IFab Case Study Challenge

Deepak Ghimire- 326

Sandeepan Sinha- 231
INTRODUCTION TO INDIAN
FAMILY BUSINESS
as a whole have failed or collapsed.
There are mixed reports as and when
In India the majority of businesses are the family separate.
in the dominant control of the families.
It is estimated that 90% of the business Most of the family businesses are still

in India is controlled by families. From not very old businesses. A number of

'Mom and Pop' Kirana stores to large business activities led by families

conglomerates and SME's one finds started post-independence and gained

family run businesses. Most of the big momentum thereafter. Since families

corporate business houses like Tatas, are concerned about their personal

Ambanis, Birlas, Godrej, Wadias, wealth creation and preservation, the

Munjals, Mahindra, Thapars, Mittals, brand of their family names, family

Shaparji Paollonji, Jindals, Adanis, reputation and goodwill, the elements

Anil Aggarwal Vedanta, Bajaj, Ruias, of self-discipline and self-governance

Ranbaxy, Times of India and many are high.

more are all controlled by families. The

It is noticed that where the inheritance
role of family and the family patriarch
is amongst the immediate family
is quite important in India.
members, for example from father to

There are many families who have sons and daughters, the first level

separated and partitioned. Some such inheritance which implies two

families have succeeded and the generations running the family

separated branches have also grown business, the chances of disputes and

big, while in some cases the branches succession related issues are

which have separated or the business manageable. However, the problems

arise when at the first stage it is the
father and his brothers who are running
the family business and the next
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generation of each of the brothers also
start joining the business. There are
several families who have undergone
partition or disputes at this stage.
Indian families have been exposed to
these challenges and in the interest of
family business, family wealth,
goodwill and family reputation the
family arrangements have been made
or the family constitutions have been
written to protect the interest of each
branch of the family. Wherever these
sensitive issues have been dealt with
professionally the family business has
survived.
Key challenges facing family firms in
India:
Inter family disputes, the patriarch
acting as a control freak, lack of
professional management and
professional participation, absence of
family constitution on running of
business and handling family wealth,
lack of written understanding to
address any conflict, lack of
communication amongst the family
members, unsound and unfair policies
for the employees, lack of quality
controls and to keep pace with the
modern techniques and advancements
are the key challenges to any family
firms in India.
However, In India there is a huge
emotional connect in addition to the
business aspirations. Families have
established and running large
businesses which are growing further.
The commitment levels and the passion
has been astounding. What makes it
special is the relentless participation of
the next generation in the existing
businesses for further growth with a
modern and a much matured
professional outlook. Today the young
leaders are on the block from the
families of Ambanis, Jindals, Mittals,
Adanis, Godrej, and so many other
illustrious families. All this makes the
Indian Family firms special. This
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pattern holds good for the SMEs and The family is headed by a patriarch,
small partnership firms in the country. usually the oldest male, who makes
decisions on economic and social
matters on behalf of the entire family.
INTRODUCTION TO HINDU The patriarch's wife generally exerts
UNDIVIDED FAMILY (HUF) control over the household and minor
religious practices and often wields
A joint family or undivided family is considerable influence in domestic
an extended family arrangement matters. Family income flows into a
prevalent throughout the Indian common pool, from which resources
subcontinent, particularly in India, are drawn to meet the needs of all
consisting of many generations living members, which are regulated by the
in the same household, all bound by the heads of the family. However, with
common relationship. urbanization and economic
development, India has witnessed a
Historically, for generations India had a
break up of traditional joint family into
prevailing tradition of the joint family
more nuclear-like families, and the
system or undivided family. The system
