Hindu Law-Gift of ancestral property by the father in favour of his daughters through registered settlement deed-Father later claiming that the settlement deed got executed by misrepresentation and fraud-Plea by father that his signature was obtained as a witness to a sale deed and not for execution of settlement deed and that he has no capacity to gift to his daughters the Joint family property-Suit by daughters for permanent injunction for restraining the father from interfering with peaceful possession-Trial Court dismissed the suit-Confirmed by First Appellate Court and High Court Held, on facts and evidence, the gift was not vitiated by fraud and misrepresentation-Further, father has capacity to gift ancestral property to daughters to a reasonable extent.The respondent, by a registered settlement deed, settled the suit property to his appellant-daughters out of natural love and affection for them. After 5 years, the respondent asked the appellants to vacate the property and tried to trespass into the property.The respond-ent resisted the suit contending that the suit property was an ancestral property; that settlement deed was not executed in favour of the respondents; that the appellants misrepresented the respondent taking advantage of his addiction to liquor for signing the sale deed of the property purchased by the appellants as an attesting witness and instead got the settlement deed signed.The trial court dismissed the suit of the appellants holding that the settlement deed was got executed by misrepresentation and that the respondent had no power to make a gift of a part of his ancestral properties in favour of his daughters.This was confirmed by the first appellate court and the High Court. In appeal, the appellants contended that the finding of fact by the lower courts regarding execution of settlement deed is vitiated due to misreading of the statement of one of the attesting witnesses: that the respondent, being the karta of the Joint Hindu family had the authority to make a gift of ancestral immoveable property to a reasonable extent to his daughters.The respondent contended that he had no authority to gift the only ancestral property possessed by the family in favour of his daughters.Citation: 2004 AIR 1284,2003(6 )Suppl.SCR605 ,2004(1 )SCC295 ,2003(10 )SCALE600 ,2003(10 )JT289= Allowing the appeal, the Court HELD : 1.1. Finding recorded by the trial court clearly shows that the court misread and misconstrued the testimony of the attesting witness PW 2. In his deposition, PW 2 has clearly stated that he was invited by the respondent to be a witness.He has nowhere stated that the respondent was taken for affixing signatures as witness. If respond-ent was to be a witness, then there was no need to ask PW2 and other witness to accompany the respondent or for them to sign the document. PW 2 also deposed that the respondent affixed his signatures on the settlement deed (Ex Al) after reading the same, that he has signed Exhibit Al as a witness and that he knew the respondent.Suggestion put to him that signatures of the respondent on Exhibit Al were obtained by threat was denied. The trial court did not refer to this part of testimony of PW 2 at all. In the cross- examination, PW 2 has stated that the fact that the respondent had invited him for signing as a witness has been read to him as if PW 2 had stated that the respondent was taken for affixing signatures as a witness to some documents on the date when the deed of settlement Exhibit Al was executed. This is a clear misreading of the testimony of PW 2.The trial court also failed to note that the evidence of respondent lacked total credibility especially in the light of his conduct in denying his signature on the settlement deed, vakalatnama as well as on the summons served on him. Projection made by the respondent in his testimony that the appellants taking advantage of the fact that he was a drunkard got the settlement deed signed fraudulently cannot be accepted. Respondent took no steps to get the settlement deed cancelled though, the appellants had been living in the house for five years after the execution of the settlement deed. In his statement he does not say that he did not know about the execution of the settlement deed.Plea taken by him that he was taken to the Sub-Registrar’s office to be a witness to a sale deed by his son-in-law cannot be accepted as it has not been proved on record that the respondent’s son-in-law had in fact purchased any house site. Findings recorded by the trial court and upheld by the First appellate court and the High Court based on misreading of evidence are liable to be set aside.The findings recorded on misreading of evidence being perverse cannot be sustained by law. [612-E-H; 613-A-D] 2.1. A father can make a gift of ancestral immoveable property within reasonable limits, keeping in view, the total extent of the property held by the family in favour of his, daughter at the time of her marriage or even long after her marriage. [617-E-F] 2.2. Question as to whether a particular gift is within reasonable limits or not has to be judged according to the status of the family at the time of making a gift, the extent of the immoveable property owned by the family and the extent of