Modi Rubber vs. Financial Institutions|Finance|Case Study|Case Studies

Modi Rubber vs. Financial Institutions

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Case Details:

Case Code : FINC015
Case Length : 9 Pages
Period : 1989 - 2001
Pub. Date : 2002
Teaching Note : Available
Organization : Modi Rubber UT
Industry : Automobile & Automotive, Financial Services
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"How can they not offer us the right of first refusal to the shares? Can anyone question our commitment to the company?"

- B K Modi, commenting on the FIs selling their stake in Modi Rubber in the open market, in August 1996.

The Power Struggle

On June 30, 2001, a statement issued by Panduranga Rao (Rao),1 Chairman of Modi Rubber Ltd. (MRL) came as a big surprise to Indian corporate watchers.

The statement revealed that the MRL board had, after a special meeting decided to strip Managing Director B K Modi of his functionary powers. Rao said, "We have been compelled to transfer all areas hitherto looked after by Dr B.K. Modi to the second MD (V K Modi - B K Modi's brother) for he is not giving enough attention to the affairs of the company."

The board also suspended three other directors, B K Gupta, R L Ahuja and Atul Prakash - all reported to be close aides of B K Modi. What was more intriguing was the fact that B K Modi was absent from the meeting though a notice had been duly served to him. Rao commented, "The notice was served and the agenda was circulated. He cannot make us wait."

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Further, the move was reported to have the backing of V K Modi as well. Though the two brothers were not known to be the best of friends, this move was rather unexpected.

The very next day, B K Modi held a press conference where he announced his rejection of the board's decision. He asserted that he was still the MD of the company and that the board was not empowered to remove him from the post. He claimed that the constitution of the board itself was doubtful since the previous chairman Bodhishwar Rai (an independent director) was 'unceremoniously' thrown out and replaced by a UTI nominee.

This was against the guidelines of the capital markets regulator Securities and Exchange Board of India (SEBI), according to which the chairman should be an independent director and not a nominee director.

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1] A nominee of the FI Unit Trust of India (UTI) on the MRL board, appointed as the Chairman on April 30, 2001.


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