the proposal was the best option/attractive one”.
Raising issues of corporate governance, the institutions have written: “It is rather intriguing that in the current environment where corporate governance and the role of independent directors, as indeed all other directors of any company, is subject matter of wide debate and scrutiny, that MSIL’s directors have chosen to lend themselves to such a blatantly wrong and value-eroding oppressive transaction”.
The letter points out that SMC had attempted a similar structure in 2004 which was shelved because the board of directors and the government of India had realised its import. “The same arguments that were valid in 2004 remain valid now. Even more, considering that MSIL, has the benefit of experience of the last 10 years and large cash surplus with it earning low returns”.
Responding to the issues raised in the letter, a Maruti spokesperson said: “Our purpose is to strengthen Maruti’s business and benefit all stakeholders including minority shareholders....We are communicating with them regularly to convey this intent and purpose”. RC Bhargava, chairman, Maruti, told FE: “Companies don’t take decisions based on investors’ complaints and there is no question of the board reviewing the proposal. These investors have said that Maruti will turn into a shell company without explaining how. As per our calculations, this proposal will get better profits for Maruti and that’s what all investors really want”.
Meanwhile, as reported by FE earlier, the Securities and Exchange Board of India (Sebi) is already taking a look at at the proposal as it concerns related party transaction. The new Companies Act requires all material dealings by company promoters seek a prior approval by the audit committee for all material related-party transactions. In February, Sebi too proposed to make this mandatory. All such transactions would also require to be approved by small shareholders through a special resolution, with related parties abstaining from voting, Sebi said. The Sebi code will be effective from 1 October 2014 and Companies Act 2014 is expected to come into force with effect from 1 April 2014. A material related party transaction is defined in the Companies Act 2013 as one which, in aggregate, exceeds 5% of the annual turnover or 20% of the net worth of the company during the financial year, whichever is higher.
The Street’s apprehensions have not been assuaged by MSIL’s clarification on February 26, in response to its first letter, in which some of the