NEW DELHI: The Children’s Investment Fund Management (UK) Llp (TCI) is considering its options for pursuing legal action against Coal India Ltd (CIL), including a petition before the Company Law Board’s regional bench at Kolkata, for taking decisions that hurt small investors, according to a person familiar with the matter.
The UK-based hedge fund is already proceeding against CIL under the UK and Cyprus bilateral investment protection treaties, under which it has initiated international arbitration.
In a notification addressed to finance secretary R.S. Gujral on 27 March, TCI raised the issue of the underpricing of coal and government interference in the management of the company, which it claimed was hurting small shareholders.
The hedge fund’s statement, which claims CIL is being “run in a manner that is both prejudicial to the public interest and oppressive to shareholders”, indicates the fund will move under Sections 397 and 398 of the Companies Act, 1956, which deal with disputes on oppression and mismanagement of minority shareholders’ rights.
According to the Companies’ Act, moving the Company Law Board requires 100 shareholders or such number of shareholders holding 10% of the company. TCI’s holding in CIL is less than 2%, according to a CIL official, but the hedge fund has not disclosed how much it owns. CIL is 90% owned by the government.
The fund might also move the Kolkata or Delhi high courts through a writ petition against CIL or file suit in a civil court.
“As far as the Company Law Board goes, I would be surprised if they (the fund) had a good case because they knew what they were getting into before they went ahead and invested in CIL,” said a senior lawyer, who didn’t want to be named.
“Even at the time of Coal India’s IPO (initial public offering)—these were factors that were pointed out in the risk factors in the prospectus. CIL has access to rich coal deposits only because the government has control over the resources.”
Oscar Veldhuijzen, the hedge fund’s spokesperson, said the fund would reveal its legal strategy this week, adding that CIL was responsible for “breach of fiduciary duties” as well as lapses in the corporate laws that govern Indian companies.
The fund’s lawyers Luthra and Luthra said it would be premature to comment on the matter since they were still examining the case.
CIL spokesman didn’t respond to phone calls. Finance ministry and coal ministry spokesmen also declined to comment.
The government on Monday said that, if required, it will issue a presidential directive to CIL to commit minimum delivery of 80% of the assured supply to the power producers in an effort to ensure the Prime Minister’s Office’s (PMO’s) instructions to the company are followed, according to a Press Trust of India report.
Coal secretary Alok Perti said in a text message that the ministry might issue a presidential directive on Tuesday to CIL, ordering it to sign agreements with power producers.
His remarks come in the wake of CIL failing to meet a PMO directive to sign fuel supply agreements (FSAs) with power producers by 31 March, with 80% delivery commitment.
“The coal ministry will hold a meeting with the chairman and managing director of CIL and heads of its subsidiaries this week to take stock of their production plans. After the meeting, the presidential directive is likely to be issued,” an official in the coal ministry said on condition of anonymity.
The ministry has already conveyed to CIL that it must sign FSAs with power firms, notwithstanding opposition from several independent directors on the CIL board.
Against the backdrop of an acute fuel crunch faced by electricity firms, PMO held a meeting with representatives of these firms recently and had directed state-owned CIL to sign FSAs.
However, the move on assured 80% supply has been questioned by several independent directors of CIL, in addition to investors including TCI. CIL sought more time to work out the agreement with the consumers from the power sector.