property gifted. No hard and fast rule prescribing quantitative limits of such a gift can be laid down.The answer to such a question would vary from family to family. The question of reasonableness or otherwise of the gift made has to be assessed vis-a-vis the total value of the property held by the family. Simply because the gifted property is a house, it cannot be held that the gift made was not within the reasonable limits. It is basically a question of fact. If on facts, it is found that the gift was not within reasonable limits, such a gift would not be upheld. It was for the respondent to plead and prove that the gift made by the father was excessive and unreasonable keeping in view the total holding of the family. In the absence of any pleadings or proof on these points, it cannot be held that the gift made in this case was not within the reasonable limits of the property held by the family.The respondent has failed to plead and prove that the gift made was to unreasonable extent keeping in view, the total holding of the family. The first appellate court and the High Court thus erred in non-suiting the appellants on this account. [617-G-H; 618-A-E] 2.3. The respondent had the capacity to make a gift to a reasonable extent of ancestral immoveable property in favour of his daughters. The gift was not vitiated by fraud of misrepresentation.The appellants are held to be the absolute owners or the suit property and the respondent is injuncted from interfering with the peaceful possession and enjoyment of the suit property by the appellant perpetually.[618-F-G] Kamala Devi v. Bachulal Gupta, [1957] SCR 452; Guramma Bhratar Chanbasappa Deshmukh AND ANOTHER v. Malappa, [1964] 4 SCR 497 and Ammathayee Ammal AND ANOTHER v. Kumaresan AND Ors., [1967] 1 SCR 353, referred to. Anivillah Sundararamaya v. Cherla Seethamma AND Ors., (1911) 21 MLJ 695; Pugalila Vettorammal AND ANOTHER v. Vettor Goundan, (1912) MLJ 321; Devalaktuni Sithamahalakshmamma AND Ors. v. Pamulpati Kotayya AND Ors., AIR (1936) Madras 825; Karuppa Gounder AND Ors. v. Palaniammal AND Ors., (1963) 1 MLJ 86; The Commissioner of Gift Tax v. Tej Nath, (1972) PLR (74) 1 and Tara Sabuani v. Raghunath, AIR (1963) Orissa 59, referred to. CIVIL APPELLATE JURISDICTION : Civil Appeal No. 16757 of 1996.
Full text Of Judgement :
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CASE NO.: Appeal (civil) 16757 of 1996 PETITIONER: R. Kuppayee & Anr. RESPONDENT: Raja Gounder DATE OF JUDGMENT: 10/12/2003 BENCH: R.C. Lahoti & Ashok Bhan. JUDGMENT: J U D G M E N T BHAN, J. Aggrieved by the judgment and decree passed by the courts below in dismissing the suit filed by the plaintiff-appellants (hereinafter referred to as the “appellants”), the appellants have come up in this appeal. Shortly stated the facts are: The appellants are the daughters of the defendant-respondent (hereinafter referred to as the “respondent”). By a registered settlement deed, Exhibit A-1 dated 29th of August, 1985, the respondent hereinabove settled an extent of 12 cents of land comprised in S.No.113/2, Thathagapatti Village, Salem District in favour of the appellants. As per recitals in the settlement deed, the settlement was made by the respondent out of natural love and affection for the appellants and the possession of the property was handed over to them on the day the settlement deed was executed. The schedule of settlement deed shows that the total extent of the property owned by the family was 3.16 acres. The gift was made of 12 cents along with Mangalore tiled house standing on the gifted land. It was also stated in the settlement deed that in future neither the respondent nor any other male or female heirs would have a right over the settled property. After nearly 5 years, on 22nd April, 1990, respondent and his associates asked the appellants to vacate the property and tried to trespass into the property. Because of the attempt made by the respondent to trespass into the property, the appellants filed the Original Suit No.451 of 1990 in the Court of District Munsif, Salem seeking relief of restraining the respondent and his associates from interfering with the appellant’s peaceful possession and enjoyment of the suit property in any way by way of a permanent injunction, or, for grant of relief deemed fit in the circumstances of the case. Respondent resisted the suit and in the written statement filed by him, he took the stand that he had not executed any settlement deed. That his son-inlaw i.e., husband of appellant No.1 had purchased a house site and the respondent was taken to the Registrar’s office to witness the sale deed. That he was used to taking liquor and taking advantage of his addiction to liquor the appellants and their respective husbands fraudulently by misrepresentation instead got the sale deed executed from him. The property in dispute being Joint Hindu Family property consisting of himself and his son could not be gifted under any circumstances. In support of their respective pleas, the parties led their evidences. The appellant No.1 stepped into the witness box as PW-1. She admitted that the property was ancestral. That her father had settled the property on her and her sister of his own will out of nature love and affection