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The House Dad Built...

A blow-by-blow account of the fight for control of India's largest business group. Will Mukesh and Anil Ambani split Reliance? Updates

The House Dad Built...
Atul Loke
The House Dad Built...
outlookindia.com
-0001-11-30T00:00:00+0553
Life will never be the same again for India’s first business family. The Cain-and-Abel war between the two Ambani brothers may tear asunder Reliance’s empire. As M.L. Bhakta, the first independent director on Reliance Industries Ltd’s (RIL) board way back in 1978, who resigned last week and was persuaded by Mukesh Ambani to reconsider within 24 hours, disgustedly told his friends, "Whatever their father Dhirubhai built in over two decades, the brothers will destroy in two days." That’s the way things looked as Mukesh and Anil battled for sovereignty over their Rs 1,00,000-crore dominion after elder brother Mukesh initially admitted "there were ownership issues" to a TV channel and then issued a statement stating there were none (read: there couldn’t be any since he was the undisputed boss).

The family feud over India’s largest private sector business group has all the right ingredients for an explosive mixture—politics, boardroom intrigue, ego clashes between the brothers and their wives, even a hint of sex. And the resultant blowout can impact business, market valuations and employees’ morale as well as encourage competitors, who have taken a beating from the Ambani clan for years, to widen the rift between the brothers. As one of them said, "This is our chance to decimate the family that has ruled Indian business and politics for two decades." Even Union railways minister Laloo Yadav is believed to have warned Anil, "It’s wiser for brothers to hold hands, otherwise outsiders will take advantage of the situation."

Both brothers have hauled out their artillery and are unwilling to yield an inch. They are ready to drag each other to court, insinuate criminal offences, and wash their dirtiest—and the most intimate—linen in public. Talking to dozens of insiders and close Reliance watchers, Outlook provides an inside account of what happened in RIL’s headquarters at Mumbai’s Maker Chambers IV, and at the family’s residence Seawind.

Only Mukesh

He thinks he’s the rightful successor to his father’s legacy. Mukesh showed flashes of Dhirubhai when he drove down in his grey Mercedes to Kanga & Co’s office on Mumbai’s crowded Veer Nariman Road to placate Bhakta, the day after the latter resigned from RIL’s board. After convincing Bhakta to reconsider his decision, he walked down a floor and to his car parked 20 feet away. This was a typical Dhirubhai kind of a coup that displayed humility, aggression, and the ability to fearlessly take the battle into the opponent’s camp.

But more than acquiring shades of the late father’s character, Mukesh believes he deserves to own the bulk of the empire, while his brother can have a few small pieces for himself. His loyalists believe his desire is justified, since it was Mukesh who single-handedly set up the world’s largest refinery at Jamnagar. He also built the Rs 20,000-crore telecom empire that aims to translate into reality Dhirubhai’s dream of making all calls within India cost no more than a postcard. Mukesh’s aides say younger brother Anil has had no major role in either of these ventures.

Mukesh’s men see nothing wrong if he officially takes over RIL, the group’s flagship and cash cow that has funded new projects and is a major shareholder in all group companies, and retain control over Reliance Infocomm, the telecom arm. Naturally, Anil’s coterie is aghast at the thought, since this would give Mukesh sole authority over 95 per cent of the Ambani business empire. But that is precisely what Mukesh has done. In his public statement and in an e-mail sent to all RIL employees, he has virtually said that he’s the man in charge and the final authority in RIL and, hence, the entire group.

First, he seems to have juggled the ownership pattern of the 400-500 investment companies that directly or indirectly own 34 per cent of RIL.It’s Mukesh now who controls most of these firms and that explains why he’s gone on record to say "there are no ownership issues" in the group’s flagship. After all, the family only owns a little over 5 per cent in RIL, with another 7.5 per cent with a trust created by the Ambanis (see graphic).

But according to tax and legal sources, if Mukesh officially claims his ownership of the investment firms, the group may be mired with fresh investigations by government sleuths. "For years, the family has said it has no links with these firms; they have told this to SEBI, the income-tax department and the department of company affairs during investigations relating to switching of shares in the 1990s. Now, Mukesh cannot turn around and say I own, or even control, them," says a Mumbai-based chartered accountant who is close to the family.

