An overseas investor has filed a class-action complaint in the US accusing The Chatterjee Group and its chairman Purnendu Chatterjee of “unjust enrichment” by denying it a due share of the returns on its investment in Haldia Petrochemicals Ltd.

The complaint was filed on May 15 in the Court of the Southern District of New York by Joon H. Kim, former acting US attorney, and his team at the private law firm Cleary Gottlieb.

Kim was a deputy to Preet Bharara, the US Attorney for the Southern District of New York who successfully prosecuted former McKinsey boss Rajat Gupta for insider trading charges in 2012.

President Donald Trump had fired Bharara in 2017 and Kim succeeded him as the acting US Attorney in the Southern District of New York.

A filing of a class action complaint does not automatically translate into a jury trial, which the Ohio-based Manbro Energy Corporation is demanding.

Judge Lorna G. Schofield will decide whether there is any merit in the allegation that Manbro has levelled against Chatterjee before admitting the suit. The defendants have around 60 days to respond.

There is a possibility that the two parties could bury the hatchet before the case goes to trial. However, there is no sign of a rapprochement yet.

Several attempts were made by this newspaper over the past 10 days to contact Chatterjee, the New York-based entrepreneur who turned around Haldia Petrochemicals Ltd that had wallowed in losses for years.

The complaint

Manbro has brought charges of “breach of contract, breach of the implied covenant of good faith and fair dealing, tortious interference with contract, and unjust enrichment” against Chatterjee Advisors, Chatterjee Fund Management, Chatterjee Management Company, The Chatterjee Group and Purnendu Chatterjee.

Manbro, along with other investors, had put money into a hedge fund called Winston Partners Private Equity LLC (WPPE), which was being managed by Chatterjee Advisors in 1998.

WPPE had invested in Haldia Petrochemicals through Chatterjee Petrochemical (Mauritius) Company. Investment services to the firm were provided by Chatterjee Management Company.

In May 2017, Manbro was informed that WPPE was being dissolved and the partners would get a final cash distribution, which would be equal to their respective fund net asset value as on March 31, 2017.

The hedge fund’s only significant investment at the time of dissolution was HPL shares, according to Manbro’s complaint that has been reviewed by The Telegraph.

The complaint said the redemption price was based on HPL shares of Rs 10, which reresented the cost of the fund’s investment in HPL shares in the 1990s. The complaint says HPL, where Chatterjee is the chairman, had gone on to make record profits in 2017.

A credit rating exercise by rating agency ICRA had estimated HPL’s audited profit after tax at Rs 863.4 crore for the year ended March 31, 2017, as compared with Rs 119.8 crore recorded a year before.

“In 2017, following several years of reduced earnings and restructurings, HPL had reached a turning point, its value had substantially increased, and it was poised for further significant growth. Rather than maximising value for WPPE investors, including Plaintiff who had been invested in the Fund for nearly 20 years, (the) Defendants saw an opportunity to capture the full upside of this long-term investment for themselves,” the complaint read.

The complaint went on to say: “This (HPL) was an investment that had appreciated significantly since the initial investment two decades earlier. In fact, applying any reasonable multiple to that amount of EBITDA would result in a per-share value of HPL that is orders of magnitude higher than INR 10 per share.”

EBITDA is an acronym for earnings before interest, tax, depreciation and amortisation and is an efficient measure of a company’s financial performance because it strips out the cost of capital investment in property and plants.

Manbro, which is also being advised by disputes advisory firm Emissarry Holdings of London, claimed that Chatterjee Petrochemical (Mauritius) Company — in which WPPE was invested — maintained its shareholding in Haldia Petrochemicals during the period of dispute.

“In other words, it became clear that by the final distribution and dissolution of the Fund, (the) Defendants had effectively transferred the HPL shares to themselves at a severely discounted price at the expense of the Fund’s investors,” the complaint said.

Turnaround

HPL was on the brink of becoming a sick company in early 2015 before Chatterjee took charge of its affairs and turned it into a profitable venture. Backed by an upswing in the petrochemicals cycle, HPL became a cash-rich company from a debt-laden business. The success prompted TCG to later acquire the purified terephthalic acid (PTA) business from Japanese giant Mitsubishi, which is also located at Haldia.

PTA is a crucial raw material used to make various products including polyester fabrics. Dhirubhai Ambani achieved his early success at Reliance Industries by becoming a principal supplier of PTA in the country and edging out Bombay Dyeing, which used to sell a competing intermediate product.

Chatterjee then went on to buy out the residual stake of the Bengal government after a decade-long battle for management control.

He bought the HPL shares in two tranches at Rs 25.10 a share. The state government earned Rs 1,300 crore from the stake sale.

TCG now has a stake of over 70 per cent in HPL. Other investors include Indian Oil Corporation, the Tata Group and several financial institutions, including the State Bank of India.