Inside Story Of A Massive Fight For 'Patents' Involving Asian Paints Promoter

Little did people know that before he died last year, the late Ashwin Dani, one of the promoters of India's largest paints maker Asian Paints, was in a scuffle with the family of the company's oldest employee, who had retired from the company decades ago to start his own venture. The fight was to gain control of some of the most crucial 'patents' for the 'next-gen' paints technologies that are useful in the manufacturing of industrial paints.

Among these patents is Single Pack Epoxy Resins (SPER), an advanced green technology developed from agricultural waste. It is designed to be applied on metal structures to protect them from corrosion and adverse climatic conditions in industrial and marine environments. Mumbai-based Nadkarni family, whose third generation is now in the paints manufacturing business, has alleged that Dani and the entities close to him wanted to take over their 'patent' in a devious manner. Legal records show that the fight over the 'patent' continues to date.

From the early 1950s up to 1960, Jayaram Mangesh Nadkarni (JMN, now aged 98 years) worked as the first chief technology officer of Asian Oil and Paint Company, which was rechristened as Asian Paints sometime in 1965. After leaving Asian Paints, the senior Nadkarni founded Paladin Paints and Chemicals sometime in 1985. Since 2006, Paladin Paints commercialised and marketed several green sustainable paint technologies that were developed by Nadkarni over the years after he left Asian Paints. Many in India refer to JMN as the father of India's paint manufacturing industry due to his sheer research and the patents developed by him.  

The Nadkarni family has alleged in legal forums that Dani, who came in as a minority shareholder in Paladin Paints in 2006 through related entities, tricked them into becoming a majority shareholder in their family-owned company, gained management control in it and started to claim ownership of the various patents that were 'only' being marketed by the company but were actually developed by JMN in his personal capacity.

Complaints have been filed by JMN and his son Prasad Nadkarni with market regulator SEBI regarding the omission of disclosures and errors by Dani and his related entities to the shareholders of Asian Paints. The Nadkarni family has claimed that Dani had arranged for a technology transfer agreement between JMN and Asian Paints under the guise of a merger of the two companies but was actually a trick to gain a foothold in Paladin Paints via stake purchases.

The copy of JMN and his son's complaint to SEBI is in BW's possession. BW has been trying to reach the Nadkarni family for their comments for a long time but they only talked when we gathered the documents relating to the legal proceedings on the 'patent' cases. In the SEBI complaint, the Nadkarni's have claimed that Dani entered Paladin Paints in 2005 by using his close entities as a front and initially established only minority shareholding in the company. But later in 2014, he became its majority owner through financial engineering, leaving less than a 10 per cent stake in Paladin Paints with its original founders and promoters i.e. the Nadkarni family.

The Patent Case

The Nadkarni family claims that after Dani and entities close to him gained control of Paladin Paints, the company started opposing various patents filed by JMN on the grounds of wrongful obtainment. The judgement into one of these patent cases announced by the Controller of Patents in December 2023 went in favour of the Nadkarni family. The judgement holds Nadkarni as the rightful owner of the technology and patent developed by him and Paladin Paints as a licensee. So far, two patent cases have gone in favour of the Nadkarni family out of four. The rest are still pending in the legal forum.

"It is clearly evident that Nadkarni Jayram Mangesh, Nadkarni Prasad Jayram and Radhika Prasad Nadkarni were the only directors on the board of Paladin Paints when the ‘Technology License agreement’ was signed on 14 January 2019 and the present patent application was filed dated 1 March 2019. Further, it has to be noted that all the present board of Directors of Paladin Paints (entities close to Dani) were appointed after June 26, 2019. Should be self-sufficient to apprise the fact that Nadkarni Jayram Mangesh was the sole owner of resin and paint technology as described in these exhibits (in front of the controller) and he was a Licensor and Consultant to Paladin Paints and Asian Paints, wherein Paladin Paints were mere vendors for developing and manufacturing various paint technology under the guidance and leadership of Nadkarni Jayram Mangesh and Paladin Paints were never the owner of the technology of the present invention,"  said the order by Santosh Kumar Samantaray, Deputy Controller of Patents and Designs, Patent Office, Kolkata, who heard the arguments from both the sides.