http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7 for them. PW-2, the attesting witness to Exhibit A-1 stated that he knew the respondent. While he was standing on the road and talking to some persons, he was called by the respondent to witness the document. He went to SubRegistrar’s office along with the respondent. Respondent put his signatures on Exhibit A-1 after reading the same. That he (himself) and Govindawamy signed Exhibit A-1 as witnesses. Govindawamy has died. In the crossexamination he stated that he did not know the contents of the document, Exhibit A-1. He showed his ignorance as to when, where or in whose name the stamp papers were purchased. He denied having knowledge of the fact as to whether the respondent was in the habit of drinking liquor. Respondent in order to prove his case stepped in the witness box as DW-1. He stated that the property was a Joint Hindu Family property as the same had been purchased with the sale proceeds of the ancestral property. That his son-inlaw who was working in TVS had purchased some property and he was taken by his son-in-law to sign as a witness. He denied having executed the settlement deed in favour of the appellants. He denied that he knew PW-2. It was stated that the possession of the appellants was permissive as they were allowed to reside in the house to enable them to send their children to the school. He denied his signatures on the settlement deed, on the ’vakalatnama’ given by him to his counsel as well as on the summons sent to him by the court. It was denied that he knew English. It was also stated by him that his signatures were obtained fraudulently on the pretext of signing as a witness on the document by which his son-in-law had purchased a house site. That the total extent of the family holding was 3.16 acres of land. He admitted that his son was residing separately for the last 3 to 4 years but denied that he was retracting from the settlement deed on the advise of his son. That he was in the habit of drinking. No other evidence was led by any of the parties. The trial court believed the evidence of the respondent. It was held that the respondent was taken to the Sub-Registrar’s office to witness a document whereas a deed of settlement was got executed from him. Testimony of PW-2, the attesting witness was discarded. It was held that the deposition of PW-2 in fact supported the case put forth by the respondent to the effect that the respondent was taken to the Sub-Registrar’s office to sign as a witness. The trial court further held that since the property in dispute was ancestral in nature, the respondent had no power/authority to make a gift of a part of the ancestral property in favour of his daughters. The suit was dismissed. The order of the trial court was affirmed by the First Appellate Court as well as by the High Court, aggrieved against which the present appeal has been filed. It is submitted by the counsel for the appellant that the findings recorded by the courts below are wrong on facts as well as in law. Finding of fact regarding due execution of Exhibit A-1 is vitiated due to misreading of the statement of the attesting witness, PW-2. That the father being the Karta had the authority to make a gift of ancestral immovable property to a reasonable extent out of the Joint Hindu Family property in favour of his daughters. That such authority of the father is recognised in old Hindu Text Books as well as by the courts in recent times. Counsel appearing for the respondent has controverted the submissions made by the counsel for the appellants. It was argued that there was no misreading of evidence and that the finding recorded by the courts below on facts could not be interfered with by this Court at this stage of the proceedings. The respondent had no authority to make a gift of part of the ancestral immovable property and in any case he could not have gifted the only residential house possessed by the family. The two points which arise for consideration in this appeal are: (i) whether the judgment of the courts below are vitiated because of the misreading of the evidence of PW-2, the attesting witness to the settlement deed; (ii) whether the gift/settlement made by the father in favour of his married daughters of a reasonable extent of immovable property http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7 out of the Joint Hindu Family property is valid. The trial court believed the evidence of the respondent and dismissed the suit. For arriving at this conclusion the trial court held that if the respondent had the intention of executing a deed of settlement in respect of the suit property in favour of the appellants, then at least he would have taken his son Ramasamy for affixing his signatures as a witness to the deed. Since it was not done the document Exhibit A-1 could not be relied on. The statement of PW-2 was construed to mean as if he had stated that the respondent was taken for affixing his signatures as a witness on the date when the settlement deed, Exhibit A-1 was executed. We have carefully perused the statements made by PW-2 as well as DW-1 and in our view the trial court misread and misconstrued the testimony of PW-2. In the course of cross-examination PW-2 had stated as follows:- “Only