In anticipation of the legal fracas ahead, the entire top brass of both Kotak and Asian Paints were closeted in meetings on Thursday with their lawyers charting the legal strategy.

Kotak officials say their final losses in the Asian Paints deal would depend on what price they are able to sell the rest of Asian Paints shares. If a legal battle does take place over Kotak's 4.6 per cent holding, the company would find it difficult to find a buyer on their terms.

Kotak had sent in 4.6 per cent of the Asian Paints equity for transfer in its own name in July after a takeover bid made by British paint and chemical major, ICI Plc, failed. ICI had bought the 9.1 per cent stake from former promoter Atul Choksey, with Kotak brokering the deal. As the sharetransfer was refused by Asian Paints board, ICI had given possession of the shares to Kotak Mahindra. The 4.6 per cent shares remained with Kotak Mahindra after it sold out 4.5 per cent equity to Unit Trust of India.

In its communication to Kotak Mahindra, Asian Paints Vice Chairman, Ashwin Dani said the entire consideration for the purchase of the shares was brought in by KMCC as advance from ICI Plc for investment in Asian Paints shares under an RBI permission.

"As a condition for permitting KMCC to bring in the advance it was stipulated that in the event of the transaction not materialising the advance would be refunded to ICI Plc. The entire consideration for the purchase of the said shares having come from ICI Plc, the transaction is to be considered as a benami or sham transaction prohibited by law," Dani said.

Asian Paints alleged that the shares sent in for transfer are part of the ICI acquisition made in breach of the SEBI regulations and RBI permission to Kotak Mahindra, besides violatingthe Benami Transaction Prohibition Act, 1988.

Meanwhile, corporate lawyers say that law may favour Kotak as Section 22A of the Securities Contract (Regulation) Act, 1956 which allowed the option to refuse the transfer on certain grounds has been omitted with effect from September 20, 1995.