The order simply says that Nadkarni was the true owner of the patent and invention related to epoxy technology and there were no grounds to oppose the same under various clauses of Section 25 of the Patents Act. Patent officer Samantaray granted 18 claims to the Nadkarni over their patents and inventions.

What Makes Nadkarni's Patent Crucial?

According to Shikhin, JMN's grandson, these patents and inventions are geared to be the technology of the future - especially SPER is a game changer that will do the same to the paints industry as the iPhone did to the smartphone market.

"Before Steve Jobs unveiled the first iPhone sometime in 2007, qwerty keypad and un-intuitive user interfaces such as Blackberries and Nokias were considered as “smartphones." But like the iPhone changed the rules of the game, SPER is poised to do the same in the paints and coating industry," Shikhin said. Currently, Shikhin is pursuing a PhD in Coatings and Polymeric Materials Department at North Dakota State University. His research focuses on Non-Isocyanate Polyurethanes as well as novel Epoxy systems.

"My grandfather (JMN) never applied for patents and always preferred keeping his research/technology as trade secrets as patent laws in India were never strict. If he had filed patents in his life, he would have had more than 200 to his name (no exaggeration). When Mr. Dani came into the picture in 2005/06, JMN sold some of his technology to Asian Paints and the rest was commercialised through Paladin Paints. Over the years, between 2005-2021, JMN also developed resin technologies (an important component of paint) for Paladin Paints and was never paid any royalties since Paladin was always thought of as our own company and he did not want to further burden it until it made substantial profits," says Shikhin.

As per the Nadkarni family, JMN applied for a patent in 2018 for the first time in his life. "Since it was evident that Dani was trying to hijack our company as it was on track to become profitable. Hence, when Mr. Dani converted his preference shares by conducting an EGM (technically illegal as we understand now), my Dad (JMN's son Prasad Nadkarni) finally paid part of my grandfather’s pending royalties, which were Paladin’s liabilities to him (JMN). The funds in question were the "part royalties" paid to JMN. This gesture didn’t sit well with Mr. Dani, and the new management appointed at Paladin Paints then filed a civil suit against my dad and opposed all patents filed in my grandfather’s name," Shikhin told BW when he was in India recently and sat down for an interview.  

The civil suit where Paladin has accused Prasad Nadkarni of mismanaging/syphoning funds is still going on in the court and it is this reason that the Nadkarni's say they have been avoiding the media. But they agreed to participate since BW approached them with several questions and said it was going ahead with the story and it cannot be blamed for not carrying their version.

Shikhin further said, "The four patents filed in JMN’s name were also opposed by Paladin on the grounds of wrongful obtainment as well as on lack of novelty, which is ironically laughable. These filed patents are some of the most innovative technologies developed by JMN and are still commercialised by Paladin. This is why it’s vital for them (Dani and entities close to him) to have control over them via Paladin."

In their opposition statement to the Office of Patents Controller, Paladin Paints (currently controlled by entities close to Dani's) has argued that these technologies belong to Paladin since Paladin’s resources were utilised for developing them. But among other things, the Nadkarni family says they presented the Technology Licensing Agreement between JMN and Paladin where it clearly states that JMN’s technology would be licensed by Paladin, making Paladin a processor/manufacturer/licensee and thereby not the owner of the technology.

"The verdict on two of the four patent cases is out where the patent controller has stated that JMN is in fact the rightful owner of the technology in contention. This was a milestone victory for us as it set the right precedent for the other cases in court," Shikhin said.

Nadkarni's Win In The  First Patent Case

Perusal of the order by Samantaray, the Deputy Controller of Patents and Designs shows that he was convinced that there is no wrongful obtainment of patents by the Nadkarni family, which was based on two grounds: The Tri-Party agreement between JMN, Asian Paints and Paladin. The Patent Officer order shows that JMN was indeed an innovator, and his technology was superior enough for a public limited company such as Asian Paints to purchase. Second, the technology licence agreement signed in 2019 was valid as it was executed when the only directors on board were the Nadkarni family members, the Patent officer observed in his final order.

