Kamani Takeover

11 Pages   |   3,213 Words

Kamani Takeover
Case Analysis- Industrial Relations

Table of Contents

Introduction. 3
The Union. 3
Raised Problems. 3
New Efforts. 5
The Challenges Ahead. 6
Sick Industrial Companies (Special Provisions) Act 1985. 8
Case Analysis and Recommendations. 8
The Union’s Role. 9
The Union’s Strategy. 9
Solid Ground Work. 9
Influencing Bureaucracy. 9
Preparation of the Lawyers. 9
Seeking People’s Support. 10
Building Public Opinion. 10
Bibliography. 11

Introduction

Kamani Tubes Private Limited was established in 1959-60 at Kurla, Bombay, by the Kamani group of industries. The business aim was to produce non-ferrous metal tubes and rods. For a longer period, of time KTL was liable for approximately 60 percent of the total domestic production in the market and catered to different industries, which included, power generation, fertilizer, defense, oil refining, ship building, light, electrical, sugar and air conditioning. The company was achieving notable success till the year 1974. However, during 1975, the balance sheet started showing losses although a high turnover rate was being maintained (Srinivas, 1993).

The Union

The Kamani Employees Union was a recognized union of the Kamani group of industries. Around 800 workers were working under the union. The KEU was not associated to any political party. The Kamani Employee Union was followed by its president D Thankappan, who worked as a great leader for the union.
 

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Raised Problems

The recognized union of the company, known as the Kamani Employees Union, sensed the causes for the changing fortunes of KTL. They diagnosed that the losses are increasing and are due to the management’s siphoning off funds from the unit. The highlighted problems were. Cheating over under- invoicing of bills and over invoicing of materials, quality material as sub standard, selling off first quality materials and over claiming for burning loss of materials, etc. The union quickly drew attention of the government at the centre and the state to the situation at the company and demanded that they should arrest this process of mismanagement.
The mismanagement of the company coincided with the fresh appointment of the new Chairman, Shri R.R. Kamani, in 1972. He was not acceptable by the rest of the Kamani family and the dispute began. One of the major reason for the family feud was that the Kamanis started siphoning off funds into their own pockets. As a result, the group lost two of its companies; the Kamani Engineering Corporation and the Jaipur Metal and Electricals and some other partnership and private limited firms were either dissolved or closed (Srinivas, 1993).
Some highlighted problems descriptions are as follows:
In 1977, R.R. Kamani filed a winding up-petition against the company for non-payment of a loan Kamani Metallic Oxide. In 1978, the Bank of India, appointed a consultant to conduct a tech-viability study of the unit. The report concluded that the unit is feasible but a certain rate of professionalism required. The bank offered the facilities for which the entire assets of the company will be mortgaged.
During 1979, the salaries were not paid and the Union activists went on strike. During 1980, the government and financial institutions jointly offered the Kamanis should surrender their share holdings to the bank but Kamanis did not agree to the proposal.  The state government and the central government both were willing to take over the company, but the central government asked the Industrial Development Bank of India (IDBI) to present a study report of the economic viability of the unit.
Many banks offered the loan to the company. Canara bank was approached in 1982 and in September 1983, the Canara bank resumed its facilities, and Kamanis agreed to the Union’s demands and to the conditions offered by the Bank of India. The main problem was to hire a Chief Executive and a Financial Controller.
In October 1985, the Tata electric Company disconnected the power connection and the Bombay Municipal Corporation cut off the water supply. The production activities came to a grinding halt the employees were also not paid since nine months. Now the Kamani Employees Union was working through thick and thin for the survival of the company and the workers. During the hard times, there was another active Trade Union that made an offer of starting the company again with success but the KEU should quit. KEU accepted the deal as they were left with no option. The irony of the situation was that the new union could not fulfill its promises and the disillusioned workers rejoined their old union.
Since September 1985, workers have suffered during this struggle. Many workers committed suicide and the Union and particularly the Human Resource management were willing to change the situation through any means. About 10 percent workers went back to their villages in search of food. ‘We were not even able to get a job worth Rs. 10!’ cried a worker.
Looking at the situation one of the HR officials said, ‘We can feel the pain, and we are making every possible effort to solve the issues of the workers.’

