CLB asks Nilgiris Dairy Farm to hold allotment of rights shares

BANGALORE: The Company Law Board in Chennai has asked Nilgiris Dairy Farm not to allot shares to those participating in the company’s ongoing rights issue till its further orders, and postponed hearings on the dispute to February 5. Actis, Nilgiris’ majority owner, said it is going ahead with the transfer of funds and that the company’s growth is unlikely to be affected.

The former promoters of Nilgiris, who had petitioned the CLB against the right rights issue, claimed that the order vindicated their position that the share allotment be stopped.

“This was exactly our plea to the CLB that the shareholding pattern remain unchanged until the petition is disposed. We have no issues with shareholders bringing in money without shares being allotted,” Prabhu Ramachandran, a representative of the promoter family said.

“We are happy that the CLB has seen merit in granting us permission to bring in the necessary funds for the company to operate and work towards its gameplan. At this point, the share allotment is a non-issue as what is imperative is the dire need for funds,” an Actis spokesperson said on Friday.

The former promoters of grocery retail chain Nilgiris Dairy Farm moved the Company Law Board in Chennai on Friday against the Rs 35-crore rights issue. Actis, which bought Nilgiris from them in 2006 for Rs 300 crore, opposed the move. The Rs 330-crore Nilgiri Dairy Farm is a well-known southern brand which operates close to 100 retail outlets across Karnataka, Tamil Nadu, Andhra Pradesh and Kerala branded as Nilgiris 1905.

Last month, ET had reported on the growing rift between the Mudaliar family and its majority private equity investor Actis. Actis owns 65% in the company while the Mudaliar family owns 35%.

The original promoter family had alleged violations in foreign investment regulations and had asked for their share in the sale of three hotel properties owned by Nilgiris. These properties were sold to a friend of the promoters’ after Actis took over the company in 2006.

What has upset Actis is that Nilgiris has secured only 75% of the sale proceeds and that the promoter family has nominated the same buyer of the properties to the board of Nilgiris.

However, a member of the former promoter family maintains that the full sales proceeds on the hospitality properties have not been realised because Nilgirs has not completed requisite paperwork. Matters between Actis and the former promoters are believed to have turned to a tipping point when there was a change in the franchise of an underperforming Coimbatore store, Mr Chellayan was the chairman of Nilgiris and stepped down recently to be replaced by PP Vora, former chairman of IDBI. Mr Chellayan lost his office which was in the premises of the store when it changed hands.

However, a member of the former promoter family maintains that the Coimbatore store was being transferred to a single franchisee who has already picked up around six Nilgiris stores, a strategy that goes at odds with company agreements to limit 2-3 stores to a single franchisee.

These matters have been compounded by recent setbacks Nilgiris’ retail play. Its allied business verticals such as bakery cafe chain Masala Bread and premium patisserie format Blue Oven in Bangalore were folded up to focus on the core Nilgiris retail outlets in February. A bakery manufacturing unit and dairy facility situated in Erode were also put up for sale in May on grounds of low profitability.