Business history: How Vaman Shridhar Apte, aka Tatysaheb, founded the Phaltan Sugar Works in 1930s

In the early 1930s, Tatya became aware of the potential of the sugar business because he had very recently bought shares worth 20,000 rupees in a sugar factory in North India, belonging to a Marwari friend; and in the very first year, had made a profit of 35 per cent.

Soon after the sugar tariff was imposed in 1932, Tatya sent an exploratory team to Phaltan state, comprising his son Bhausaheb, son-in-law Baburao Dabke and nephew Balasaheb. They were to meet the Rajesaheb of Phaltan to get preliminary information and discuss the possibility of setting up a sugar factory there. Tatya’s wife, Kaku, also decided to accompany the young men. On arriving in Phaltan, they first met Dr Bhadkamkar, a close friend of the Rajesaheb of Phaltan and Tatya. Along with Dr Bhadkamkar was Rao Bahadur Godbole, the diwan (prime minister) of Phaltan who was known for his disciplined and honest administration of the state. The two briefed the Apte delegation about what kinds of concessions they could expect from Maloji Raje, the Rajesaheb of Phaltan, for setting up a sugar factory there. The following day was the meeting with the Rajesaheb himself, who urged them to come to a decision soon because he was also negotiating with another industrialist who wanted to set up a sugar factory in Phaltan. A point in favour of the Apte delegation, as Balasaheb recounted later in his memoir, was that “the Rajesaheb had a soft corner for the Apte family because Tatya had built up a good rapport with him in Bombay”. After meeting the Rajesaheb, they visited Hol village to see a plot of land and met a farmer called Chitale, who explained to them various ways of achieving the desired tonnage of cane for different varieties of cane. He also explained to them how crops differed depending on the type of plot and land. Basic groundwork done, the group returned to Bombay.

Tatya then began correspondence and negotiations with the Phaltan Durbar. Along with his old textile associates, Seth Mafatlal Gagalbhai and Seth Nahalchand Laloochand, he decided to raise capital of 10 lakh rupees to set up a sugar factory in Phaltan. Accordingly, they set up a private limited company called The Phaltan Sugar Works Ltd, with its head office in Phaltan. The three founders appointed themselves as permanent directors and decided that 12.5% of the net profit of the company would be distributed amongst themselves.

Tatya was appointed as the managing director of the company. Therefore, of this 12.5 per cent, he was to get one-eighth, while the balance seven-eighths would be shared among the three founders, Mafatlal, Nahalchand and Tatya, in the ratio of 4:3:3. The shareholding of the company was distributed amongst them at the same ratio. It was agreed that Mafatlal Gagalbhai would have a higher share in the investment because he had three sons, while Tatya and Nahalchand Laloochand had only one son each.

Why did these three gentlemen choose Phaltan as the location of their new venture? First, Tatya was well connected in Phaltan due to his acquaintance with the ruler Maloji Raje, who was very keen that a sugar factory should be set up in his state. Second, Tatya was a close friend of Dr Bhadkamkar, a wellrespected personality residing in Phaltan. Dr Bhadkamkar proved to be a valuable go-between in negotiations between the sugar factory founders and the ruler of Phaltan. He also had his own farm and was knowledgeable about local agriculture. And third, there was the prospect of getting income tax concessions from the Rajesaheb’s durbar, as the new sugar factory would contribute to development in the state.

In fact, Tatya had initially approached his old Marwari friends, the Khaitans, to set up the sugar factory jointly. At this point, the land around Phaltan was still undeveloped and barren, with no irrigation facilities or other infrastructure. In the summer months the River Nira was dry and had to be crossed by bullock cart. There was no railway connection and no bridge. The Khaitans were aghast at what they perceived to be a wilderness – Vaman Seth, where have you brought us, they asked, taken aback – and immediately opted out of the venture. But Tatya, convinced of the potential of the venture, had persisted with the idea and approached Mafatlal Gagalbhai and Nahalchand Laloochand. How did Tatya manage to rope in Mafatlal and Nahalchand, given that they had no background in sugar? The answer is that they had faith in Vaman Seth. Of course they saw the potential to make large profits in the sugar business, but one of their conditions of investment was that it would be Vaman Seth who would manage the running of the factory, while the two of them would only be on the board of the company.