the defendant invited me for signing as witness. On the way Govindasamy was also invited while he was found standing there050505.. While going towards the Sub-Registrar’s office, the Defendant saw and invited me to sign as witness.” The trial court in his judgment has misconstrued the above statement and recorded the following finding:- “PW-2 had given evidence that the Defendant was taken for affixing signature as witness on the date when the deed of settlement exhibit A1 was executed.” The trial court also held that:- “If only the Defendant had executed the deed of settlement in respect of the suit property in favour of his daughters i.e. the Plaintiffs, he would have atleast taken his son Ramasamy for affixing his signature as witness. This factor is also not in consonance with the true nature and bona fides of exhibit A1.” Finding recorded by the trial court clearly shows that the court misread and misconstrued the testimony of PW-2. PW-2 in his deposition has clearly stated that he was invited by the respondent to be a witness. He has no where stated that defendant (respondent herein) was taken for affixing signatures as a witness. If respondent was to be a witness then there was no need to ask PW-2 and Govindasamy to accompany the respondent or for them to sign the document. He also deposed that respondent affixed his signatures on Exhibit A1 after reading the same. That he (himself) has signed Exhibit A1 as a witness. That he knew the respondent. Suggestion put to him that signatures of the respondent on Exhibit A1 were obtained by threat was denied. The trial court did not refer to this part of testimony of PW-2 at all. The question put to him in the cross- examination which has been reproduced above wherein PW-2 has stated that the respondent had invited him for signing as a witness has been read to him as if PW-2 had stated that the respondent was taken for affixing signatures as a witness to some documents on the date when the deed of settlement Exhibit A-1 was executed. This is a clear misreading of the testimony of PW-2. The trial court also failed to note that the evidence of respondent as DW-1 lacked total credibility especially in the light of his conduct in denying his signature on the settlement deed, vakalatnama as well as on the summons served on him. Projection made by the respondent in his testimony that the appellants taking advantage of the fact that he was a drunkard got the settlement deed, Exhibit A-1 signed fraudulently cannot be accepted. Respondent took no steps to get the settlement deed cancelled though, the appellants had been living in the house for five years after the execution of the settlement deed. In his statement he does not say that he did not know about the execution of http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7 the settlement deed. Plea taken by him that he was taken to the SubRegistrar’s office to be a witness to a sale deed by his son-in-law cannot be accepted as it has not been proved on record that the respondent’s son-in-law had in fact purchased any house site. Findings recorded by the trial court and upheld by the First Appellate Court and the High Court based on misreading of evidence are liable to be set aside. The findings recorded on misreading of evidence being perverse cannot be sustained in law. Coming to the second point, the trial court held that since the property was ancestral in nature, the respondent had no authority/power to make a gift of a portion of the ancestral property in favour of his daughters. In appeal the First Appellate Court accepted that the father could give away a small portion of the ancestral property to his daughters out of the total holding of the family property but since in this case the total extent of property owned by the family had not been proved it could not be held that the property gifted by the father was of a reasonable portion of the total holding of the family. The High Court affirmed the finding recorded by the First Appellate Court. The High Court of Madras in a series of judgments has taken the view that father could make a gift within reasonable limits of ancestral immovable property to his daughter as a part of his moral obligation at the time of her marriage or even thereafter. In Anivillah Sundararamaya vs. Cherla Seethamma and others [1911 (21) MLJ 695], it was held that a small portion of the ancestral immovable property could be given to the daughter at the time of her marriage or thereafter and such a gift would be a valid gift. In this case 8 acres of ancestral immovable property out of 200 acres of land possessed by the family were given in gift by the father to his daughter after her marriage. Upholding the gift it was observed:- “P. Narayana Murthi for 1st respondent:- The present case is stronger than Kudutumma v. Narasimhacharyulu, as it is the father that has given the property and not the brothers. A gift made to the son-in-law belongs also to the daughter 26 vide Ghose’s Hindu Law, 2nd Edn., p.313, Footnote. There is a text of Vyasa to that effect. Se Ghose, p.389, for translation; vide p.360 also vice versa. A gift to the daughter would belong to the son-in-law. If it is proper to make gifts at the time of marriage it would be equally proper