BRITANNIA BETRAYAL - FORGOTTEN PROMISES ??
BRITANNIA BETRAYAL - FORGOTTEN PROMISES ??

betrayal.jpg
By ASHIT K. SARKAR
(E-Mail: [email protected])


Employment in a Multinational company has almost always been reputed to provide not only good terms generally, but MNC's are widely trusted for honouring their commitments, and for their fair ethical professional dealings with their management staff. After all, it is the managers, with their highly motivated teams, who make the organisation successful.

However, after 2003 all past pensioners (including past directors and top executives), and the Officers and Managers of the highly successful market leader Britannia Industries Ltd (BIL) shockingly discovered to their great dismay a total reversal of these assured high standards of past ethical values from their admired and beloved organization that they serve or served. Post-March 2003, those on the verge of retirement were casually informed that pensions would be delayed due to �some rule changes�. This was trustingly accepted. Alarm bells went off only next year when the due triennial pension adjustments for all past pensioners was also quietly stopped from April 2004 (this triennial pension enhancement for present and future pensioners was introduced as a part of service terms to celebrate Britannia�s Platinum Jubilee in 1992 by the BIL Board and intimated in writing to all. It was implemented in 1992, and continued in 1995, 1998 and 2001, establishing a regularly expected practice).

Despite several individual attempts to seek clarifications, no replies were given to any by Britannia Trustees or officials, nor pensions released

A Pensioners Welfare Association (PWA) was formed in late 2004 by suffering pensioners to take up these issues. Finally, a Trustee�s letter was received in Nov 2004. It then dawned as a great shock that Britannia was actually intending to arbitrarily slash pensions retrospectively (which goes against Supreme Court judgments) and not to honour the stated terms & past commitments, and those not agreeing to unspecified rule changes (adverse to the pension benefits) were likely to be denied their due pensions!

It came to light that this was at the explicit direction of Britannia�s �Tough Cookie� Chairman Mr Nusli Wadia, who wanted the Defined Benefit rules changed to Defined Contribution type of pension scheme that would substantially reduce the necessary contribution requirements by the Company since the pension benefits would be reduced. He replaced Fund Trustees in 2003 with Wadia group directors Mr Hirjee and Mr Kelkar, and brought Bombay Dying auditors CC Chokshi first as the consultant, and then as Fund auditor by hastily replacing earlier auditors of decades. After these changes, the Trustees illegally refunded over Rs 12 crores from the Pension Trust Fund to Britannia in 2003-2004 smoothly cleared by the newly appointed friendly consultant/auditor, totally against specific Fund & IT Rules, and also stopping the entitled pensions to those retiring after Mar 2003, and then the triennial pension adjustments.

The Trustees applied (on director�s instructions) to the statutory authority eighteen months later in Nov 2004 (even though prior approval is required) for various rule change proposals applicable retrospectively for entire service of the employees. Most changes went against the Deed�s objectives & Fund Rules, and are illegal as per several Supreme Court judgments. If proposed changes get implemented, in all instances the monthly pensions would be drastically reduced, some to as low as 11% of the entitled pension suddenly at the end of long and faithful service! Britannia is blatantly insisting upon following the proposed rules for pension payments despite the lack of Commissioner�s approval. Finally, after a formal Hearing on June 17-19, 2008 given to four Chennai pensioners (who had gone to Madras High Court who had directed the Commissioner to give them a fair hearing before considering the proposed rule changes) with PWA's support and involvement, the Commissioner totally rejected the rule change proposals. The entitled pensions of over 200 retired Officers and Managers have still not been released since 2003, besides nearly 270 Senior Citizen pensioners (who had retired earlier - many being in their eighties) not getting their due & committed triennial adjustments from 2004 (averaging only approx Rs 700 pm), & also the next instalments due from 2007, 2010 and 2013. However, the numbers are gradually reducing - with the death of many pensioners (over 40) in the interim period awaiting to enjoy their old-age expected benefits!

Britannia top brass had carefully chosen their weak and aged victims for their unjust & illegal decisions with impunity, knowingly that the justice system is not only expensive but also operates at a snail's pace. Thanks to Britannia's 2003 Directors lack of principles, years of established trust and credibility have taken a thorough merciless beating, along with their corporate ethical values, the legalities being only secondary. The current independent directors need to seriously review the policies and corporate values carefully, with their personal morality standards, and not just remain as quiet bystanders, as they have gutlessly been so far.

It is well worth noting that whilst the Britannia�s directors decided to illegally curtail the pension benefits from 2003 for all pensioners, their own (Directors) commissions increased drastically from aggregate Rs 5 million in 2002-03 to Rs 28 million in 2009-10 (and rising thereafter) besides bonus share options, and the Dividend payout from 110% to 800% in 2015! Pensioners are happy that they have prospered along with the Company's growth, but are sad that the very Managers and Officers who enabled this are not only left out in the cold, but their due and promised benefits are not paid or curtailed by the same directors!

