The BAT- ITC Tussle

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The Mysterious End

The charges of financial irregularities were confirmed later on by an audit committee. The committee said that ITC was involved in certain questionable deals, which had led to a drop in profits of Rs 2.61 billion for 1995-96. However, the committee cleared Chugh of all charges. A few days later in September 1996, Chugh summoned a press conference and to the surprise of everyone, announced his decision to step down from his post by December 1996.

Chugh said, "Unfortunately, certain serious differences of opinion developed between BAT and myself over organizational issues. Even though genuine efforts were made by both sides to resolve these differences, due to a variety of reasons this was not possible. I feel that it will be in the best interests of the growth of the company that I step down." This was a dramatic turnaround from Chugh's hitherto anti-BAT stand. To add to the mystery, media reports revealed that not only had BAT agreed to drop all charges against Chugh, it had given him a very handsome severance package as well as the 'Chairman Emeritus' status at ITC. The media considered the peace making moves as efforts by the two sides to avoid having to 'wash dirty linen in public.' In a November 1996 board meeting, the ITC board decided to suspend three Executive Directors in addition to the three already suspended. They were suspended after ITC was charged with several unethical practices during the 1990s.5 Following this, in December 1996, BAT again sent a letter to the FI shareholders in ITC proposing to remove Deveshwar and two other directors.

BAT claimed that the ITC board was not discharging its duties effectively and should be removed. It was reported that BAT did not want to license its brands to ITC because of the Chugh episode. However, BAT changed its stand, following measures taken by ITC to improve its corporate governance practices beginning 1997.

By June 1997, the two companies seemed to have resolved their differences, as BAT licensed ITC to manufacture and sell some of its prestigious global brands including 555 State Express and Benson & Hedges. Though analysts expressed concern over these brands cannibalizing ITC's own brands, Deveshwar claimed, "This is a win-win situation for both ITC and BAT."

Exhibits

Exhibit I: ITC: A Chronology of Events
Exhibit II: ITC Shareholding Pattern
Exhibit III: Income & Expenditure Statements
Exhibit IV: ITC - Segment Wise Sales
Exhibit V: ITC - The Board Structure
Exhibit VI: A Profile of BAT
Exhibit VII: Corporate Governance at ITC

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5] During the 1990s, ITC had been accused of various unethical practices including excise violation, FERA violation, insider trading, share price manipulation and mismanagement of funds. Chugh and a few other directors were even arrested temporarily in connection with these charges.