"The Tri-Party agreement between JMN, Asian Paints and Paladin Paints proves that money was transferred from Asian Paints to my grandfather (an individual) in the presence of Paladin. This is sufficient evidence to prove that Paladin was not kept in the dark and was aware of the rightful owner of the technology. Although, in Paladin’s new management’s opposition statement (to the controller of patents), they tried to discredit the licensing agreement," states Shikhin.  

DP Barde, the ex-head of the Research and Development Department at Paladin from 2006 to 2021, who co-working with JMN on several projects and played a role in several of his inventions says, Dani was never involved in any of the technical developments at Paladin. "It was the collective effort of JMN and I that led to the development of various technologies at Paladin," Barde said.

Further, according to Barde, JMN's technological prowess is well-known in the industry. "He never filed any patents before as he believed that one would be exposing their technologies to the public and always opted to keep them as a secret. Dani reunited me with JMN in 2006, when he got me to join Paladin's R&D department. I have been a direct witness to the genius of JMN and his contributions to Paladin and the Indian Paint Industry," Barde states.

Nadkarni's Second Win In The Patents Case Came In June 2024

After the Dani family took control of Paladin Paints, the company filed another application in September 2021 against the grant of a patent with regard to the invention of Distilled Cashewnut Shell Liquid Modified Epoxy, a pioneering technology involving CNSL (Cashew Nut Shell Liquid), by JMN. This application of Paladin Paints was rejected by Satish Kumar M, Assistant Controller of Patents and Designs, Chennai.

"Despite the opponent (Paladin Paints) raising concerns regarding authorization, agreement validity, ownership, and document authenticity, the applicant (JMN) provided comprehensive rebuttals supported by evidence. After evaluating the evidence, it was determined that it does not establish grounds for opposition under Section 25(1)(a) of the Indian Patents Act. The applicant provides evidence of agreements, such as a Technology Licence Agreement and a Tri-Party Agreement, which establish Nadkarni Jayram Mangesh is the owner of the technology, while Paladin Paints acts as a licensee or consultant," patent officer Kumar said.

The officer granted patents for 12 claims filed on 16 December 2022 by the Nadkarni family in the name of JMN, under section 15 read with U/S 25(1) of the Patents Act.

How Dani gained control of Paladin Paints?

According to JMN’s resignation letter to Paladin’s Board in 2022, he states: “I was given the impression that Asian Paints was investing in Paladin with a share swap, and this was logical as Ashwin was, at that time, the Managing Director of Asian Paints. It was later when I met Ashwin's son, Jalaj, who told me that he was insisting his father to buy Paladin shares through Asian Paints, but for his own reasons, Ashwin decided to invest via his friend, Late Ravindra Shah and his family (none of whom I have met even to this very day). This was done in a very discrete manner with oblique motives, wherein approx. 3 crore was infused into the company as debt at an interest rate towering up to 17 per cent."

Further, JMN's letter says: "This flawed structure resulted in the company averagely losing about Rs 1.27 crores/year (FY 2005-06 to FY 2014- 15), which was a significantly more loss than when we were on our own without Ashwin.”

“Later, when Ashwin, with the help of one, Satish Samant, witnessed that the Company's EBITDA had improved in FY 2015- 16, he decided to give exit to Late Ravindra Shah and Family and repaid their loan along with its accrued interest - by infusing money as a new series of preference shares issued at a premium to M/s Ria Enterprises (A company controlled by Ashwin). This deceptive move, under the guise of resolving the debt issue (which was created by Ashwin himself), resulted in Ria Enterprises holding a large portion of ownership of Paladin. Further still, the company was also burdened with paying distributor commissions to Hitech Specialities (Ashwin's family company majority owned by Malav Dani), which was another way for him to take money out from Paladin into his personal coffers. Back in 2005, had Ashwin invested those Rs 3 crores in equity rather than debt, the company would have shown profits much earlier, instead of bleeding cash for years only to enrich him and his friends.”