PWA�s complaint to the Institute of Chartered Accountants of India held the new fund auditor being prima-facie guilty of misconduct. Their weak claim that the earlier additional contributions made went against IT Rule 87 limit, and was therefore refunded to Britannia, went against the mandatory Accounting Standard 15, and fundamental fact that Rule 87 limit is only for purposes of �claiming tax deduction� as per the IT Act. This has been confirmed by the Chief Commissioner of Income Tax, and validated by the show-cause notice to Britannia for withdrawal contrary to rules, and confirmed by the High Court Bench of Calcutta ordering depositing the amount in an FD with a Bank, which was done in Jan 2008. Finally, in July 2011 the ICAI Council concurred with their Disciplinary Committee�s findings holding the Chartered Accountant guilty of professional misconduct, and recommended to the High Court that the name of the respondent CA be removed from the Register of Members for one year. The High Court's decision and action are still pending.

The Commissioner of Income Tax in the meanwhile rejected the proposed Fund rule changes requested by the Trustees/BIL after a prolonged Hearing in June 2008, making old rules continue to remain valid. However, despite this, the Trustees continue to insist with impunity that pensions would only be based on contributions during the fund membership as proposed in the fund rule changes, and not as per the approved fund rules - which cover entire service and not the contributions (being defined benefit scheme)!

The Pensioners Welfare Association finally approached the City Civil Court at Bangalore in June 2008 regarding the illegality of the Company and Trustees actions, including a plea to replace Trustees with court-appointed neutral Trustees. After a number of Hearings, the Court gave interim orders, pending final decision:
(1) Forbidding the defendants to alter any Fund Rules (in June 2008), and
(2) To immediately pay interim pensions from dates of retirement to the then 70 PWA members whose pensions were withheld - from the accumulated contributions and interest admitted to be held by the Trustees to the Court, without diluting the pensioners right to the pension amounts claimed by them as per fund rules - pending the final decision on the pension computation method, and on all other issues raised by PWA by the court. (ordered on Jan 1st, 2009). subsequently, on court direction, the Interim pensions of another 44 members (who joined PWA later) has been released in June 2012.

On Apr 8, 2010, the court ruled that Pensions are to be paid within two months to eligible plaintiff members from the date of their entitlement or due date strictly as per Rule 11(a) of CSPF and OPF (as used to be computed in the past). However, due to appeals the Trustees/BIL have not complied with the order, as expected. They have preferred to spend over Rs Ten crores+ towards fighting the case, instead of paying due pensions, out of sheer ego of the Chairman, with other Directors keeping quiet, or looking the other way! It is amazing that during discussions a senior director stated to a pensioner that "Take what we are giving, as we will drag the case through courts till your death, and only the children may be able to enjoy the benefits much later." This has proved true to so many pensioners who have since expired. Later, Ms Vinita Bali, the then CEO & Mg Director openly stated to the author (who is the Vice President of PWA) that the decisions made by the Board of Directors made in 1992 were incorrect and as such they will not be honoured even if the then Managing Director had signed and committed the revision in terms in writing to the Officers and Managers!

Finally, after 12 years the City Civil Court, Bangalore gave its judgment on Sep 21st, 2015. It upheld the plea that the Trustees had committed a breach of trust and were unfit to act as Trustees, and ordered them to be replaced. Further, the plaintiffs were directed to pay the unpaid pensions and the Triennial enhancements to the beneficiaries and were restrained from making any amendments to either of the two pension funds which are less beneficial to the pensioners. CLICK to see the judgment summary, or alternately to read the Full Judgement of the City Civil Court, Bangalore dated 21 Sep 2015.

As expected, the Company and the Trustees opposed and challenged the unfavourable Court order at the Bangalore High Court, who sent the parties to the mediator to attempt to reach a mutually acceptable solution, which is a comparatively far less time-consuming process. The hearings went on until almost end August 2016 with a sincere effort of both the parties and finally with the involvement of the new CEO & MD of BIL, Mr Varun Berry with a very positive attitude, a compromise agreement was reached on Aug 29th, 2016 in the presence of the court-appointed mediator. The High Court has since passed a decree on Oct 18th, 2016 as per agreed terms of the Settlement, and after certain formalities are completed, the outstanding amounts as per the agreed terms are expected to be released by the Trustees/BIL, bringing an end to the unfortunate saga. The start of the payments finally began from Nov 2017 - as reported in this Business Standard article, even if minor differences still remain to be sorted out. The goodwill of BIL was re-established.

The broad summary of the major benefits agreed by BIL with PWA during mediation was:
(i) Defined Benefit scheme as in the past to continue unchanged till April 2008 for Officers & Managers who served until 58 years age, and only after this date Trustees/BIL may change the scheme to Defined Contribution subject to CIT's approval. Minor reduction for early retirees who did not complete the age of 58 years but were otherwise qualified for a pension.
(ii) The Triennial Increases will continue for those who retired prior to 1st Apr 2006 @ earlier 15% from Apr 2004 to those eligible, and thereafter @ 10% from 2007, 2010 & 2013 after which the scheme would cease.
(iii) For surviving pensioners who retired prior to 1st Apr 2004, 10 months pension as at Apr 2013 (after the increases) would be paid as a lump-sum.
(iv) 7% interest would be paid additionally for the delayed payments from the due dates

It still remains a sad episode that brought down the very respected integrity reputation amongst the later generation of managers and to their motivation that had been built up over the years earlier in this highly successful market leader almost a century old organisation.

BreakingRulesBrief


CLICK to read more regarding Defined Benefit & Defined Contribution type of Pension schemes, and a Case Study about this Britannia situation.