The Tata-VSNL affair has thrown up a loophole in the Companies Act, 1956, that has the potential of creating problems for the government in future sell-off efforts.
It took a settlement of Rs 1,200 crore to resolve the problem between the Tatas and the department of telecommunications. The Tatas were charged with having diverted the amount to a group company without the government's consent. The telecom ministry claimed that as a 26 per cent shareholder in VSNL, the government had the right to dictate the manner in which the equity of the company was being used.
However, four days before the settlement was reached, the Tatas, represented by Kishore Chauker, had a meeting with the telecom ministry officials.
The Tatas came armed with a copy of section 372A(8) of the Companies Act. The section that refers to inter-corporate loans and investments decrees that no company shall, directly or indirectly, make any loan exceeding 60 per cent of its share capital to any other corporate body without a resolution of the board.
But it adds a rider that banking, insurance, housing and industrial finance companies, along with those providing infrastructure facilities are not bound by this section.
Therefore, the Tatas, while politely agreeing with the government's right to assert itself as a shareholder, pointed out that as a company involved in providing infrastructure facilities, they were not bound by the condition that mandates a board resolution.
The company law experts point out that if the Tatas had taken the government to court on the issue, the government would have been a sorry loser.
In the meeting, DoT officials argued that the enterprise was involved in providing telecom services, not infrastructure facilities. But the experts say there is some merit in what the Tatas were saying.
This is a warning for the future to have watertight shareholders' agreements that take such anomalies in law into account, they say adding that these may have ramifications for the entire disinvestment programme.
