Battle for Billions

An ICAI report indicting the Lodhas has given fresh ammunition to Birlas. Both camps are
bringing to the table new evidence in the final fight.

February 25, 2012 | UPDATED 13:50 IST

The battle for M.P. Birla's fortune has taken a sensational new twist. In 2004, Priyamvada Devi
Birla bequeathed her entire estate worth Rs 5,000 crore to her chartered accountant R.S. Lodha,
stunning the Birla family and India Inc. Eight years later, after millions spent in legal battles, a
disciplinary committee of the regulator, Institute of Chartered Accountants of India (ICAI), has
held Harsh Vardhan Lodha, 45, legal heir of R.S. Lodha, guilty of professional misconduct. R.S.
Lodha, who was a chartered accountant before taking over the M.P. Birla empire in 2004, passed
away in October, 2008. icai's observations have a direct bearing on the battle for the Birla estate
being fought in the Calcutta High Court.

At stake is ownership of the M.P. Birla Group. M.P. Birla was the nephew of G.D. Birla and cousin
of K.K. Birla, B.K. Birla and G.P. Birla. M.P. Birla group's prized assets include Birla Corporation,
the family's first business concern set up on the banks of river Bhagirathi by G.D. Birla in 1920.
The Group also runs M.P. Birla Planetarium, Belle Vue Clinic, South Point School and M.P. Birla
Foundation higher secondary schools in Kolkata, and prestigious medical institutions like Bombay
Hospital, Birla Vikas Hospitals in Satna, Sidhi and Indore. The group also has a 25 per cent stake
in Pilani Investments, one of the Birlas' key companies. That the Lodhas, the outsiders, hold such
a major stake in Pilani Investments is causing heartburn to the Birlas.

The ICAI disciplinary committee was set up in the Lodha case in 2005 following a complaint from
chartered accountants Om Prakash Aggarwal, Shashi Aggarwal and Suresh Kumar. "The
Companies Act, 1956, prohibits acceptance of audit by a director of a company or shareholder of
the company under audit. The respondents were fully aware of their interest and its effect on their
independence while accepting or conducting the audits of Birla Ericsson Optical Limited (BEOL)
and Birla Readymix Private Limited (BRPL). Yet they failed to report their interest in the promotee
companies," the report said. The powerful ICAI looks into professional misconduct by an
accountant. On February 13, ICAI banned Srinivas Talluri, former chief financial officer of
Satyam, and former Pricewaterhouse auditor Vadlamani Srinivas, involved in a Rs 14,000-crore
scam, from practice for life for "professional misconduct".

ICAI President Jaydeep N. Shah did not comment on details of the confidential disciplinary report,
but told India Today, "The next monthly committee meeting will look into the report and initiate
action if members are guilty."

The Birla family has been united in their fight against the Lodhas over the will. But the effort of
the family-brothers B.K. Birla and K.K. Birla (sons of G.D. Birla and first cousins of M.P. Birla),
G.P. Birla (son of B.M. Birla and a first cousin of M.P. Birla), and Yashovardhan Birla
(grandnephew of M.P. Birla)-to get directly involved in the legal matters suffered a setback after
the Supreme Court held that only G.P. Birla, of the four, had caveatable interest, as he was one of
the executers of Priyamvada Birla's will in 1982. Now cases against the Lodhas are being pursued
by the legal heirs of Laxmi Devi Newar, sister of M.P. Birla. K.K. Birla and G.P. Birla have since
passed away.

The Lodhas question the validity of the disciplinary committee report while the Birlas think it will
strengthen their argument. Arguing before the Calcutta High Court, S.P. Sarkar, appearing for heirs
of late Laxmi Devi Newar, said R.S. Lodha had acted against the norms as laid down by ICAI. He
argued that Lodha was actively involved in the control and management of beol and that Lodha
and Company continued to be the auditors till July 20, 2004. When contacted by india today, both
sides refused to give official statements on the court proceedings as well as the ICAI report.

