Activist fund TCI threatens action over Coal India functioning

London-based hedge fund The Children's Investment Fund (TCI) has initiated legal action against the union government over alleged breaches of two bilateral investment treaties in regard to its investment in Coal India Ltd.

TCI is the largest foreign investor in CIL, holding close to 2 per cent in the company through two vehicles domiciled in the UK and Cyprus. The Indian government holds 90 per cent in CIL, the world's largest coal producer.

In a notice sent to the finance ministry on Tuesday, TCI invokes two bilateral agreements - between India and the UK in 1994, and India and Cyprus in 2002.

''The Republic of India's recent conduct with respect to CIL has seriously impaired business activities and operations of CIL and has contravened each of the treaties,'' the fund said in the notice. If a settlement is not reached within six months, TCI said under the terms of the treaties, international arbitration would begin.

TCI's grievances include pricing of coal up to 70 per cent below international market prices, allocation of coal blocks to the private sector below market prices, those blocks remaining undeveloped, loss-making underground mines continuing to be operated and the government generally controlling and issuing directions to the company in a manner abusive to minority shareholders. TCI also cited interference by the ministry of environment and forests in delaying approvals to develop new coalmines.

The move comes after two weeks of public posturing by the $8-billion fund, which has made a name for itself by taking on companies around the world on governance and minority investor issues.