London-based hedge fund, The Children’s Investment Fund (TCI), on Monday said it will initiate legal action against the government under the provisions of the India-UK bilateral investment treaty (BIT). TCI has locked horns with the board of Coal India and its largest shareholder the government of India, over coal pricing policies, which it feels are detrimental to the interests of investors and causing a $20 billion loss to the company on a pre-tax basis.
“This is a much quicker way than going through the Indian courts system,” said Oscar Veldhuijzen, partner TCI. Under the treaty, the government and the company will have to come up with responses within a period of six months, failing which the fund has the option to escalate the matter to an independent international tribunal.
TCI estimated the total revenue loss to Coal India at around $20 billion (Rs 1 lakh crore). “We will claim our share of this profits as damages,” it said.
Meanwhile a TV channel reported that the coal secretary Alok Perti denied having received any letter from TCI and said that the fund was free to sell its shares in Coal India if it is unhappy.
Veldhuijzen said these comments showed that the government is not acting in a responsible manner. “They have always denied it. I have sent the letter and I know they have received it. Obviously, they are trying to make us look bad,” he added. “They have a chance to rectify. If they don’t then it could be hugely detrimental to the company and the market.” Some analysts said that the government may not want the matter to escalate further since its stakes are high with the planned Rs 30,000-crore divestment programme next year.
“Mounting a successful press and shareholder campaign can be as effective as the courts, and the Coal Ministry and Secretary of Divestment could all do without a very public battle. The Secretary of Divestment in particular will want to avoid a long-running public spat that highlights governance failings in PSUs and unnerves all those minority shareholders it wants to buy some Rs.30,000 crore of equity in the next 12 months,” said Espirito Santo in a note on the TCI move.
In his letter addressed to the top management and board members of CIL on March 12, Veldhuijzen had alleged breach of fiduciary duties by the directors and threatened legal action “if no clear commitments are made public in the immediate future to provide parity of coal prices to import prices and rectifying the other breaches of fiduciary duties which we have outlined.” In this letter TCI alleged that Coal India reversed a decision to hike coal prices on instruction from the government. TCI had obtained a letter written by the coal secretary to NC Jha, the then chairman of CIL through the Right to Information (RTI) Act.
In a separate letter addressed to the government a few days after writing to the board, TCI said Coal India has lacked the necessary leadership to develop operationally after the retirement of CMD Partha Bhattacharya. “It is time for the Board to hold the management accountable, or for the Board and management to be swiftly changed."