After a decade of procedural quagmire in various courts, which tested the might of the Birla Group
and the tenacity of the Lodhas, both parties are set to put their cards on the table. Why did
Priyamvada do what she did? Why was her chartered accountant and close confidant preferred
over her family members? Was she trying to punish her family for personal differences? Was she
safeguarding her husband's legacy? Or was she acting under pressure? Both sides will answer these
questions, asked soon after the death of incredibly rich widow, with evidence in the Calcutta High
Court.There are two wills queueing up for legal recognition. The Birlas have produced a will of
July 13, 1982 bequeathing M.P. Birla and Priyamvada Birla's estates to charities, while according
to the will with the Lodhas, Priyamvada bequeathed her property to R.S. Lodha on April 18, 1999.

Both parties have brandished innumerable documents ranging from postcards from family
vacations to minutes of board meetings. The court will first hear an application for the grant of
probate based on the 1999 will. The Birlas are arguing that it was unnatural for Priyamvada to give
away her property to Lodha who is not a close relative. The Birlas say that M.P. Birla and
Priyamvada had emphasised their intent towards charity in their earlier will and it is unlikely that
there was a change of mind later.

To contest the argument that Priyamvada's will is unnatural, the Lodhas have produced documents
that show her intention of bequeathing property to Lodha. They rely on the minutes of the
September 15, 2001, Birla Corporation board meeting to discuss the resignation of R.M. Dalal and
the appointment of R.S. Lodha as director and co-chairman. "The chairman (Priyamvada)
mentioned how R.S. Lodha had, at the request of late M.P. Birla, been helping all these years in
many of the Group's matters and how she keenly wanted him to succeed her. She also added how
she had wanted Lodha to take over as chairman of the company but Lodha was keen that she
continue as chairman as long as she could," the minutes state.

The Lodhas will also pull out of their quiver a letter written on April 8, 1998, by Yashovardhan
Birla to Priyamvada after a business newspaper reported that he was to be nominated as heir.
Priyamvada later denied the media report. "Everybody close to us knows the reality that the
newspaper article was not based on facts. People have reminded me that the article was incorrect,
as you find me incapable of even contributing to a charitable organisation like Bombay Hospital.
So why would you give me the reins of your empire?" Yashovardhan wrote.

The Lodhas argue that R.S. Lodha was elevated to top positions in the Birla Group during
Priyamvada's time, paving the way for his inheriting the property. The Birlas play it down, saying
it was with good business sense that she employed professionals. They point out that Priyamvada
had made J.R. Birla (not from the family) managing director of the corporation till his death in
1994. Lodhas have produced cds containing Priyamvada's speeches to counter the argument that
she had limited language skills. Soon after signing the will, she went with the Lodha family on a
vacation to China and in 2003 to the Antarctica.

Both camps have sought opinion from her doctors in the UK. The Birlas argue she was not
physically fit at the time. On the other hand, Lodha's counsel Fox & Mandal is in possession
of a medical opinion from John Cunningham, professor of nephrology at Middlesex Hospital
in London. "The medications she was taking comprised a complex cocktail of drugs designed
to prevent rejection of transplanted kidney. None of these drugs would be expected to have
a negative impact on mental function," states his letter.

The Birlas filed an application in the high court in 2011 seeking appointment of an administrator
till the court decided on who should be the rightful heir to the Group assets. The court is set to
name three administrators in March.

In November 2009, the Company Law Board (CLB) dismissed a petition of the Birlas which
challenged the elevation of Harsh Lodha as chairman of Birla Corporation. In the judgment, CLB
Chairman S. Balasubramanian noted that "it is apparent the petitioners are more concerned about
the interest of Birlas than the company".

The Birlas consider 12 to be an inauspicious number. The lifts in Birla Building don't have a button
for the 12th floor; 13 follows 11. On July 12, 2003, the Lodhas went to Birla Park in Kolkata and
brandished the will to a shocked family. The year 2012 is crucial in the legal battle of wills. The
Birlas hope they can break the jinx.
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