if made afterwards. Though the texts do not require gifts to be made to daughters at the time of marriage, if made they are not invalid. Churamon Sahu v. Gopi Sahu referred to, where Mookerji J. approves of Kudutamma v. Narasimhacharyulu; Bachoo v. Mankuvarhai. The same view was taken by the Madras High Court in Pugalia Vettorammal and another vs. Vettor Goundan, [1912 (22) MLJ 321]. In this case it was held that a father could make gift to a reasonable extent of the ancestral immovable property to his daughter. Gift made of 1/6th of the total holding of the ancestral property was held to be a valid. The same view has later been taken by the Madras High Court in Devalaktuni Sithamahalakshmamma and others vs. Pamulpati Kotayya and others [AIR 1936 (Madras) 825] and Karuppa Gounder and others vs. Palaniammal and others [1963 (1) MLJ 86]. A Full Bench of Punjab & Haryana High Court in The Commissioner of Gift Tax vs. Tej Nath [1972 PLR (74) 1] and the High Court of Orissa in Tara Sabuani vs. Raghunath [AIR 1963 Ori. 59] have also taken the same view. The powers of the father or the managing member of the joint Hindu family vis-‘-vis coparcenary property have been summarised in paragraphs 225, 226 and 258 of Mulla’s Hindu Law which reads:- “225. Although sons acquire by birth rights equal to those of a father in ancestral property both movable and immovable, the http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7 father has the power of making within reasonable limits gifts of ancestral movable property without the consent of his sons for the purpose of performing ’indispensable acts of duty, and for purposes prescribed by texts of law, as gifts through affection, support of the family, relief from distress and so forth’. 226. A Hindu father or other managing member has power to make a gift within reasonable limits of ancestral immovable property for ’pious purposes’. However, the alienation must be by an act inter vivos and not by will. A member of a joint family cannot dispose of by will a portion of the property even for charitable purposes and even if the portion bears a small proportion to the entire estate. However, now see section 30 of the Hindu Succession Act, 1956. 258. (1) According to Mitakshara law as applied in all the States, no coparcener can dispose of his undivided interest in coparcenary property by gift. Such transaction being void altogether, there is no estoppel or other kind of personal bar which precludes the donor from asserting his right to recover the transferred property. He may, however, make a gift of his interest with the consent of the other coparceners. (2) As to disposition by will after the coming into operation of the Hindu Succession Act, 1956, see section 30 of the Act.” Combined reading of these paragraphs shows that the position in Hindu law is that whereas the father has the power to gift ancestral movables within reasonable limits, he has no such power with regard to the ancestral immovable property or coparcenary property. He can, however make a gift within reasonable limits of ancestral immovable property for “pious purposes”. However, the alienation must be by an act inter vivos, and not by will. This Court has extended the rule in paragraph 226 and held that the father was competent to make a gift of immovable property to a daughter, if the gift is of reasonable extent having regard to the properties held by the family. This Court considered the question of extended meaning given in numerous decisions for “pious purposes” in Kamla Devi vs. Bachulal Gupta [ 1957 SCR 452]. In the said case a Hindu widow in fulfilment of an ante-nuptial promise made on the occasion of the settlement of the terms of marriage of her daughter, executed a registered deed of gift in respect of 4 houses allotted to her share in a partition decree, in favour of her daughter as her marriage dowry, after two years of her marriage. The partition decree had given her the right to the income from property but she had no right to part with the corpus of the property to the prejudice of the reversioners. Her step sons brought a suit for declaration that the deed of gift was void and inoperative and could not bind the reversioners. The trial court and the High Court dismissed the suit holding that the gift was not valid. This Court accepted the appeal and held that the gift made in favour of the daughter was valid in law and binding on the reversioners. This point was again examined in depth by this Court in Guramma Bhratar Chanbasappa Deshmukh and another vs. Malappa 1964 (4) SCR 497 and it was held:- “The legal position may be summarized thus: The Hindu law texts conferred a right upon a daughter or a sister, as the case may be, to have a share in the family property at the time of partition. That right was lost by efflux of time. But it became crystallized into a moral obligation. The father or his representative can make a valid gift, by way of reasonable provision for the maintenance of the daughter, regard being had to the financial and other relevant circumstances of the family. By custom or by convenience, such gifts are made at the time of marriage, but the right of the father or his representative to http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7 