While Mukesh was quietly changing RIL’s shareholder pattern in a boardroom coup that caught Anil completely off-guard, he appropriated all powers in RIL. July 27, 2004 was billed as just another board meeting to consider some routine resolutions. In reality, it was anything but that. Towards the end of the meeting, Mukesh introduced a supplementary agenda with an innocuous title: the formation of a health, safety and environment committee. Tucked away in the annexure to this Item No. 17 (which figured as the second item on the additional agenda) was a proposal to redefine the powers of the chairman, MDs, executive directors and various committees of directors. In effect, it gave overriding powers to the chairman (Mukesh) on financial and investment matters. But Anil could get hold of even the draft minutes of the meeting only two days later, after expressly requesting for them several times (the other directors got the draft minutes a few hours after the meeting). When he saw the minutes, Anil went ballistic. The minutes clearly stated that the resolution had been approved unanimously after discussion by the board members. Anil, as he wrote to Mukesh on July 29, had a very different recollection of events: "There has been no discussion between us, and/or other directors, either before the board meeting...or at the said board meeting, about the proposed modifications.... Accordingly, there is no question of additional agenda item No. 2 being approved by the board."

Over the next three months, he repeatedly e-mailed Mukesh and the company secretary’s office asking them not to finalise the minutes without his approval. Mukesh did not reply to any of Anil’s e-mails. Instead, he was told "on the cmd’s (Mukesh) behalf that the matter is final and cannot be altered".

Anil alleges that while the other directors, and even a few employees, knew about the proposal beforehand, he was not informed about it. "This is contrary to all past practice, whereby supplementary agenda items...have always been pre-circulated, pre-discussed and pre-agreed between the two managing directors (Anil and Mukesh), before any board meeting," Anil wrote to Mukesh on October 25, 2004. He also alleged that he had been "legally advised that the proposed redefinition of powers of the managing directors is not in accordance with law". From the tenor of the mails, it’s clear that the brothers had not been on talking terms for months. Anil now threatens to go public with such revelations at "an appropriate time."

The board met next on October 25, a few hours after Anil sent the above letter. And despite Anil’s protests, the board approved the minutes of the July 27 meeting. Mukesh had gained control over the cash cow and sidelined his brother.

Lonely Anil
Even when Dhirubhai was alive, Anil’s relationship with his family has often been stormy. The late patriarch was initially violently opposed to his marriage to Bollywood actress Tina Munim, who was film star Rajesh Khanna’s live-in girlfriend for several years, and agreed reluctantly only after Anil threatened to walk out. Just before his father’s death, Anil had threatened to move out of Seawind and stay separately, but was persuaded not to do so. After Dhirubhai passed away two years ago, mother Kokilaben too sided with Mukesh that led to his becoming RIL’s chairman (Anil fought hard to convince his mother to become the chairperson and for the two brothers to be vice-chairmen and joint MDs). Today, Kokilaben seems to be leaning towards Anil; although she has refused to intervene in business matters, she maintains that Dhirubhai never left everything for Mukesh and that Anil should be given his fair share.

Kokilaben and Mukesh have also been piqued by Anil’s political ambitions and his personal lifestyle that may be too liberal for a conservative Gujarati family to accept (see boxes). With the Congress coming back to power, Mukesh believes that Anil’s proximity to Samajwadi Party politicians could be perilous for Reliance since Sonia Gandhi detests them all. Similarly, rumours about his friendship with film stars like Sushmita Sen and Aishwarya Rai have made the family uncomfortable. Mukesh thinks Anil’s playboy lifestyle and half-baked political ambitions could hurt business. After the October incident, when he was junked by RIL’s board and Mukesh became the Big Boss, Anil retaliated like a wounded tiger. He thought Mukesh was bent upon finishing him off as an entrepreneur.

With control over RIL, Mukesh can scuttle Anil’s business plans. In fact, it’s already happening. A proposed Rs 11,000-crore gas-based power project in Uttar Pradesh, announced with great fanfare by Anil, was supposed to be his big project that would prove to the world that he’s as good as, if not better, than his elder brother. But there was a slight twist in the tale. The gas for the project was to come from Reliance’s fields in the Godavari basin, and part of the promoters’ contribution too was to be shelled out by RIL. And soon it was apparent that neither would happen.

First, Reliance announced that gas from the basin would now be available for large users (like the power project) only in 2008, instead of the earlier target of 2006. This was a signal for Anil to look for fuel source elsewhere, or delay his project by 24 months. Two, Anil began to realise that RIL might not even fund the power plant. The Mukesh camp now admits he was never in favour of the UP power plant. "He feels the group should own energy distribution channels, rather than be in the business of producing power," says a senior aide.