New Efforts

The Kamani Employee union started thinking for different solutions and alternatives with the objective of securing jobs for the workers. So far all the efforts made to persuade the central government were failed. The KEU considered opting the idea of workers take over. They approached the Supreme Court for the matter and the recovery of the wages of the workers for the last fourteen months. Justice A. C. Gupta was appointed to investigate the matter. Another solution was proposed by KEU that to hand over the company on a third party conducting business. Another proposal made by KEU was to handover the company to KEU on some conditions but, both the proposals were rejected.
Justice A. C. Gupta asked the KEU to find the buyers and whoever will find the buyer will get a share in the company. The problem that rose was private sector companies do not come forward to take over sick units because they do not want to take on its liabilities. A provisional Act was being introduced in 1985 was the enactment of the Sick Industrial Companies; it has a provision of sale or lease of the company to the cooperative society formed by the workers.
After the scheme, the KEU became active and started to meet various bureaucrats and professionals in order to get assistance in forming the scheme under the above mentioned Act. The KEU discussed the scheme with the workers also highlighted four basic areas which were required to be examined:
  1. The Market
  2. The Assessment of the plant
  3. Professional and Technical expertise to manage the unit
  4. Mobilizing Funds
After the debate upon all the functions, the workers started on operationalising the scheme. On September 12, 1986 they officially announced the scheme at the press conference. Prior to the press, announcement they had tested the idea of a worker’s cooperative in August 1986 by asking the workers to become members of the cooperative by paying of Rs. 11 as membership fee. In fifteen days, 667 workers became members and they signed papers to take loans worth Rs, 2000 per head from their provident fund trust for the seed money.
In the initial two three months, there was a lot of apprehension regarding the viability of the scheme. Bankers were not coming for the scheme. Bankers were not coming forward to support the scheme. The plan was not clear among the workers. Many disputes were raised among the workers.
Legally the plan was cleared for such a takeover when the Parliament enacted an Act called the Sick Industrial Companies (Special provisions) Act, 1985.
On October 13, 1987, the Supreme Court issued an order to BIER to file a feasibility report with respect to the scheme proposed by the workers for the revival of KILL... As per the directions of the court the /board held a number of meetings with all the parties concerned (like KEU, financial institutions, State government, Banks, Central government and various other groups of the Kamani family).
The Board (BIFR) asked IDBI (an apex institution in the field of term lending), one of the operating agencies of BIFR, to examine the KEU’s scheme, particularly with regard to the technical health of the plant and the time required to start it, as well as other assumptions made in respect to costs, estimate of production, demands, working capital requirements, etc. The IDBI submitted the report and based on this report BIFR prepared the feasibility report and submitted it to the court.
The Board offered a hearing to all the parties on May 20, 1988, and, after examining all the reports and discussions of all the concerned parties, the result was a scheme of revival of KTL and gave its sanction on September 6, 1988.
Finally on September 19, 1988, the landmark judgment came into existence. It was a historical victory for the workers.

The Challenges Ahead

Kamani Tubes Limited was successfully owned by the workers under the Act of the Sick Industrial Companies Act 1985. All employees including the workers, officers, and staff were satisfied and excited for their future (Panchadi, 2000).
Yet the Kamani Tubes Limited today poses many challenges for the workers, for the union and for the new board of directors. Also, challenges for the State government, commercial banks and IDBI. As this event is truly unique and new, the workers are inexperienced, the union, the new board of directors and management of Management is also new and has to learn and establish the new culture for the company in order to make it more successful in the future.
The workers will be confronted with new roles and responsibilities. Now they are not merely workers or staff they are the new owners of the company. So it is a hard challenge for them to prove themselves and play their multiple roles effectively. One advantage is that it will entail education and retrain the workers and reorientation to the supervision and management processes and systems of the company.
Some prominent challenges that were meant for the management and the board of directors of the company include the recreation of the sense of confidence and hope in the company within also rebuilding the credibility in the outside market. Also, more importantly, the management has to reorient itself, the main processes and systems of management in order to respond to the new situations of the workers being the owners of the company. It is extremely beneficial to work in order to sustain and create a culture which will help in building the changed reality of ownership and management of Kamani Tubes Limited.
Perhaps the most powerful set of challenges which are posed to the Kamani Employees Union- union and the leadership. It is extremely beneficial for the Kamani Employees’ Union to learn efficiently that how to play a collaborative role under the changing context. Lewin (1947) has presented his theory of change that unfreezes the existing systems and culture, change your systems and develop and adopt new systems and freeze and implement the newly developed culture and system. Change is extremely difficult to adopt but give results effectively at the same time it is also extremely challenging. The KEU has to develop a sense of learning m relearning and growth of all the workers, officers and staff. New management styles should be adopted.
On the other hand, the Kamani Employees’ Union also has to contend with already emerging reactions from other trade unions and sympathizers of the working class. These reactions are predominantly of two kinds. The first type of reactions that has been observed are questions about the veracity and desirability of the union taking up such a role in proposing a scheme for the workers’ takeover of a sick company. In particular the Union’s acceptance of a wage freeze and legitimized work force as part of the scheme. The Kamani Employees’ Union leadership needs to respond to these reactions logically, futuristically and imaginatively.
The second kind of reactions comes from the unions and workers of other commercial enterprises which are sick and closed. The Kamani Employees’ Union must find ways to play this role to provide information also assistance in the formulation of such schemes and extend its support to such possibilities of further initiatives for the workers takeover in other parts of the country.
On the face of it, these challenges look discouraging. But so did the idea of the workers’ takeover in 1985. If history is a guide, then it is hoped that the workers, the management and the union of Kamani Tubes Limited will rise to these challenges and substantially change the future of the working class of the country.
Sick Industrial Companies (Special Provisions) Act 1985:
The Act was passed in January 1986 with the objective of reviving sick or potentially sick companies. The legislation was passed because of the disturbing increase in the occurrence of sickness of industrial companies (Madhav, 1995). The Legislation has also been enacted with the point of view to:
  • Afford maximum protection of employment;
  • Properly use the company funds;
  • Salvage the productive assets;
  • Replace the time-consuming and insufficient machinery by efficient machinery for prompt determination by a body of experts.
Under the Act, the Board for the industrial and financial reconstruction was set up in January 1987. Section 18 of the Act provides for the reduction of interest or rights of the share holders in the sick industrial organizations to the degree needed for rebuilding, revitalization or rehabilitation of the sick industrial company. Under the same section, there is the provision to transfer or issue shares of the sick industrial company at the face value or at the intrinsic value, which may be an inexpensive value or such other value as may be specific to any industrial company or any person, which includes the executives, employees of the sick industrial company.
The condition to transfer the shares to the employees, makes it clear that the intension of the legislation is to encourage employees to take-over the sick units. Under this provision, Kamani Tubes Limited was taken over by the worker’s cooperative.

