L&T Drama(RIL Take over of L&T)

The one battle lost

One corporate battle which Dhirubhai did not win was the battle for control of Larsen & Toubro. In 1988, L&T was in bad shape, and the Ambanis thought that the time was ripe for an acquisition. Having secured the support of L&T's chairman, who saw Dhirubhai as a white knight in the battle against the raider Manu Chhabria, Mukesh and Anil Ambani became directors of L&T. By April 1989, Dhirubhai became chairman of L&T.

Reliance, L&T's biggest private-sector customer, bought 12.4 percent and got two nominees on the L&T board. L&T later won a substantial contract to build Reliance's Hazira petrochemical plant. Meanwhile a state-linked financial company bought L&T shares from India's biggest mutual fund and largest insurance company. It then sold the shares to a little-known investment company connected with Reliance. Desai surprised the L&T board by stepping down, and Ambani took over as chairman. Bombay's clubby corporate world was shocked at what seemed to be a behind-the-scenes takeover.

Unfortunately, things didn't go smoothly. In December Reliance's old bete noire, VP Singh, became prime minister. The Indian Express once again did the muck-raking, and found that the takeover had been effected by financial institutions like the Life Insurance Corporation and the General Insurance Corporation selling their shares. Since the institutions were not allowed to sell to private parties, the Indian Express alleged that the whole operation was a fraud.

The matter moved to the courts. Sensing defeat, the Ambanis reversed the transaction, taking a substantial loss. An extraordinary general meeting was called to decide whether the Ambanis would remain on the L&T board. Dhirubhai resigned. Eleven years later, Reliance sold its holdings in L&T to Grasim. Even that transaction was not free of controversy, as the Securities and Exchange Board of India felt that Reliance should not have bought L&T shares from the market a few months before deciding to sell its stake. The insider trading charge was settled with Reliance paying a nominal fine.

Throttling the bears


In March 1982, the Reliance scrip was the target of a bear raid organised by a Kolkata based industrialist. They picked the wrong target.

While the share was being hammered down by the bears, Dhirubhai organised a rescue operation, with friendly brokers buying up every share being sold. Then, knowing fully well that the brokers did not have possession of the shares they had sold, he demanded delivery.

The bear cartel was thrown into a panic and desperately started buying Reliance shares. When cartel members asked for time to deliver the shares, Dhirubhai asked his friends to refuse. The upshot - the Bombay Stock Exchange had to be shut for three days. But the bears had been taught a lesson - do not meddle in Reliance shares.

It wasn't long, however, before Dhirubhai's enemies raised a simple question -where did he, till recently a yarn trader and only a budding industrialist, get hold of the money needed to stop the bears in their tracks?

The answer was delivered by the then Finance Minister Pranab Mukherjee, who announced in Parliament that non-resident Indians had invested over Rs 220 million in Reliance during 1982-83. These investments had also been made by companies with names like Crocodile, Lota and Fiasco.

Investigations by journalists revealed that these companies had been registered in the Isle of Man, the tax haven, by several people sporting the surname Shah. Who did these companies belong to? Questions were raised and fingers pointed, but a Reserve Bank of India enquiry could not find any wrongdoing by Reliance.