Mukesh Butani, chairman, BMR Advisors, managing partner, BMR Legal believes that legal remedy for Maruti will create even more controversies. According to him, it is unlikely that any solution will be reached because now the issue is between minority shareholders, a group of institutions coming together and Suzuki in Japan.
Butani also says that the tussle between Maruti and shareholders is now a test case for minority interest shareholder rights that are enshrined in the new Companies Act.
Domestic fund managers have once again raised concerns over Maruti's Gujarat plant and have written a second letter to the management questioning its decision. Also, the fund managers have questioned the role of independent directors on the Maruti board.
Below is Mukesh Butani’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Sonia: What are the legal ramifications that Maruti Suzuki could face going ahead? Someone suggested that the remedy could be to move the Company Law Board and file a case relating to mismanagement and oppression of the minority shareholders but what is your view on what could be the ramifications from hereon?
A: This whole controversy is value erosive for all the shareholders of Maruti Suzuki whether they are institutions, public or even for Suzuki Japan themselves. Legal remedy, if any resorted, will create even more controversies. Let us look at what the three-four important issues are – (1) Sebi’s inherent power to allege that interest of shareholders is not taken care of. This is the investor protection clause of the Sebi guidelines (2) Rights, if any, that minority shareholders would have under the Companies Act - this is 1956 Companies Act to allege oppression and mismanagement and carry a plea to the Company Law Board.
I do not think anything will be achieved because at the end of the day this is now an issue between minority shareholders which is a group of institutions coming together and Suzuki in Japan. There are two-four other aspects.
Suzuki Japan is trying to say that they want to create the new plant in Gujarat under the direct ownership of the Japanese company, which means that the value that Maruti Suzuki has created in India, now Suzuki wants to create it out of Japan and that is the reason whether it’s the institutions or the independent board directors are seeking a confirmation that any project setup by Suzuki Japan will not be value erosive in so far as Maruti Suzuki is concerned.
Maruti Suzuki has had a long history of successful operations in India, so shareholders and institutions are well within their right to argue that the transfer price between the new plant that is going to be manufactured and the car that will be sold by the listed company is on an arm’s length basis and that is confirmation that the independent board is trying to seek – (1) By making sure that there is no markup for the manufactured car selling company and (2) More importantly, the royalties are on an arm’s length basis. So, it will be too speculative for anyone to comment at this point in time or to conclude that anything that Suzuki Japan is doing goes against the interest of the shareholders or the institutions or minority shareholders.
It all depends on to what extent Suzuki Japan is able to convince the independent board that they have taken into consideration all the interest and the pricing of the products will work in such a manner that the larger interest of Maruti Suzuki will be protected.
In my view this is a test case for minority interest shareholder rights that are enshrined in the new Companies Act and it will be interesting to see how this development evolves but it is too speculative to comment.
Latha: What can independent directors do now, if they are not satisfied, what happens to the course of events?
A: First, it is not a question of the new Companies Act. The operation and mismanagement provisions prevail even under the existing Companies Act. Two, Sebi powers to protect investors are inherent under the Sebi Act. What is likely to happen under the new Companies Act is a new chapter of class action suit that can be brought up by minority shareholders and that is not the case as of today until the new Companies Act provisions come into effect. This is specific to the provisions relating to the minority shareholders.
All the events will depend on to what extent Suzuki Japan is able to give satisfactory answers to the independent board of Maruti Suzuki.
Latha: Assuming independent directors are not satisfied what happens?
A: If they are not satisfied, you could have a situation where the independent directors would raise governance issues with respect to the largest shareholder of Maruti Suzuki and they could either come out with a proposition which will say that the overall business structure is such that it doesn’t protect the interest of the minority shareholders or shareholders at large. So, the independent directors are well within their rights to raise a governance issue at the Maruti Suzuki board meeting itself.
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