INDIA BUSINESS WORLD - JULY - AUGUST - 2007
The Month that was ...

MCKINSEY FILES WIND-UP PLEAS AGAINST RIL AND RCOM

GLOBAL consultancy firm McKinsey & Company has filed two separate petitions against Reliance Industries (RIL) and Reliance Communications (RCOM) for non-payment of dues worth Rs 27 crore. The firm was hired by RIL in 2001 to offer consultancy for the telecom business, which subsequently went to Anil Ambani after the two brothers split in June 2005. According to the winding-up petition filed by McKinsey, RCOM has refused to pay the money because it was RIL that inked the contract and not RCOM.

Legal opinion is divided over global consultancy firm McKinsey's petition before the Bombay High Court for winding up Mukesh Ambani-led RIL and Anil Ambani-controlled RCOM.

While one group is of the opinion that it is unlikely to help the company recover its dues, the other school of thought is that it was the best way of getting back at RIL and RCOM as the companies will get adverse publicity, pending a petition for winding up. A top lawyer has said: "Filing a winding-up petition is a good strategic step because it puts pressure on the two companies to come forward for settlement." Under the company law, any aggrieved person or a party can file a winding-up petition for a claim above Rs 500.

Lawyers said filing for recovery of money, instead of winding up the two companies, would have been a long-drawn process. According to officials at the Bombay High Court, a breach of contract will lie in the court for 20 years because of the backlog of cases. "The winding-up plea, on the other hand, will have to be declared to shareholders and may be detrimental for the company's performance in the stock market," said another legal expert. However, there are those who feel the petitions will not go too far. "Winding up a company is an extreme remedy under the law and courts don't grant it as a matter of course. McKinsey should have instead filed a suit for recovery of money," a senior lawyer said. He contended that in a hypothetical scenario, even if the court orders winding-up of the companies, there would be so many secured creditors, liabilities, tax dues, employees dues and other claims to be paid that there might not be anything left for McKinsey. The two companies have raised billions of dollars of debt and these debtors will have the first claim in case of winding up. McKinsey, on March 23, 2007, served a notice to RCOM under Section 434 (winding up) of the Companies Act.