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A Case Study of

MRL Vs Financial
Institutions

Presented by
Richa Srivastava
2008mb0032
Financial institutions: Meaning and Types

Institutions that perform the essential function of channeling funds from


those with surplus funds to those with shortages of funds

Types Of Financial
Institutions
Finance
companies
Mutual
Funds
Pension
Funds
Commercial
banks
Insurance
companiesfirms and investment
Securities
banks
Modi Rubber
Ltd.
Modi Rubber Ltd was incorporated in February 1971 and promoted mainly by B. K. Modi to
manufacture automotive tyres. The original project was set up at an estimated cost of Rs 40
crore

B.K.Modi and V.K.Modi held 23.87%of MRL equity, the FI’s held 44.5% and the
Public held 31.62%

Major part of FI stake in MRL was with LIC and UTI. others were ICICI &IFCI

Modi traded in automobile tyres/tubes/flaps and retreading


materials
Throughout the 80s Modi dominated the domestic market.
A culmination of aspirations and the dream to
transport the then nascent Indian industrial scenario
to the dizzying heights of success. a vision to
succeed, to cast an indelible impression on the
firmament of success. To pursue it, to achieve it and
then to excel it. Only to make yet another beginning.
Case Analysis

On june 30 2001 Paduranga Rao chairman of MRL to revome


MD Mr B.K.Modi.

On june 31 B.K.Modi held a press conference and taked


about the
constitution of the board.
On july 5, B.K.Modi sent a notice to V.K.Modi charginghim of
breach
Of shareholders agreement
The move of MRL against B.K.Modi was as victory by
FIs
Since the early days of MRL two brothers were never seen eye to
eye. The
reason behind this was B.K.Modi desire to get higher share
Modiswere defaulting on FIs loans since 1980,as due to complex
family
factions liability of each brother could not be fixed

The open offer


In march 1998 MRL decided to repay the entire loan if FIs would sell their
Stake to MRL for a price higher than the ruling price. But this initiative
failed
Hard time for Modi Rubber Limited

In 1995-96 Modipon and Modi Spinning defaulted, the government cancelled a


loan of Rs 125 crore
Modi suffered a net loss of 18 croredue to the defaulting of two units.

The company slumped into a loss of Rs 43.05 crore in 1999-2000. MRL had to
slash production by 15 per cent. They even resorted to heavy discount sales to
clear stocks.

The company was also found investing in various loss-making


subsidiaries. An amount of Rs 21.37 crore was swallowed by
Modistone Ltd which became a sick company by 1997.
The last payslips were given out in November 2001. Except for Modipon, 20 Modi
factories are lying closed leaving hundreds of unemployed scrambling around for jobs
to Noida, Faridabad, Delhi or Ghaziabad.

serious lapses in management and corporate governance practices


followed by the Modi Rubber Management, the FIs decided to sell their
stake.

Modi Rubber’s first plant at Modinagar was shut down on December


18, 2001, without any notice to the workers
Corporate Governance: An
overview
Corporate governance is defined as the distribution of rights and
Responsibilities among different participants in the organizations such
as the board, manager, shareholders, other stakeholders and it spells
out the rules and procedure for making decision on corporate affairs

Concept of corporate
Governance
The system whose aim is to align as nearly as possible the interest of
the
Individual, corporation and society. The board of directors is
responsible for
Corporate governance and Financial
institutions
By being active, FIs should ensure that their role as directors on
the board is effectively fulfilled
As FIs hold public money, it is implicit in their charter that they
sere as guardians protecting the interests of shareholders and
investors
Short comings of financial Institution in context with
corporate
governance
It is totally under the clutch of the
government
FIs most often act according to the convenience of the situation
and the attitude of the Government towards a particular promoter
or chairman
Reliance case.
Swraj Paul case
FI makes rules by seeing the company and the person behind it
means it
Totally goes with the name and not the performance
How can FIs be really effective in corporate
governance:

Each institution should appoint a full-time trained panel of four to five


employees to sit on the board of companies where they have a stake.

Each panel could cover about three to four companies.

As these people will have up-to-date information on the affairs of the


company, they will better understand its transactions.

This is the simplest and best way to ensure FIs play a more effective
role in corporate governance, without, of course, undue interference
The $100-million ITC fraud highlights the need for FIs
to play watchdog and maintain shareholders’
democracy
Hindrance in the path of FI’s as an
effective corporate governance
corporate management could get away without giving the FIs
any clout over company decisions

•Lack of information when


needed
•Promoter worries about delay in
decision
•FI’s active role also can’t stop the scam and can’t improve the
results
Modi vs FIs: corporate governance issues

Promoters point of view


ØNeither selling their stake nor allowing them to borrow from
anyone else
ØCharging high rates of
intrest
FIs point of view

Before going on to FI point of view I would like to analyze that Is it the


FIs’ job to lend money and not run companies?
As far as FI as lender is concerned, any lender will want to ensure
that his money is safe
Real picture
FIs should act as both the lender and the owner

FIs can shape up incompetent management by threatening to withdraw their


stakes. The value of the company will fall dramatically if FIs pull out.

Sen Committee has been entrusted with the task of formulating policies
regarding disposing the shareholding of FIs in companies performing
unsatisfactorily
This policies was made prompted by modi rubber
case.
There was a conflictP.R. Khanna, an FInominee on the Modi Rubber
board, and promoter B.K. Modi.
Both Khanna and chairman Mantosh Sondhi have resigned and the
FIs have decided to sell their stakes to the public and not to the
Modis
Present picture of MRL
As on august 5, 2009 Pawan Chopra as Special Director, Nominee of
BIFR: The Board for Industrial and Financial Reconstruction, (BIFR)

Mr. Vinay Kumar Modi, Vice Chairman has been re designated as


Chairman of the Company in place of Mr. S S Kohli

In order to have MRL Board broad base, the Board of Directors, at its
meeting held on July 27, 2009, has appointed Mr. P R Khanna, and Mr.
Chandan Bhattacharya, as Directors of MRL.
Present picture of MRL
Now, The Modi Rubber family consists of nearly 4000 members, each striving to attain
the corporate dream of surmounting all obstacles

Modi Continenetal Tyres are popular not only in India but also in 25 nations all over
the world.

The Company has established its leadership in the highly competitive export sector by
winning the CAPEXIL's Highest Export Award for a record eight times

The company has excelled by registering an impressive export


turnover of Rs. 120 crores in the year 2007-08