Asian Paints, India's largest paints company, has decided not to allow Kotak Mahindra Capital Company (KMCC) to become its shareholder, alleging that the original share acquisition violated several laws.
The company has rejected KMCC's application for transfer of the 4.6 per cent stake, thereby firing the first shot in what promises to br a long legal tussle.
KMCC is expected to retaliate soon. "We are exploring all our legal recourse and will decide soon," said a KMCC spokesperson in Mumbai.
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The shares were part of the 9.1 per cent stake that KMCC had bought on behalf of British multinational ICI in August last year from the Chokseys, one of Asian Paints' promoters.
Ashwin Dani, Asian Paints vice-chairman, defended the decision in a strongly-worded statement yesterday. "The entire consideration for the purchase of the said shares having come from ICI Plc, the transaction is to be considered a benami, or sham transaction prohibited by law. KMCC appears to be only a nominee of ICI Plc," he said.
This was decided at an Asian Paints board meeting on July 29.
"The board, therefore, took the view that it is neither in the company's interests nor in the interest of the shareholders to register the said shares and accordingly rejected the application of KMCC," Dani added.
After the government refused to clear its purchase of shares, ICI Plc asked KMCC to sell a part of the stake of 4.5 per cent in the open market.
UTI, which already had a stake in Asian Paints picked up the shares while KMCC sent an application for registering the remaining shares under its name.
Asian Paints has relied on two things to bolster its defence. One, the original share purchase on behalf of ICI Plc, which it cites as benami and secondly the argument that clearing the share transfer would harm the company and shareholder interests.
"ICI had acquired the shares in the name of KMCC to destabilise the management affairs of the company which is a direct competitor to ICI India, its Indian subsidiary," Dani claimed.