Maruti plant stand-off: Will minority shareholders matter?

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26 Aug, 2025 12:21

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Moneycontrol Bureau

Maruti Suzuki is caught in a race against time. The carmaker’s recent decision to let its Japanese parent set up a manufacturing plant in Gujarat has riled the country’s top fund managers who have invested in it, amid concerns that the move would impact the firm’s profitability.

But according to corporate-governance experts, the timing of the deal is such that, as it stands today, minority shareholders such as fund managers will have little say in the company’s business decision even if they believe it is against their interests.

In January, Maruti announced that Suzuki would develop a plant on a piece of land in Gujarat that Maruti owns and had intended to develop. According to the deal, Suzuki’s wholly-owned subsidiary would manufacture cars only for Maruti and as per its requirements and would sell the vehicles to the Indian company on a cost-plus-capex basis.

The move led to investor concerns that Maruti -- whose excellent financial shape would have enabled it to carry out the transaction by itself -- will end up funding the plant’s expansion without having its possession and news reports are abuzz that top fund houses have approached market regulator Sebi accusing Maruti of handing out favours to its parent company at the cost of minority shareholders.

However, experts are of the view that corporate governance norms -- as they exist in the Companies Act, 1956, which is in force today -- mandate that any “related party transaction” requires an approval only from the company’s audit committee.

Under the 1956 act, an RPT is one in which two companies share directors, according to a Business Standard report.

But Sebi’s new corporate governance norms, modeled on the Companies Act 2013, come into effect in October and require a company to seek a majority vote from minority shareholders on all material RPTs -- or more than half of votes from owners of the 44 percent stake Suzuki does not have in Maruti.

The Companies Act 2013 defines a material RPT as one which, in aggregate, exceeds 5 percent of the annual turnover or 20 percent of the net worth of the company during the financial year, whichever is higher.

Amit Tandon, managing director, IIAS, a corporate governance advisory told Mint: “It is expected that purchase agreements between Maruti and Suzuki Gujarat will exceed this limit and hence will come under Sebi’s purview.”

But it appears that if Maruti closes the deal before October, there will be little minority shareholders can do about it, except continuing to engage with the company to try and change its mind or, worse, sell the stock and exit.

Former Sebi director Gupta, who now runs a proxy advisory firm, told Business Standard that as a good corporate governance measure, Maruti should voluntarily seek minority shareholders approval.

But given Maruti’s obvious intent to go ahead with the deal even in the face of much investor chagrin, it looks unlikely.