traditional joint family in India
is an extended family arrangement
accounted for a small number of Indian
prevalent throughout the Indian
households.
subcontinent, particularly in India,
A Hindu Undivided Family or HUF is a
consisting of many generations living
legal term related to the Hindu
in the same home, all bound by the
Marriage Act. The female members are
common relationship. A patrilineal
also given the right of share to the
joint family consists of an older man
property in the HUF. The term finds
and his wife, his sons and daughters
reference in the provisions of the
and his grandchildren from his sons
Income Tax Act, but the expression is
and daughters.
not defined in the act. There are various
aspects of Hindu law relevant for the
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purpose assessment of income and
wealth in the status of HUF.as well as
the impact of the provisions of Hindu
Succession Act 1956 as amended by
Hindu Succession (Amendment) Act
2005 relevant for the purpose of
assessment of income and wealth in the
status of HUF under the Income Tax
Act 1961.
In the case of Surjit lal Chhabra 101
ITR 776 SC, joint family and
undivided family are synonymous: "A
joint Hindu family consists of persons
lineally descended from a common
ancestor and includes their wives and
unmarried daughters. The daughter, on
marriage, ceases to be a member of her
father's family and becomes a member
of her husbands family."
In 2016, a judgment of the Delhi High
Court ruled that the eldest female
member of a Hindu Undivided Family
can be its "karta" (manager).
INDUSTRY BACKGROUND:
COAL MINING IN INDIA
India has a long history of commercial
coal mining covering nearly 220 years
starting from 1774 by M/s Sumner and
Heatly of East India Company in the
Raniganj Coalfield along the Western
bank of river Damodar. However, for
about a century the growth of Indian
coal mining remained sluggish for want
of demand but the introduction of
steam locomotives in 1853 gave a fillip
to it.
Within a short span, production rose to
an annual average of 1 million tonnes
and India could produce 6.12 million
tonnes per year by 1900 and 18 million
tonnes per year by 1920. The
production got a sudden boost from the
First World War but went through a
slump in the early thirties. The
production reached a level of 29
million tonnes by 1942 and 30 million
tonnes by 1946.
With the advent of Independence, the
country embarked upon the 5-year
development plans. At the beginning of
the 1st Plan, annual production went
upto 33 million tonnes. During the 1st
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Plan period itself, the
increasing coal production efficiently
by systematic and
development of the coal industry was
being felt.
Setting up of the National Coal
Development Corporation (NCDC), a
Government of India Undertaking in
1956 with the collieries owned by the
railways as its nucleus was the first
major step towards
development of Indian Coal Industry.
Along with the Sindarin Collieries
Company Ltd. (SCCL) which was
already in operation since 1945 and
which became a Government company
under the control of Government of
Andhra Pradesh in 1956, India thus had
two Government coal companies in the
fifties. SCCL is now
undertaking of Government of Andhra
Pradesh and Government of India
sharing its equity in 51:49 ratio.
NATIONALISATION OF
MINES
need for Right from its genesis, the commercial
coal mining in modern times in India
scientific has been dictated by the needs of the
domestic consumption. On account of
the growing needs of the steel industry,
a thrust had to be given on systematic
exploitation of coking coal reserves in
Jharia Coalfield. Adequate capital
investment to meet the burgeoning
energy needs of the country was not
forthcoming from the private coal mine
planned
owners. Unscientific mining practices
adopted by some of them and poor
working conditions of labor in some of
the private coal mines became matters
of concern for the Government.
On account of these reasons, the
Central Government took a decision to
nationalize the private coal mines. The
a joint nationalization was done in two phases,
the first with the coking coal mines in
1971-72 and then with the non-coking
coal mines in 1973. In October, 1971,
the Coking Coal Mines (Emergency
Provisions) Act, 1971 provided for
COAL taking over in public interest of the
management of coking coal mines and
coke oven plants pending
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nationalization. This was followed by
the Coking Coal Mines
(Nationalization) Act, 1972 under
which the coking coal mines and the
coke oven plants other than those with
the Tata Iron & Steel Company Limited COMPANY PROFILE

