’s appointment or his remuneration linked to profit in all four manufacturing companies were passed with an overwhelming majority in the AGMs of the companies.