Case Analysis and Recommendations

Industrial Relations is defined as the relationship between the employee and the organization or the employment relationships. Industrial relations have three aspects, problem solving, and science building and ethical (Salamon, 2000). 
The key factors which led to the successful takeover of the factory by the KTL workers, there are several factors that have been observed which awarded the victory to the company. The two fundamental and main factors are related to the role of the Union and its strategy. The enactment of the Sick Industrial Company (Special provision) Act was particularly timely. A board for industrial and financial reconstruction (BIFR) was set up under the above Act in January 1987. Since the BIFR has the power to decide on the future of a sick industry, this helped provide a focus to KEU efforts. Secondly, the Kamanis had lost the credibility in the eyes of the judiciary and financial institutions due to various litigations and issues within the Kamani family and KTL (Panchadi, 2000).
The workers have suffered a lot during the struggle, and as management was found guilty, not all the managers were involved in the struggle but some of the HR officials were helping the workers.

The Union’s Role

This is the most influential factor that has contributed success for the company and crucial role was played by the Kamani Employees’ Union. As a result, company was owned by the union and changed role and responsibilities were being adopted by the Kamani Employee Union.

The Union’s Strategy

The second most influential factor for the success of this case was the comprehensive strategy that evolved and implemented by the union in pursuing the objective. The strategy comprises of several components which are solid background work, influencing the official and in-depth preparation. All these elements were put into two other aspects. One the KEU and the second influencing the public opinion in favor of the press. All these efforts were extremely challenging but accomplished successfully.

Solid Ground Work

The workers of KTL made detailed preparations and ground work, especially for the preparation and the presentation of the scheme. This effort develops a sense of strong confidence in oneself. In the beginning a lot of problems were faced, the scheme was also rejected by IDBI but the workers did not leave the hope and they worked even harder to prove themselves.

Influencing Bureaucracy

It is usually believed that the most corrupt bureaucracy. But the KEU experience reveals that this is not necessarily true. They realized that the bureaucracy is willing to help without asking for any bribes. Another major source of strength was that the entire bureaucracy which was involved in the case were impressed by the scheme and the detailed submission made by the workers.

Preparation of the Lawyers

‘You have to provide the argume nts- the lawyers just voice for them.’ This is what KEU has learnt in his entire case.  One of the union leaders says that ‘Most of the lawyers do not have the time and patience to go through all the papers and documents. You need to brief them with not only the facts and arguments but also with those emotions which you experience. Just getting a good lawyer is not enough, you have to prepare him.’ This was publicized , no lawyer in Bombay was ready to take the case but after being publicized lawyers from Delhi came forward.

Seeking People’s Support

The Kamani Employees’ Union influenced the people for their support. They received tremendous support from every direction, KEU did not leave any stone unturned. The KEU was also measured to be one of the most democratic unions in Bombay. As an imdependent union. All the office bearers are from different backgrounds and everybody has point to disagree, the disagreements are publicly being disscussed and not ignored. This culture enables KEU to seek support and fight for the battle through courage.

Building Public Opinion

KEU has also smartly used the media and press during the entire struggle and mobilized public opinion on this issue.
The industrial relations are all about dealing with the employment issues and solving them for the benefit of both the employee and the company. KEU has performed a marvellous job to save the company as well as the workers. They have reviewed every possible solution in order to save the workers. Although they have performed very well some recommendations that I would like to recommend are as follows:
  • To maintain the confidence and courage the KEU possesses already.
  • To adopt new management styles and techniques
  • Develop a strong culture and strong bonding of relationships
  • Employee recruitment should be professionally executed.
  • Professionalism should be a high priority
  • Learning environment should be encouraged
  • Training of the union workers should be encouraged, and union workers should be motivated to adopt the newly developed roles and responsibilities.

Bibliography

Srinivas B. (1993) Worker takeover in industry: the Kamani Tubes  New Delhi: Sage Publications
Journal of the Indian Law Institute (1989) , Publisher The Institute,volume 31
Salamon M.(2000). Industrial Relations: Theory and Practice. Prentice Hall.
Panchadi V. (1999) Workers Participation in Management  New Delhi: Sage Publications
Madhav R. (1995) The Sick Industrial Companies Act available at Cited on 12 August, 2011

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