Similar is the case with Reliance Capital, which, say sources, was to be under Anil’s control. (A year after Dhirubhai’s death, the two brothers had unofficially divided the group—Mukesh ran Reliance Infocomm and IPCL, Anil was CEO of Reliance Energy and was to head Reliance Capital, and the two would divide the different operations in RIL.) When Anil demanded cash—about Rs 2,000 crore—to convert Reliance Capital into a one-stop financial shop, Mukesh tightened RIL’s purse-strings.

Anil was angered that while his plans were being put on the backburner, there was no shortage of funds to bankroll Mukesh’s telecom dreams. Also, he didn’t like the secretive manner in which Reliance Infocomm was managed. Look at it this way: we’re talking about a group that claims to be world-class, professionally managed, and has strong ethics of corporate governance.But the Reliance Infocomm board has just three directors—Mukesh, and his close chums from teenage days, Anand Jain (CEO of Reliance Capital) and Akhil Gupta—although RIL owns 45 per cent of it, with the remaining held by the family through a maze of investment firms.

RIL has pumped in Rs 11,000 crore into the telecom venture, of which just over Rs 8,000 crore was given free of cost through preference shares on which no dividends need to be given for 10 years! Anil feels Mukesh is running Reliance Infocomm like his private property, although it has been financed by the publicly held RIL. Says a family source, "Anil thinks this will be detrimental to all stakeholders and the 3.5 million shareholders."

The Nita and Tina Factors

"No, I’m The Alternative," is how Nita Ambani, Mukesh’s wife, perceives herself. She has reportedly never got along with Tina, Anil’s wife. The two wives have aggressively competed with each other, be it in terms of media coverage, enterprises they launched, or in publicly showing off their power base. Over the past two years, Nita has gained an upper hand. She has appeared more on the covers of celebrity magazines and on TV shows. She has given statements that indicate she considers herself the family’s "first lady": "One of my biggest roles is to support Mukesh.... I am here (in Reliance Infocomm) to translate his dreams"; "Today I know what business is about...I understand and help Mukesh in execution." She even claimed it was she and Mukesh who set up the Jamnagar refinery. She took charge of Reliance Infocomm’s advertising strategy after Mukesh decided that the launch campaign had not worked as well as he wanted.

Nita now wants to be on RIL’s board, and believes that her twin sons are the group’s rightful owners after Mukesh. Obviously that’s not acceptable to Mukesh’s siblings, Anil and the sisters Deepti and Nina. Thus, in a way, the fight is about future succession. Did Dhirubhai name Mukesh as his successor? Or should the wealth be divided between the mother and the four children since the patriarch died without any will? Is Mukesh trying to usurp the shares of other siblings, even his mother’s?

Over the past few months, Nita has tried to underplay Anil’s role. There’s the story of how she changed photographs in the Jamnagar refinery, removing those of Anil and replacing them with those of Mukesh and herself. "That Is Not Acceptable," feel Tina and her husband. For, if that happens, the duo may be left in the lurch—forever. There are even indications that Nita is pushing Mukesh to oust Anil from RIL’s board.

The Fear Factor
For Anil, it’s a battle for survival. So, he’s trying to get foreign institutional investors (FIIs) to take sides. The FIIs, in fact, can play a crucial role by virtue of holding 23 per cent in RIL. The first salvo was fired when six directors of the Anil-controlled Reliance Energy resigned last week. This, say sources, was to put moral pressure on RIL’s five independent directors (including Bhakta) to do the same. For, if that happens, RIL’s board will be reconstituted and the FIIs can then openly ask for board representation. Mumbai-based fund managers that Outlook spoke to gave similar indications; some of them have started offloading their stakes in RIL as is evident from an 8 per cent fall in the scrip’s market price in the last 10 days.

"As we go forward, we may ask RIL to appoint professional directors, or insist on our representatives," says a senior manager in a fund that owns RIL stock. Others say that FIIs will ask "more serious questions" about RIL’s investments in Reliance Infocomm as well its usage of cash flows in other ventures.With dirt coming out on how RIL is now virtually a one-man show, there may be demands for more changes to introduce greater transparency and governance ethics, at least at the board level.

Ironic, because for over two decades, Reliance symbolised a group that was assiduously built on shareholders’ trust. Dhirubhai, say his close friends, never did anything to hurt investors’ interest and rewarded them through dividends, bonus shares and market valuations. In the end, an empire that feared that its carefully-built, impregnable and indestructible corporate edifice could be brought down by fierce competitors—business houses like the Tatas, Wadias, Chhabrias and Mehras of Orkay—and politicians like L.K. Advani and V.P. Singh may end up being demolished by the first family itself.


By Alam Srinivas with Saumya Roy and Suveen K. Sinha

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