make such a gift is not confined to the marriage occasion. It is a moral obligation and it continues to subsist till it is discharged. Marriage is only a customary occasion for such a gift. But the obligation can be discharged at any time, either during the lifetime of the father or thereafter. It is not possible to lay down a hard and fast rule, prescribing the quantitative limits of such a gift as that would depend on the facts of each case and it can only be decided by Courts, regard being had to the overall picture of the extent of the family estate, the number of daughters to be provided for and other paramount charges and other similar circumstances. If the father is within his rights to make a gift of a reasonable extent of the family property for the maintenance of a daughter, it cannot be said that the said gift must be made only by one document or only at a single point of time. The validity or the reasonableness of a gift does not depend upon the plurality of documents but on the power of the father to make a gift and the reasonableness of the gift so made. If once the power is granted and the reasonableness of the gift is not disputed, the fact that two gift deeds were executed instead of one, cannot make the gift anytheless a valid one.” (Emphasis supplied) Extended meaning given to the words “pious purposes” enabling the father to make a gift of ancestral immovable property within reasonable limits to a daughter has not been extended to the gifts made in favour of other female members of the family. Rather it has been held that husband could not make any such gift of ancestral property to his wife out of affection on the principle of “pious purposes”. Reference may be made to Ammathayee Ammal & Another vs. Kumaresan & Others [1967 (1) SCR 353]. It was observed ’we see no reason to extend the scope of words “pious purposes” beyond what has already been done in the two decisions of this Court’ and rejected the contention that a husband could make any such gift of ancestral property to his wife out of affection on the principle of pious purposes. On the authority of the judgements referred to above it can safely be held that a father can make a gift of ancestral immovable property within reasonable limits, keeping in view, the total extent of the property held by the family in favour of his daughter at the time of her marriage or even long after her marriage. The only other point, which remains for consideration, is as to whether a gift made in favour of the appellants was within the reasonable limits, keeping in view, the total holding of the family. The total property held by the family was 3.16 acres. 12 cents would be approximately 1/26th share of the total holding. The share of each daughter would come to 1/52nd or 1/26th share of the total holding of the family which cannot be held to be either unreasonable or excessive under any circumstances. Question as to whether a particular gift is within reasonable limits or not has to be judged according to the status of the family at the time of making a gift, the extent of the immovable property owned by the family and the extent of property gifted. No hard and fast rule prescribing quantitative limits of such a gift can be laid down. The answer to such a question would vary from family to family. This apart, the question of reasonableness or otherwise of the gift made has to be assessed vis-‘-vis the total value of the property held by the family. Simply because the gifted property is a house, it cannot be held that the gift made was not within the reasonable limits. As stated earlier, it would depend upon a number of factors such as the status of the family, the total value of the property held by the family and the value of the gifted property and so on. It is basically a question of fact. However, on facts, if it is found that the gift was not within reasonable limits, such a gift would not http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7 be upheld. It was for the respondent to plead and prove that the gift made by the father was excessive or unreasonable, keeping in view, the total holding of the family. In the absence of any pleadings or proof on these points, it cannot be held that the gift made in this case was not within the reasonable limits of the property held by the family. The respondent has failed to plead and prove that the gift made was to unreasonable extent, keeping in view, the total holding of the family. The first appellate court and the High Court, thus, erred in non-suiting the appellants on this account. For the reasons stated above we accept the appeal, set aside the judgments and the decrees passed by the courts below. It is held that the respondent had the capacity to make a gift to a reasonable extent of ancestral immovable property in favour of his daughters. The gift was not vitiated by fraud or misrepresentation. The appellants are held to be the absolute owners of the suit property and the respondent is injuncted from interfering with the peaceful possession and enjoyment of the suit property by the appellant perpetually. Parties shall bear their own costs. |
Sunday, June 23, 2013
settlement deed got executed by misrepresentation and fraud-Plea by father that his signature .....
