Pittie! Bajaj row need not have happened

MUMBAI: Could Madhavlal N Pittie, a minority shareholder in an obscure holding company called Bachhraj & Company, have delayed a solution to the Bajaj family’s separation plans?

The Pitties apparently wrote to the Bajajs that while handing over Bajaj Hindusthan to Shishir and Kushagra Bajaj, their interests should not be sacrificed. 

So how did the Pittie’s get into the Bajaj ownership structure? The story goes back to 1928, when Jamnalal Bajaj, founder of the group, invited Raja N Bansilal Pittie as a minority stakeholder in Bachhraj & Company. This was in keeping with the Marwari tradition of asking other community members to invest in their companies as sleeping partners.

At that time, the investment made by the Pittie family amounted to Rs 1,00,000 for 100 Bachhraj shares having a face value of Rs 1,000 each.

But this sleeping investment was awakened when the Bajaj family split came to the forefront. When Pittie’s heirs learned that Bachhraj’s main asset - its 25% holdings in Bajaj Hindusthan - were being sold cheap as part of the ownership transfer to the family of Shishir Bajaj, the heirs shot off a letter to the Bachhraj management.

“The members of the Pittie family are greatly perturbed by this.. Our losses would run into about Rs 180 crore,” Madhavlal Pittie wrote to the Bajaj family.

“We have implicit faith in the Bajaj family and we hope that both the members of the Bajaj family and the directors of Bachhraj & Co would take adequate precaution to ensure that such sale does not take place,” Madhavlal Pittie said in an urgent missive sent to the Bajaj family in a letter dated May 15, 2006.

Shishir Bajaj, in his capacity as chairman of Bachhraj, and his cousin Niraj, as a board member, replied to Pittie assuring him that the interests of minority shareholders would indeed be taken care of.

So where’s the dispute, then? To understand that, it is important to understand the four phases in which the dispute was handled. In the first phase, chartered accountant S Gurumurthy gave the contours of the settlement in 2003. In phase two, DS Mehta, a family friend, Bajaj Auto employee and arbitrator, helped work out the financial details of the separation based on various asset valuations. In phase three, representatives of the two camps signed an agreement to whittle down the financial compensation payable to Shishir and his son Kushagra, after taking several other factors into account. The fourth phase, which keeps the Pittie interests in mind, involves hiving off the Bajaj group’s holdings in Bajaj Hindusthan into a mirror company of Bachhraj so that the minority shareholders are not affected.

The seed of acrimony was probably sown by the order of DS Mehta, who decreed that Shishir should get 25% of the group’s assets, which, when adjusted to a financial value, worked out to Rs 500 crore.

However, the stockmarkets had other ideas. Thanks to the general bull run and the superb performance of both Bajaj Auto and Bajaj Hindusthan, Bajaj group stocks rose 800% between the time Mehta gave his verdict and when the time for implementation came. After much haggling and compromise, the third part of the separation agreement came forth, which envisaged a payment of about Rs 170 crore to Shishir Bajaj in addition to a controlling stake in stake in the sugar maker.

This deal was perceived to be much less than Mehta’s earlier order, causing much heartburn in the Kushagra camp. The problems were aggravated as some claims dubbed “frivolous” by both parties were exchanged by both groups. 

To be fair to the Rahul Bajaj group, they proposed a mirror company for Bachhraj wherein they will transfer the holdings of Bajaj Hindusthan to the new holding company which will sport the same shareholding pattern. This, they felt, would take care of minority shareholders such as Pittie and the Birlas. Thereafter, it was planned to give Kushagra full control of the mirror Bachhraj company holding the Bajaj Hindusthan shares.

This forward movement seems to have been halted by Rahul Bajaj’s recent move to buy a token 1.9% in Bajaj Hindusthan from the open market (ostensibly for treasury operations), and another move to induct members from his family into the two holding companies of the group, Bajaj Sevashram and Jamnalal Sons. The Shishir-Kushagra camp cried foul and moved the Company Law Board to get the board meetings called to make theses changes postponed.