Luthra & Luthra to fight TCI’s case against Coal India

MUMBAI | NEW DELHI: The Children’s Investment Fund (TCI) has appointed law firm Luthra & Luthra to fight its case against state-owned coal monopoly Coal India and its directors for alleged breach of corporate governance practices. The UK-based hedge fund said government’s decision to ask Coal India to sign long-term fuel supply agreements with private power producers is ‘prejudicial to the public interest and oppressive to shareholders.

Legal action by TCI comes amid growing expectations that the government will issue a presidential directive asking Coal India to sign the agreements with power producers. Industry leaders associated with the power sector said the directive was likely in a day or two, while government officials said they would take some decision on the matter this week.

The government had signalled its intention to force the issue when the coal ministry wrote to TCI last week saying that the IPO documents of Coal India had clearly listed risk factors such as conflict of interest between the majority and minority shareholders and that the company sold coal at prices below international rates. Therefore, TCI’s arguments do not merit consideration, the ministry said in the letter.

According provisional official estimates, Coal India’s output crawled up barely 1% to 435.8 million tonnes in 2011-12, raising concerns about its ability deliver on legally binding, 20-year supply commitments.

“TCI has repeatedly urged the directors of CIL not to blindly follow government instructions but to act independently and recognise that selling coal at undervalue and entering into prejudicial fuel supply agreements cannot be to the public benefit,” the hedge fund said in a press release.

TCI said the short-term exploitation of CIL’s assets will cause untold damage to the Indian economy and discourage investments in new coal mines.

In an attempt to support the beleaguered power sector, Prime Minister Manmohan Singh had directed Coal India to sign fuel supply plant with power plants which began operations by December 2011. Coal India missed the March 31 deadline set by the government for these pacts amidst opposition from independent board members and has sought more time.

Independent directors opposed PMO’s directive issued in February, which seeks to penalise Coal India if it fails to supply at least 80% of the committed quantity to the power projects, and give incentives if it meets 90% or more of its supply commitment.
“Legally, it is for the board of CIL and, ultimately, the court to determine what the public benefit is, not the government,” TCI said. “Indeed, the example of 2G telecom licenses being apparently sold at far below fair market value makes it clear that public interest is best served by selling natural resources by public auction or by inviting tenders.”

TCI, in the press release, did not specify details though Oscar Veldhuijzen, the hedge fund’s partner, told the finance ministry in a letter that it would approach an international arbitration tribunal if six months of negotiations with Coal India failed.

“It is a more efficient way to tackle the situation as the procedures in Indian courts are tedious and lengthy,” said Veldhuijzen in a recent interview with ET. “We don’t intend to give up and we have the resources and strength to pursue the issue.”