Har Prasad Nanda, founder Escorts
New Delhi: Escorts Limited, founded by Har Prasad Nanda, operates in the sectors of agricultural machinery, construction machinery, material handling, and railway equipment. Headquartered in Faridabad, Haryana, it was once a takeover target of London-based non-resident Indian (NRI) businessman Lord Swaraj Paul. But Paul’s attempts of getting control of Escorts were thwarted by HP Nanda, who fought a long-drawn legal battle against the government, which was at that time run by then Prime Minister Indira Gandhi, and RBI, with former Prime Minister Manmohan Singh being at the helm of it. Although Paul won the court case, he later sold Escort shares, which he had bought in 1983, with an intention to take control of the company, back to HP Nanda. Here is how the story goes.
In the 1982-83 Budget then Finance Minister Pranab Mukherjee had announced that NRI investors (both individuals and companies) could buy shares of Indian companies, subject to certain provisions. It was done with the intent to attract investment from wealthy NRIs.
During those times, many promoters were owning less than 10% stake in their company with a major chunk being held by state-owned entities like LIC and GIC. So Escorts was no different. HP Nanda was running the company with a stake of 7.5% and nearly 56% of the company’s shares were owned by state-owned entities. Taking benefit of this Swaraj Paul bought nearly 10% stake in Escorts. A similar attempt was also made by Paul to take control of DCM.
Realising that this game was being played at a higher level and Paul can not do this alone without the government’s support, HP Nanda sought out everyone of influence in Delhi: Finance Minister Pranab Mukherjee. P.C. Alexander. L.K. Jha, and M. Narasimham, secretary in the Department of Economic Affairs. But officials said that there was no evidence that NRIs were doing the buying. Most important, Mukherjee also assured that none of the PSU entities are selling Escorts’ shares to NRIs but he refused to consider suggestions to limit NRI investment in shares of Indian companies or to deny them voting rights, suggestions that the industrialists had made. “You can’t expect me to make a U-turn on this,” he told Nanda at one of several meetings.
Nanda then realised that other measures were necessary to stop the hostile takeover. He called an emergency meeting of the Escorts board of directors, which armed itself with the power to refuse to register the transfer of share ownership to Paul.
This was possible under Escorts’s articles of association as well as under the Companies Act and the Monopolies and Restrictive Trade Practices (MRTP) Act, for specified reasons. Nanda then went on to make a public offer to buy his company’s shares from any shareholder who was tempted to sell his holdings as Escorts’ share price nearly doubled to Rs 70 at that time.
Also, to reduce speculation in his shares, he asked that his shares be traded only against instant cash payments, ruling out forward transactions which at that time permitted delaying payment up to a maximum of 90 days. Finally, he told Escorts’s 3,000 ancillary units and equally numerous dealers that they might have to give him support by buying Escorts shares. Nanda said he did not have the capacity to compete with Paul in a price war. But he built this company. “And when the wolf is at my throat I will fight with all the resources I have,” he said.
At that time Paul was buying shares of Escorts in the names of companies he used to run in Britain. Government policies allowed share investments by overseas companies that are 60% owned by non-residents; Paul at that time had more than 60% ownership in some of his companies. In his budget on Frebruary 28, 1983, Finance Minister Pranab Mukherjee announced sweeping tax concessions that virtually made the country a tax haven for non-residents of all hues. The income tax was slashed to a flat 22.5%, and complete exemption was provided from wealth and gift taxes. Paul, however, started buying shares of Escorts a month earlier in January. At that time a question was raised by industrialists to which there was no answer: did Paul know of the budget measures in advance?
A memorandum was then circulated by both DCM and Escorts: “Black money – whether emanating from under-invoicing, over-invoicing or otherwise – could flow back into India under the guise of non-resident investments…. Control of Indian companies can be secured by various kinds of illegal operators and even sometimes foreign governments through agencies such as CIA.”
Legal pundits then argued that by terming even people with foreign passports as “non-resident Indians”, the government had flouted various laws, notably the foreign Exchange Regulations Act (FERA), which does not distinguish between foreign foreigners and Indian foreigners.
Delegations of industrialists, including such heavyweights as J.R.D. Tata, K.N. Modi and FICCI President Ashok Jain, put their view across to the finance minister after they were denied a meeting with Indira Gandhi.
The campaign was pursued through every available forum. The press was briefed, members of Parliament raised the issue and demanded clarifications, and even overseas Indians were roped into the act. In London, a newly formed International Forum for Overseas Indians (an obvious rival to Swraj Paul’s Indo-British Association) organised a meeting where influential non-residents criticised destabilising take-overs.
Finally, after hectic lobbying by Nanda and other industrialists, Paul backed out. Pranab Mukherjee in his book, The Turbulent Years 1980-1996 wrote, “Finally, in early 1986 Finance Secretary S. Venkitaramanan; Additional Secretary in the PMO, Gopi Arora; and Minister of State for Defence (and a good friend of Rajiv’s), Arun Singh, mediated between the concerned parties and persuaded Swraj Paul to sell his shares back to the Shri Rams and the Nandas at a mutually agreed price.”