and Indian Iron & Steel Company

Mining Spares Pvt. Ltd. Is a
Limited, were nationalized on 1.5.1972
manufacturing company established at
and brought under the Bharat Coking
the heart of the Coal belt of India in
Coal Limited (BCCL), a new Central
Asansol, West Bengal. It was
Government Undertaking.
established on 21st day of April, 1978.
It serves as an ancillary unit to various
Another enactment, namely the Coal daughter companies of Coal India
Mines (Taking over of Management) Limited such as Bharat Coking Coal
Act, 1973, extended the right of the Limited (BCCL) and Eastern
Government of India to take over the Coalfields Limited (ECL).
management of the coking and non-
coking coal mines in seven States Coal India was established in the year
including the coking coal mines taken 1975 and is the parent company of all
over in 1971. This was followed by the the coking and non-coking coal
nationalization of all these mines on companies in India, headquartered in
1.5.1973 with the enactment of the Kolkata, West Bengal. Eastern Coal
Coal Mines (Nationalization) Act, 1973 Fields Limited being a daughter
which now is the piece of Central company of Coal India is
legislation determining the eligibility headquartered in Asansol, West Bengal
of coal mining in India. and is catered by various ancillary units
established in and around the city.
Mining Spares Pvt. Ltd is one among
them.
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Mining Spares is skilled
manufacturing various coal mine
machines, conveyor belts, conveyor
chains, coal tubs, roof bolts, gear
wheels and various other products
which are needed in a coal mine. It has
been in operation since
incorporation and is chaired by Mr.
Vijay Sinha and its other co-founding
members Mr. S. Ghosh and Mr. S.
Sinha. It is registered with National
Small Industries Corporation (NSIC)
since 1995. It has its various
credentials earned and awarded by
Coal India and Eastern Coalfields
Limited.
Since its (Mining Spares) inception it is
in operations till date. The company
had a good quantity of production and
the sales were decent till the year 1997.
In 1997 six new players entered the
market. Competition started growing
and took very less time to reach its
height. There were no new products to
launch in the market as it was need
driven market. The products which the
coal mines would require are the ones
in which can be manufactured and
launched. The company started facing
difficulty as the policies of Coal India
changed subsequently followed by its
daughter concerns as well. Tender
system had come in where various
its companies had to quote their prices of
the finished good and the best suited
price would be taken by Coal India
post of which the order would be
passed on to the respective
manufacturing concern.
With the rise in prices of raw materials,
labor and tough competition, the
company started facing sustainability
problem in the market followed by
reducing profit margin. Mr. S.K Sinha
started to look forward to other
industries and firms other than coking
and non-coking industry to get Mining
Spares registered.
Other companies were ready to pass on
orders to Mining Spares taking in to
confidant their potentials in the field of
manufacturing and credentials in the
market of small scale industries. This
needed an expansion process. The Firm
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needed to install new machineries in
order to produce and meet
requirement of the other industries.
Were all the board members interested
in the idea of expansion which would
have helped Mining Spared to grow
and have a larger market share? Let us
look into the complete case study to
find out the answer.
Board Members; Mining Spares Pvt.
Ltd
Mr. Vijay Sinha:
Mr. Vijay Sinha is a founder and
Chairman of Mining Spares Pvt. Ltd.
He is a mechanical engineer with an
immense experience over a period of
38 years into manufacturing of spare
parts of vital coal mine machineries.
He also owns Modern Engineering
Private Limited, which is also into
manufacturing of Mining Products. He
has been associated with the mining
engineers in the designing of the
machineries and ascertainment
critical break downs of machineries
inside the coal mines.
the Mr. S. Gosh:
Mr. S. Gosh is a Managing Director of
Mining Spares Pvt. Ltd. He is a
proficient mechanical engineer with an
industry experience of 38 years. He
has been eminent business developer
and has been managing the business
since its inception.
Mr. S. Sinha:
Mr. S. Sinha is a vice-president of
Mining Spares Private Limited. He is
an electronic engineer by profession.
He had worked with BHEL, in his
initial starting of career and later joined
the family business.
STARTING PHASE OF BUSINESS
It was 1969-1972 the time when West
Bengal was under fire. The youth
scared to go out of the house. The boys
even feared to say their names. The
of
police used to intrude into the houses
and arrest boys aged between 18-23
years of age. There were no jobs even
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at the existing industries and it was the welding machines, gas cutters and few
time when unemployment at its peak. others which were used in the
Yes, this was the time of Naxalism manufacturing process. The main
which started in West Bengal and products of Mining Spares are Coal
affected the future of the state in terms tubs, roof bolt, conveyor chain,
of economy, education, health, ruined conveyor belt, gear wheels.
many families without proper reason.
Initially it started with 10 employees
It was a difficult situation for the youth
from various background for different
as they never knew what would their
works. And recently the company has
future be, how would they earn money
20 employees. In the recent years,
for their own living and support their
company had been facing a difficult
families which brought the idea of
situation to pay wages or salaries to its
Mining Spares into the mind of Mr.
employees and to pay the annual lease
Vijay Sinha. He had understood that
amount. Since the nature of business
creation of employment for ones self
needed more investment in the capital
was a necessity and the need of the
goods like machinery, land and factory
hour and formed a team of 3 among the
setting. The owner of the company did
brothers, hence gave birth to M/S
not receive even a single rupee in the
Mining Spares as a Hindu Undivided
form of salary or in the name of profit.
Family (HUF) business.
The company took 4 years to meet its
The company was started with the
break-even point since there were less
capital of Rs. 4 lakhs. The fund was
demand in the initial phase of the
generated from within the family. The
business and few competitors were
factory was built up on a leased land.
playing monopoly in market in the
The land area being 1.2 acre. The
nature of duopoly market structure.
machineries were imported form
Kolkata. The machineries include
<