Monday, June 17, 2013
Aircel finds the going tough after its debt burden soars, makes desperate moves for survival
Aircel finds the going tough after its debt burden soars
ET : Deepali Gupta :chennai :17 June 2013
For all its recent parleys on radical options to get back on track - relief on debt repayments, sale of some assets, sale of everything - Aircel is back to square one, where everyone who has something to do with it does not want to do anything more with it than they absolutely have to.
The glimmer of hope arising from the multitude of talks took another beating on June 13, when India's top investigating agency announced it had moved forward in a corruption probe involving Aircel's Malaysian promoter Maxis and its owner T Ananda Krishnan. And India's seventh-largest telecom company, which was once gunning for top-three status, was pushed back into the vicious circle of cash and credibility it has been ensnared in for the past two-and-a-half years.
After a building spree that went awry and burdened it with 24,000-crore of debt, Aircel needs, according to a banker who is clued into the company's workings but did not want to be named, at least 6,000 crore to start firing again. This could be capital from promoters, new loans from banks or proceeds from an asset sale. But the corruption probe has damaged the company's credibility, and no one wants to commit more.
Meanwhile, desperation is written all over Aircel's operations and choices. Aircel declined to participate in this story, but a company official who did not want to be named says that, even with 61 million subscribers, its network is running 60% empty. Further, he adds, at its current rate of growth, it will take five years for the company to fill its network. The past few months, Aircel has been selling minutes on its network in Mumbai to rival Reliance Communications at one-third the going market rate. Employees are edgy, the management unsure and the promoters distant.
A person familiar with the company's financials says Aircel is losing around 1,680 crore annually at the operating level. On top of this, it has to pay interest on its debt and, come January, will also have to start repaying principal. And the root of all its troubles is a case linked to Maxis' entry into Aircel and an unbridled expansion.
Other People's Money
In 2005, Maxis, along with a 26% partner in the Reddy family that runs the Apollo Hospital group, bought Aircel from serial entrepreneur C Sivasankaran for $800 million (about 4,390 crore). A year later, it received licences for 14 more circles, besides the eight it had, giving it a pan-India presence.
Aircel received 2G spectrum, or radiowaves, in 2008-09, along with a few new players such as Unitech and Sistema. "There was an urgency for a full rollout to beat others," says a former official who was part of the Aircel management team, on the condition of anonymity.
The management drew up a $3.5 billion-expansion plan, of which $1.5 billion was to come in as promoter equity. "It went through without too many questions," recalls a second former official from Aircel's management team, who too spoke on the condition of anonymity. "The guys (at Maxis) were on top of what we were doing."
But the equity infusion kept getting deferred and much of the capital expenditure at the time was built on vendor credit, largely from Chinese suppliers ZTE and Huawei. At a meeting of the management team held in Gurgaon, the promoters said the additional equity would come after the 3G auction, scheduled in mid-2010. "We decided to live short term and thought we will finalise the financial structure with 3G and 4G bidding," says the first ex-management team official quoted above. "So, the company had put in $3-3.5 billion of investment without a single dollar of equity investment."
It started coming back to haunt Aircel. "The (telecom) industry is a long-term play," says Hemant Joshi, partner at DeloitteHaskins & Sells, a consulting and accountancy firm. "Only long-term funds should be used for long-term purposes because it takes huge time for it (telecom business) to mature. In the Companies Act, there is a provision asking auditors to check whether a company has used short-term funds for long-term purposes."