Also, according to the letter, “Eventually, when the company (Paladin) actually started showing operating profits (FY 2015-16 to FY 2017-18) due to the debt repayment, Ashwin decided to forcefully takeover the very company that I had founded. This immoral act was strategically planned over successive years and fully executed in February 2021. By converting all his preference shares into equity, Ashwin left me and my family with less than 7 per cent equity in Paladin. Evidently, our trust and faith in Ashwin's integrity was taken advantage of, only to benefit him in his personal capacity.”

Email queries sent to Ashwin Dani's sons Jajaj Dani, Hashit Dani and Malav Dani remained unanswered. However, those who know the family said, Jalaj had moved out of Asian Paints long back and most of his fathers affairs including Paladin Paints were being looked after by Malav Dani.

Proxy Advisory Report

In November 2021, shareholder advisor firm Ingovern had sought the removal of Asian Paints promoters Ashwin Dani and his son Malav Dani from the board of the company due to cloud over related party transactions (RPTs). In a report titled 'Saving the Company from Promoter Shareholders' that deeply analysed RPTs of APL, Ingovern has highlighted likely conflict of interest involving entities controlled by the Dani's, which also supply raw material to APL. On 23 October, Business Line had reported a whistleblower letter to market regulator SEBI that alleged how the Dani's had enriched themselves at the cost of Asian Paints shareholders.

"Up to the time when Paladin Paints remained in losses, Dani remained a minority shareholder in the company in his personal capacity. But in 2019 as the company started showing positive EBITDA, Dani and entities close to him started pushing for control of Paladin," the Nadkarni family says.

"Wary of his intentions, my grandfather applied for patents for his technology and also signed a technology agreement with Paladin Paints, which stated that the company would start paying him a 3 per cent royalty from the time of its initial commercialization but only after the company showed 50 lakhs profits in a financial year. Due to Covid and health issues of the Controller of Patent, the SPER patent was not granted until 2021," said Shikhin.

It was this royalty payment to the senior Nadkarni by his son Prasad Nadkarni, when he was the director of Paladin Paints, which has been flagged in the courts by the company as syphoning. When Ashwin Dani was alive, Paladin Paints had alleged that Prasad Nadkarni syphoned off funds from the company, a claim which was based on payments (between Rs 3 crore to Rs 5 crores) made by Paladin Paints to JMN. The Nadkarni family has said that the payments were long pending for JMN's work he had done for the company since he had avoided taking any major remuneration from Paladin Paints for several years as the company was not profitable.

Covert To Overt: Nadkarni's Complaint To SEBI Shows How Dani Gained Control Of Paladin Paints

Nadkarni family has told SEBI that the Dani family, through its front, M/s Ria Enterprises came to be in control of Paladin Paints, in a hostile takeover move. Whereas, the Nadkarnis, the founders of the company were booted out, with their shareholding in Paladin Paints skewing to a mere 6.9 per cent. Now, the Dani family owns 93. 08 percent in Paladin Paints.

The complaint letter details how the game was played:

In 2010-11, Paladin Paints issued preference shares to one Mr. Sandeep Ramesh Shah, and his family. The Shah family is only a front of the Dani family. The same is evident from the fact that the Shah’s are directors on the board of various entities promoted by the Dani family, Dani Finance and Investments Company Private Limited and Dani Enterprises Private Limited, to name a few.

It is understood that sometime in 2010-11, the Shah family was also allotted equity shares of Paladin Paints to the tune of 49 per cent of its total equity shareholding. Thereafter, in 2014-15, preference shares were also allotted in favour of M/s Ria Enterprises, a partnership firm through its partner, Rituh Holding and Trading Company Private Limited. Goes without saying, the said entities were also fronts of the Dani family.

