In a landmark judgment, the Company Law Board (CLB) on July 10, 2006 drew an adverse inference on the financial dealings of the minority shareholders led by Ajai Agarwal in their bid to buy out the 64.67 per cent of equity stake held by the majority shareholders, led by Atul Maheshwari, Managing Director, Amar Ujala, in Amar Ujala Publications.
S Balasubramanian, Chairman of the CLB conclusively held that “… I have come to the conclusion that the consent order was obtained by concealment of material fact and that the petitioners have breached the terms of the said order, even in the absence of any stipulation in the consent order to the specific effect, the respondents will have the right to purchase the shares of the petitioners.”
Earlier, with a view to end the dispute amicably, under the Consent Order dated January 25, 2006, the minority shareholders controlling 35.33 per cent equity in Amar Ujala were given the first option to buy out the majority shareholders equity holding of 64.67 per cent in the company for Rs 252 crore.
The consent order dated January 25, 2006 expressly noted that since “… both the parties expressed their desire to keep the business of the company within the family and that is why the option was given to the petitioners to either buy or sell, the petitioners having opted to take full ownership and control of the company – that is within the family – they shall not either directly or indirectly facilitate or negotiate or shop around with any third party for a period of three years to either acquire the ownership or control of the company.”
The minority shareholders, however, forged a third party funding arrangement with Mediavest India Pvt Ltd, a Zee Group company, and an unknown merchant banker to buy out the majority stakes for Rs 252 crore. Even the very first installment of 5 per cent of Rs 252 crore amount of consideration due to majority was paid directly from the current account of the Mediavest India.
The terms of the MOU between the Ajai Agarwal faction and the financiers have been the bone of contention. Majority shareholders controlling Amar Ujala alleged that the minority group was engineering a third party takeover of Amar Ujala under the garb of the consent order for amicable dispute settlement.
The Board observed that, “The terms of the MOU are so unrealistic that no man of ordinary prudence, leave alone a business person, would be convinced that it is a pure and simple financial arrangement.”
The Board further observed, “There was not even a whisper that the petitioners would be able to mobilise funds to avoid the lenders from taking over the control of shares.”
Expressing deep concern over the terms of the MOU, the Board observed that, “the whole arrangement of financing for acquisition of shares of the respondents does not appear to be a straight forward one and it is only a prelude to the final takeover of the company after the period of three years.”
Reversing the roles of the two warring faction, the CLB Chairman passed an order on July 10, 2006 directing the majority shareholders of Amar Ujala to pay out the minority shareholders their dues in terms of the consent order dated January 25, 2006.
The majority shareholders of Amar Ujala, led by its MD, Atul Maheshwari, have been directed to pay the Ajai Agarwal faction an amount of Rs 138 crore beginning August 1, 2006 in a period spanning over nine months.