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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The End of the Kerkar Era

Kerkar's troubles started when Ratan Tata took over as the head of the Tata Empire. Unlike his father JRD Tata, Ratan Tata proved to be less trusting of his managers. As the Tatas had never helped Kerkar in any way - financial or otherwise, Kerkar commented that he didn't need Ratan Tata to start telling him how to run his business.

Later, Ratan Tata also came up with the rule that all the affiliates in his empire should pay a hefty sum for using the Tata brand name, Kerkar didn't accept this ruling. Kerkar also refused to incorporate the Tata name in the IHCL brand name. Following this, the Tatas were keen to replace Kerkar.

To nominate Kerkar's successor, an IHCL board meeting was scheduled in the last week of August, 1997, after which Kerkar was expected to continue as the non-executive chairman. Kerkar decided to reject the post after the nominees from within the hotel - Camellia Panjabi and Leonard Menezes - were given a raw deal.

However, Tata directors also decided to blow the whistle on Kerkar, by informing the RBI about the alleged FERA violations by IHCL and Kerkar. After Kerkar's resignation, IHCL appointed the Chartered Accountancy firms of N M Raiji & Co and Sahni Natrajan & Bahl to go through the Taj group's transactions.

On February 9, 1998, the two companies submitted their reports to IHCL. The report listed at least six serious FERA irregularities. It ended with a report on their scrutiny of board minutes between 1994 and 1997 to check if the IHCL board was informed about the various acts of omission and commission reported by the accountancy firms.

According to the report, except for a transaction pertaining to the securitisation of loans advanced by the State Bank of India and Bank of India to St James Court Hotels Ltd., none of the other issues had been brought to the board for consideration.

The six FERA irregularities included:

An amount of $0.5 million advanced to one Salim Assiyabi;

Payment of $4,63,076 in favour of Conil Investment & Trade Inc part of this money was diverted to J Henry Schroders Bank for the purchase of GDRs of Oriental Hotels Ltd. This was allegedly not reflected in the Indian Hotels books "with some help through false certificates obtained form J Henry Schroders Bank";

Transfer of $2 million in the account of Piem Hong Kong, with a shortfall in the subsequent refund of that amount;

The creation of security of Indian assets for an overseas loan taken for St James Court from State Bank and Bank of India

Acquisition of Cedar Bay Trading Ltd. a single share bearer company by Taj Honk Kong to park the GDRs mentioned above;

Diversion of funds to Cox & Kings and investments by Piem Hotels Ltd in Piem Hong Kong and investment by Oriental Hotels Ltd in Oriental Hotels Hong Kong...


Exhibit I: Chronology of Events
Exhibit II: Cogentrix Power Project


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