To generate funds for 3G bids, the management suggested hiving off its tower business. So, it sold its 17,500 towers to GTL Infrastructure for about 8,000 crore, and spent 9,900 crore to buy 3G and BWA airwaves. "3G was the smartest bid because it covered 95% of our revenues," says the first management team official quoted earlier. "It was the additional 4Gspend, prompted by promoters that was unwarranted. There was also no separate strategy for 4G. We took the 3G strategy and also used it for 4G, which shows."
Call Drops
According to this official, till this point, the promoters were "very sincere" about India and "committed" to Aircel. The call dropped when what is now called the 2G case, related to the 2008 licence awards, started unravelling. It claimed a former telecom minister, company promoters and executives, and bureaucrats.
As the scope of the investigation widened, Sivasankaran told the CBI that the then telecom minister Dayanadhi Maran delayed clearances to the company and compelled him to sell it to Maxis; further, as a quid pro quo, Maxis invested 550 crore in Sun TV, the direct-to-home (DTH) company belonging to the Maran family. The CBI, in October 2011, filed a case against T Ananda Krishnan, who controls Maxis, Ralph Marshall, a non-executive director at Maxis, and the Marans. All of them have denied any wrongdoing.
"That was the turning point," says the first management team official. "The promoters could not come to India. They kept sending people who did not know the Indian market. Decisions taken would be reversed soon after. They lost complete control."
This drift affected Aircel's 2G operations, and it started losing momentum. Elsewhere, 3G, on which it had spent a pile, was not taking off. "When you have made the capital expense and revenues are not coming, you bleed badly," says the former employee. "Decision-making became a monthly thing, from being a quarterly affair. Everyone came out of those meetings (with Maxis) frustrated."
Starved of cash, credibility and commitment,Aircel started cutting its losses. It shut operations in five unprofitable circles: Gujarat, Haryana, UP-West, MadhyaPradesh and Kerala. "It was short-sighted," says a former senior Aircel official, not wanting to be named. "Once you shut operations in parts, you start getting seen as a regional player. It creates disorder among ranks, staff and customers." By January 2013, its customer base had shrunk to 61 million, against 66 million a year earlier.
A fallout between Aircel and GTL over the tower deal added to the bleeding. Aircel had promised GTL it would expand to 60,000 towers, which did not happen. Aircel agreed to refund 1,600 crore to GTL by June 2012, and paid 200 crore and issued a bank guarantee of around 1,000 crore. It has struggled to pay the remainder. The latest is that GTL has claimed 2,000 crore from Aircel, which has, in turn, challenged GTL's service quality and is seeking damages.
An analyst who did not wish to be named sums up Aircel's woes in four points: it remained unprofitable in all new circles and never passed the mid-sized category; it splurged to acquire customers, who left before it could generate a profit on their connection; it stepped back when competitors were adding subscribers, opening up a gap; and poor execution.
"The promoters took good long-term decisions. Only it was with other people's money," says the first former Aircel management team official quoted earlier. BK Syngal, the former head of VSNL and now a consultant, terms this a "systemic problem". "How was the money lent? Who checked what the borrowed funds were used for? Now, they are refusing to put in money and the problem lies on the banks' head," says Syngal, senior principal, Dua Consulting, a telecom consultancy firm.
Aircel recently initiated informal talks with lenders to restructure its 24,000-crore debt. Banks - not wanting to set a precedent for the telecom sector, to which they have loaned 92,000 crore - have asked Aircel's promoters to put in more money. "Operational excellence cannot turn it around," says the first former Aircel management team official. "Only an equity infusion to retire high debt can."
Maxis raised $3.3 billion in its IPO in 2009, but it has been reluctant to channel this into India while the future of Aircel is inextricably woven with a legal case. Its 26% partner, Saudi Telecom, has dissented from further fund infusion into Aircel.
Many solutions have reportedly been discussed at the behest of various stakeholders: outright sale to Sistema, merger with Tata Teleservices and the sale of its BWA spectrum for $800-900 million. But ultimately, each comes down to credibility and an assurance that the company's legal woes won't trip such corporate actions. And, today, Aircel and its promoter are in no position to give that.
Thursday, June 13, 2013
Protesting police action, lawyers to skip courts on 11th
Keywords: Madras High Court, advocates protest, Egmore Bar Association, Tamil Nadu Advocates’ Association
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