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 Allegations Against Kerkar

The negative attitude of the Tatas toward the hotel business forced Kerkar to raise funds in his private capacity. Kerkar took the help of a group of investors, including the biscuit and cashew millionaire Rajan Pillai, for the Goa venture. The Tatas had just 6% of the equity in the venture.

The Taj in Chennai and the Malabar Hotel in Kerala were built with the help of another group of investors. Kerkar later claimed that from the very beginning he wanted all the companies belonging to the Tata group to take large stakes in each of the hotels so that they remained forever secure as Tata entities.

In the 1980s, Kerkar used the same financial strategy that he followed in India to set up hotels in the UK and the US. These complex financing arrangements resulted in many companies with interconnected loans and exposures, and minimized the equity control of IHCL and the Tatas over the Taj group. It also became one of the major charges against Kerkar's corporate governance.

The Tatas blamed Kerkar for FERA violations in the agreement between IHCL and Singapore Airlines for the latter's office in the Taj Mahal Hotel in Mumbai. According to the Tatas, IHCL management directed Singapore Airlines, to pay security deposits amounting to $4.91 million to Taj International Hotels Hong Kong Ltd., instead of receiving the money directly in India. For more than three and a half years, the management kept this money overseas without the knowledge and approval of the board and the statutory authorities.

The transaction came to light after Ratan Tata received a letter from Singapore Airlines requesting for a 10% reduction in the deposit asked for by the Taj. However, Kerkar strongly refuted this allegation.Kerkar said that the money was paid to Taj Hong Kong only as ample measure of security, since there were several cases of entities who leased in premises and did not vacate them.

Kerkar was also alleged to have laundered money to help Cox & Kings (UK) to finance its acquisition of 40% stake in Cox & Kings (India)1 by Anthony Good2 . Good was a British national and a close associate of Ajit Kerkar. Good was also associated with Good Relations India Ltd., a public relations firm wholly owned and promoted by Cox & Kings.

It was also alleged that Cox & Kings was actually controlled by Kerkar's son, Peter Kerkar; Good merely acted as a conduit for the funds to enable the takeover of Cox & Kings (India). Moreover, Peter was a 50% beneficiary of the 40% stake acquired by Good.

However, Kerkar maintained that the acquisition of shares by Cox & Kings (UK) did not involve any cash dealings. The stake was allotted to Cox & Kings (UK) company in consideration of transfer of the Indian business of the company to Cox & Kings (India)...

Excerpts >>

1] Cox & Kings (India), an affiliate of the Taj Group was a Rs 110 crore travels and tours company.

2] Anthony Good had a 50% stake in Cox & Kings (UK).


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