drilling machine, leathe machine,

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Mining Spares, became successful to
take the second mover advantage
because of its quality consciousness
and timely delivery of orders and
extensive credit period allowed to its
clients. In 1979, with the increasing
share in market, Mining Spares got the
tender from Coal India for
manufacturing 20 Coal tubs, 24 roof
bolt, 40 conveyor chain, 48 conveyor
belt and 60 gear wheels. The managers
with their continuous effort to ensure
quality and timely delivery become
successful in delivering the order in
time. Coal India appreciated the work
of Mining Spares and started giving its
fresh orders as well as for maintenance
order.
This increased the operational size of
the business. More employment were
offered to the lower class people which
helped them to raise their living
standard and helped company in
running production in shifts.
In 1977, the company got orders from
the companies like Exide batteries,
Markwel and Eastern Coal field
Limited. This raised the annual
turnover of the company from 6.5 lakhs
in 1979 to 85 lakhs in 1985. Till 1995
the business operated smoothly.
Since 1995, disputes aroused among
the management for the business
expansion of the business. Mr. Vijay
and Mr. S. Ghosh planned for the
expansion of the business in the other
states but Mr. S. Sinha was against it.
He was against it because he never
wanted to see the company trod again
to earn profits. Expansion of business
required new purchase of machineries
and employment of new people.
His idea towards the running of the
business confined to the plan of
bidding more tenders within the
existing client base and supply the
same. He lacked far sightedness which
imposed a negative mindset in him and
hence leading to disagreement with the
other board members. On the other
hand the other two then members were
keen enough to look forward to
procurement of more clients and
investments from various sources to
meet the immediate needs for
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expansion and hence leading the
company to have a better position in
the industry.
The needs of the expansion said that
they needed skilled employees with at
technical background and this could
have been possible by recruiting
students from such institutes in and
around Asansol. Mr. S. Sinha had
disagreed on the same issue. From his
level of understanding and managerial
competencies, there was no need to
expand and hence recruit further more
employees.
The next idea of Mr. S. Ghosh was
very lucrative for the business to run
and juggle the competition. Given the
fact that one of the member was not
ready to accept the plan of expansion
moving beyond the state territory, he
had come up with a proposal of getting
orders from Indian Iron and Steel
Company (IISCO) which is situated at
Burnpur and Kulti which form the
micro market of Asansol. IISCO at
present has been taken over by SAIL in
the recent past and has grown up to be
a giant Steel suppliers to various parts
of the country and China. Whether we
call it ill fate of Mining Spares or the
rest of the two members, Mr. S. Sinha
deviated from this proposal too.
This time he had another explanation.
He had quoted the profits that the
company is making from the existing
clients. Followed by which he had said
that if they invest money for installing
of new machineries for this then it
would again take a lot of time for them
to cover up the investment i.e. break
even for this particular new project and
again come back to the liquidity stage.
In any which way he was not ready to
compromise the then present liquidity
state of the company.
During this war among the board was
acquiring growth, there had been the
worst case scenario which occurred for
the ancillary industry of the micro
market. A few of the clients started
making losses and hence were planning
to wind up their production in the
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particular plants. This was the time
when other players in the market had
realized that it was high time to look
for other opportunities to keep their
businesses alive. This was only
possible by the way of looking forward
to get registered with other companies
who would be giving orders. It was too
late now for Mining Spares to get
through as there were other numerous
athletes who were on the race track.
Four eyes fell on Mr. S. Sinha. The
question which had raised was, how do
we sustain in the market now? They
were losing clients as those clients
were making losses and shutting the
door of their business day by day. This
day would come was not expected by
Mr. S. Sinha. Given the suspicion of it,
he would have though in a different
way or would have he not?
Since there was so much of hindrance
from the co-owners of the company,
Mr. Vijay stopped planning for any
further expansion plans and had asked
Mr. S. Sinha to look for businesses
from the clients who are still there and
also to see if he can get a ticket from
IISCO and get their company
registered. Mr. S. Sinha had no other
option than to think about the profit
earning. He had always been fond of
earning profits and given the worst
case scenario he understood that he
now the profit earning would decrease.
This problem also turned into a big
family issues which resulted in
implication on the family members.
The family started to part apart from
each other and the joint family became
families staying jointly.
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