If Vijay Mallya and Kishore Chhabria can keep the peace.

By Dilip Maitra

During his flying twenty-four hour visit to Bangalore on November 5, 1997, Vijay Mallya, 42, the chairman of the Rs 2,484-crore UB Group, sat through as many as three crucial board meetings. Yet, that evening, he still seemed pretty relaxed while talking to his key managers even as he simultaneously made a spate of telephone calls to keep track of his global business (and spoke to BT too).

Surprising. Because Mallya should have been worried about the Rs 236-crore Herbertsons, which is facing a takeover threat from within. But he may have struck a deal with Kishore Rajaram Chhabria, 43, his "friend" and the executive vice-chairman of Herbertsons, who now controls 46.64 per cent of its equity versus Mallya's 26 per cent. "Kishore has assured me at least twenty times in the past that he has no ambition to take over Herbertsons," claims the young liquor baron.

This truce could prove to be fragile. As a senior manager in a rival liquor company puts it: "The relationship between Mallya and Chhabria changes quickly. No one ever knows what is brewing away from the arc-lights." While bt's repeated queries to Chhabria did not elicit a single response, he does seem to have a few aces up his sleeve.

For the moment, Mallya and Chhabria Jr have decided to go back to their pre-partnership days, when the former held a majority (52 per cent) stake in Herbertsons, and Chhabria owned the Rs 120-crore bda Distilleries (bda). The deal, which envisages Chhabria selling his stake in Herbertsons to Mallya in return for control of bda, could technically work as it will not be difficult to divorce bda from Herbertsons.

Moreover, this will help Mallya tighten his grip over Herbertsons. It may be recalled that in 1994, after Chhabria snatched bda away from his brother, Manohar Rajaram Chhabria, 51, he joined hands with the latter's arch-enemy, Mallya. In return for bda becoming a 100 per cent subsidiary of Herbertsons, Chhabria was offered a 26 per cent stake in Mallya's company.

But the trouble began when, over the next 30 months, Chhabria increased his stake in Herbertsons to 46.64 per cent by purchasing shares through his front companies. This came to light when an income-tax raid on Chhabria revealed that he was holding a large number of shares with blank transfer forms, raising the spectre of a raid on Herbertsons. Moreover, Chhabria threatened to block the appointment of the three directors who owed allegiance to Mallya at the company's Annual General Meeting (AGM) on October 27, 1997.

That's when the alarm bells rang out, and Mallya's friend, M. Sreenivasulu Reddy, the chairman of the Rs 412-crore Balaji Distilleries, filed a petition in the Mumbai High Court, which alleged that Chhabria's acquisition of the shares was illegal. This petition claimed that Chhabria had increased his minority stake without making a public offer--as required by the Securities & Exchange Board of India's (SEBI) Takeover Code. Later, the legal tussle fizzled out when Chhabria realised that Mallya and his associates together control over 40 per cent of Herbertsons' equity.

Still, the salvo fired by Sreenivasulu could force Chhabria to go on the offensive. Especially since he has always been apprehensive about losing control of bda. As Mallya himself admits: "Kishore felt that if he acquired more shares (in Herbertsons), he would not be ignored." Nevertheless, SEBI may take action against Chhabria, and force him to make a public offer.

If that happens, Mallya says he will immediately make a counter-offer. Either ways, the liquor baron may have to part with a king's ransom to undo the mistake he committed in 1994. Else, Mallya could be left high and dry--without Herbertsons.