In 2016-17, the Shah family transferred all its equity shares (to the tune of 49 per cent of Paladin Paints) along with preference shares to M/s Ria Enterprises (very directly a Dani family front). Following an extraordinary general meeting of shareholders of Paladin Paints, the preference shares held by the Dani family fronts were converted illegally into equity shares, which gave the Dani family control of Paladin Paints through its front M/s Ria Enterprises.

"Needless to state, what was covert till 2019 became overt in 2019. In that, the scale of Asian Paint Limited’s transactions with Paladin Paints has only been increasing. Evidently seeing a 3x rise in volume of transactions between the entities, mainly involving an outflow of monies from Asian Paints Limited to Paladin Paints. A detailed investigation into the nature of dealings between Paladin Paints and Asian Paints needs to be undertaken, it seems that the promoters are illegitimately filling their pockets from what is Asian Paint’s shareholders monies," the complaint to SEBI said.

The Nadkarni Family has also told SEBI that the name of Ravindra Shah and his family members can be found in the large individual shareholder list of Asian Paints and they were front for Ashwin Dani and Malav Dani and also associated with their other companies. Ravindra Shah's son Sandeep Shah, his wife Abhilasha Shah and mother Srilaxmi Shah were all linked to Paladin Paints. Mehernosh Adi Mehta, a close associate of  Malav Dani who is on the board of his 100 per cent personally owned company Hitech was also put on the board of Paladin Paints. "This is how Mr. Ashwin Dani and Mr. Malav Dani exerted their control over Paladin Paints," the Nadkarni family has said.

Further, the Nadkarni family has detailed that as per the annual reports of Asian Paints for the financial year 2021-22, the value of transactions with entities controlled/significantly influenced by directors/ close family members of directors rose by an overwhelming 374 per cent (from Rs 142 crore in the financial year 2020-21 to Rs 532.26 crore in the financial year 2021-22).

Hitech Corporation - How A Dani Family Company Benefited From Asian Paints

The letter also detailed that transactions by Asian Paints involving the ‘purchase of goods’ from an entity named Hitech Corporation Limited amounted to Rs 514.35 crore in the financial year 2021-22, which per public filings of Hitech Corporation Limited amounted to 88 per cent of its revenues from all operations. The Dani Family holds a 74.5 per cent stake in Hitech Corporation, the Nadkarni letter to SEBI states.

Starting from the annual report for the financial year 2004-05, the Company has been classifying Hitech Corporation as a related party. However, shareholders of the Company have so far been kept in the dark about the contours of these transactions. "The Audit Committee/Board of Directors have only acted as stooges at the hands of the Dani family and have been approving these transactions involving outflow of thousands of crores from the Company to an entity controlled and managed by the promoters without letting the shareholders have even a whisper of a clue about the same. By failing to bring to the notice of the public investors of the company such related party transactions, the directors of the Company have failed in their fiduciary as well as their statutory duties under the company as well as under SEBI regulations," Nadkari told SEBI in the letter written in November 2022.

"To our dismay, things do not stop with money flowing into Hitech Corporation. Value of transactions with another 100 per cent holding of the Dani family, Hitech Specialities Solutions Limited increased by 1215 per cent in the financial year 2021-22, the rationale for the outflow of monies from Asian Paints Limited has again not been explained by the company. The aforesaid seems to be just the tip of the iceberg. A bare perusal of the financial position of the related entities would suggest that most of them derive a majority of their income from the Company," the letter to SEBI states.

"My age is 96 years and I’m assisted by my son Prasad Nadkarni in founding and running Paladin Paints. In this, me and my son Prasad are joint complainants and in case I’m unavailable due to any health issues at any time, my son Prasad, who has been part of Paladin Paints and any dealings with the Dani’s, will remain available should you require any further information, assistance or clarification in respect of the above. I will also be sending a copy of this letter to the Finance Ministry and ROC Mumbai," Nadkarni's letter to SEBI states.

In the past, Asian Paints has denied all the allegations of any violations of related party norms by the company and said that they have made adequate disclosures including with regard to those transactions involving promoter group companies. Asian Paints has also said that in percentage terms their transactions with promoter companies were minuscule and well within the legal limits. There has been no statement from SEBI on the matter.