In 1933, barely a year after the Hindustan Film Company was shut down, an agreement was signed between the Phaltan Durbar and The Phaltan Sugar Works Ltd. Under this agreement, Phaltan Sugar Works got permission to set up the factory near a place called Pimpalwadi. In addition, the durbar gave an assurance that it would either acquire or provide under lease, land up to a total of 3,000 acres for the use of the company. The durbar also agreed to provide land for experimental purposes and for building a trolley line. It agreed to waive income tax for a period of ten years, starting from the year that sugar production began. After ten years, the company would have to pay a tax of only one anna in a rupee (i.e., 6.25%, as there were 16 annas in a rupee). For 15 years, the company would be exempt from paying any tax on the import of raw materials or finished products, and after fifteen years the tax would be 5%, but only if an import tax was not already paid in British India. And finally, the durbar agreed to construct a three-and-a-half-mile road, of a width of 24 feet, up to the factory. For its part, the Phaltan Sugar Works agreed to set up a factory as soon as possible with the capacity to crush 450–500 tons of sugarcane per day. The Phaltan Sugar Works also got permission from the irrigation department to cultivate sugarcane on an area of 1,500 acres, along with an assurance for the supply of water.

With all agreements and assurances in place, the sugar company proceeded with alacrity. Of course, Tatya himself had no experience in the sugar industry, but he knew someone who did. Just as Killick Nixon & Co. were the managing agents of Kohinoor Mills, there was a British company called Brady & Co. who were managing agents for textile mills and also for the Belapur Sugar factory which they had founded in 1918. Tatya approached Sir Joseph Kay, who was the chairman of Brady & Co., for guidance. Sir Joseph recommended that Tatya order machinery from Duncan Stewart, a Scottish firm that also supplied sugar equipment to the Belapur Sugar factory. Tatya then sent his son-in-law, Baburao Dabke, to Mauritius to have a look at the functioning of the sugar industry there. Finally, with all the groundwork done, the Phaltan Sugar Works placed an order with Messrs. Duncan Stewart in Glasgow, for a sugar plant with a 450-ton crushing capacity. The cost was 6.5 lakh rupees, and it would be delivered to India within six months. The company then bought 1,000 acres of land at a cost of 5,000 rupees for the purpose of building the factory and a residential colony for the staff. The contract for constructing the factory was given to Messrs LB Phatak & Co., a well-known firm in Poona. They were also charged with constructing a workshop, a laboratory, stores, a go-down and the offices of the manager, chemist, engineer and the proprietors.

The closest railway station was almost 20 km away from the factory site, at a place called Lonand. This made transporting heavy machinery very difficult. Nevertheless, the machinery started arriving at the site of the factory in mid-1933, and the construction of the factory and workshop were completed in early 1934 – all within a year of placing the order for the machinery. Messrs Duncan Stewart sent a Scotsman, one McAskill, to erect the machinery. While he was in Phaltan, a chief engineer, Uplekar, as well as several local staff like engineers and fitters, were appointed under him and received valuable training.

Thus began the trial season of the sugar factory in February 1934 under McAskill’s supervision. Over 5,000 tons of cane were purchased from farmers, and 3,500 bags of sugar were produced. This performance was deemed satisfactory, and so Messrs Duncan Stewart were paid in full and McAskill was free to return to Scotland. In the same year, Tatya appointed his nephew Balasaheb as the general manager of the sugar factory. Balasaheb was the only son of Tatya’s older brother Dada, and had previously worked for Tatya in the textile business. Tatya had sent him to Calcutta three years earlier to look after textile trading there. Now Tatya needed a trusted manager at the Phaltan Sugar Works, and asked him to take on the job. Accordingly, Balasaheb started work as the General Manager on 1 September 1934, just a few months after the sugar factory had produced its first batch of sugar. This post was to remain Balasaheb’s for decades. He retired only in 1970 after thirty-six successful years at the factory. The factory had some of its most prosperous years under his direction, and his detailed chronicling of the Phaltan Sugar Works since the days of its inception has been essential to this narrative. Tatya also appointed Annasaheb Divekar as the deputy general manager of the factory – Annasaheb was the grandson of Tatya’s beloved elder brother Baba, who had passed away in 1903.

Excerpted with permission from Tatyasaheb: The Story of a Bombay Entrepreneur, Tejaswini Apte-Rahm, Westland.