The case gives a detailed insight into the events during a decade long dispute between Modi Rubber and its lender/owners financial institutions. The case examines how the FI threat to sell their stake in the company, in the open market, led to a major debate regarding the role of FIs in the companies in which they had an equity stake. The case is so structured as to help the readers understand how and why the FIs decided to sell their MRL stake and the controversy this decision led to. They should be able to look at the controversy from the company's as well as the FIs' point of view.

On June 30, 2001, a statement issued by Panduranga Rao1, Chairman of Modi Rubber Ltd., (MRL) came as a big surprise to Indian corporate watchers. The statement revealed that the MRL board had, after a special meeting decided to strip Managing Director BK Modi of his functionary powers. Rao said, "We have been compelled to transfer all areas hitherto looked after by Dr. BK Modi to the second MD (VK Modi - BK Modi's brother) for he is not giving enough attention to the affairs of the company." The board also suspended three other directors, BK Gupta, RL Ahuja and Atul Prakashall reported to be close aides of BK Modi.

What was more intriguing was the fact that BK Modi was absent from the meeting though a notice had been duly served to him. Rao commented, "The notice was served and the agenda was circulated. He cannot make us wait." Further, the move was reported to have the backing of VK Modi as well. Though the two brothers were not known to be the best of friends, this move was rather unexpected.

MRL, established in 1971, was a part of the Modi Group of companies. While BK and VK Modi held 23.87% of MRL's equity, the FIs held 44.5% and the public held 31.63%2. A major part of the FI stake in MRL was with Life Insurance Corporation (LIC) and UTI. The other FIs involved were the Industrial Finance Corporation of India (IFCI) and the Industrial Credit and Investment Corporation of India (ICICI). The FIs had acquired their stake in MRL over the years, both through conversion of unpaid loans into equity and market purchases.

Modi Rubber, lender/owners financial institutions, open market, equity stake, controversy, Indian corporate watchers, functionary powers, Group of companies, conversion, equity, market purchases, trading in tyres, tubes, flaps, garments, articles,total production, total industry, division of property.