Indian Hotels: Ajit Kerkar Controversy


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Case Details:

Case Code : BECG003
Case Length : 6 Pages
Period : 1995-1999
Pub. Date : 2002
Teaching Note : Available
Organization : Indian Hotels, Tata Group
Industry : Food, Beverages & Tobacco
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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"I was begging for two years for money from various people."

- Ajit Kerkar, former CMD, Indian Hotels.

"Indian Hotels had done very well under Kerkar, but the focus had been on expansion. As a result, the company had become country's largest hotel chain. But only five properties contributed nearly 80% of the revenue, while the rest was a drain on the company."

- Ratan Tata, Chairman, Indian Hotels and Tata Group.

"There are no investigations into the acquisition of Cox and Kings. The so-called investigation at best could be a routine inquiry by the investigating agency in response to a mischievous complaint by a former employee of Taj who was dismissed from the services of the company."

- Ajit Kerkar's comment on the investigation by the Economic Intelligence Bureau.

Introduction

On September 2, 1997, in the board meeting of Indian Hotels Co. Ltd. (IHCL), Ratan Tata took over as the chairman of IHCL, after the former chairman and managing director, Ajit Baburao Kerkar (Kerkar), was made to resign. R.K. Krishna Kumar (Kumar), managing director of Tata Tea, was appointed the new Managing Director and S. Ramakrishnan of Tata Industries was made the Deputy Managing Director.

Kerkar was asked to leave after two allegations of FERA violations surfaced: the non-repatriation of dollar deposits by two foreign airlines, which had offices on the Taj premises in Mumbai; and issue of Global Depositary Receipts (GDR) by IHCL's subsidiary, Oriental Hotels, amounting to about US$30 million.

The Tatas leveled serious charges of misdemeanor and irregularity against Kerkar, who had by then become a legend in the hotel industry for turning a single loss making property (the Taj Mahal Hotel in Mumbai) into a reputed international chain.

Commenting on Kerkar's exit, a leading national daily wrote, "Building an international hotel chain during the most draconian days of the Foreign Exchange Regulation Act (FERA) obviously could not have happened without plenty of tightrope walking and some maneuvering on either side of the law."

The exit of Kerkar put an end to the era of 'entrepreneur-manager' style of management encouraged by JRD Tata. It was replaced with Ratan Tata's style, which was more oriented towards maximizing shareholder's value through group vision, better disclosure practices, transparency in corporate conduct and proper succession planning.

The Rise of Kerkar

Kerkar joined IHCL in January 1962 as assistant catering manager. He began his career with J. Lyon & Company in London where he qualified in hoteliering. Climbing the ladder quickly, Kerkar became the general manager of the badly managed and poorly run Taj Mahal Hotel, Mumbai, in 1968.

In 1970, he became its managing director. Kerkar was one of the 'super managers' appointed by JRD Tata, who were given full freedom to run the different wings of the family empire in their individual ways. Over the next 27 years, Kerkar built up IHCL as India's largest and most profitable hospitality company. In the 1970s, IHCL expanded in a major way in Delhi, Madras, Goa and Rajasthan. This was seen as a major achievement for Kerkar as he succeeded despite very little financial help from the Tatas. By the 1980s, the once sick hotel had turned into a chain embracing the US and Europe. Kerkar funded the expansion of the IHCL flagship Taj Hotel by floating different companies, with different partners.

Kerkar pioneered the concept of an's palace hotels and resort hotels of Goa. He enhanced India's status as a tourist attraction by developing Rajasthan and Goa as tourist destinations. Kerkar had a well-polished public image and established himself as a capable executive.

He was regarded as the man who almost single-handedly converted a one-hotel company into a thriving hotel chain with an international presence. Ultimately however, the Kerkar era came to an end on August 30, 1997, not with canape and champagne, but with anger and acrimony.

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