Linde India Ltd stock jumped on 25 July, a day after capital-markets regulator SEBI exchanged harsh words following the examination of the company's related party-transactions (RPTs) with Praxair India Pvt Ltd (PIPL) and Linde South Asia Services Pvt Ltd (LSASPL).
After Linde India submitted that the capital-markets regulator has made "bald innuendos" in its interim order, the capital-markets regulator issued a final order that stated that the company's counter can "at its charitable best, be termed as dishonest and misleading". The interim order was issued on April 29 and the final order on July 24.
In the final order, the Securities and Exchange Board of India (Sebi) has asked NSE to appoint a valuer to value the business lost to the related party transactions. The transactions were entered into through a joint-venture, shareholders' agreement signed between LIL and PIPL. Shareholders may expect that money to flow back into the company.
Linde India stock was trading at Rs 8,333 in the early afternoon trade, up 5.7 percent from the previous close.
Sebi has also asked LIL to reimburse the expenses incurred by NSE for the valuation and to test the materiality of future RPTs as per the threshold provided under Regulation 23(1) of the LODR Regulations on the basis of the aggregate value of the transactions entered into with any related party in a financial year, irrespective of the number of transactions or contracts involved.
Also read: SAT sets aside Sebi's order against Linde India in related party transactions case
Why the harsh exchange?
The regulator started investigating the RPTs after receiving complaints from LIL's shareholders that the transactions were entered into without obtaining their approval and that they were not to LIL's best interests.
After initial investigations, Sebi had passed an interim order, which noted that LIL had sought shareholder approval for the RPTs in its 85th AGM held on June 24, 2021. This resolution was rejected by the shareholders with 93.94 percent of the votes cast against it. The interim order also noted that the company sought legal opinion after this.
The regulator's interim order said that the proposal put forward by the company at its AGM showed that the company understood that these RPTs would cross the materiality threshold, as given under Regulation 23 of the Listing and Obligations and Disclosure Requirements (LODR) Regulations.
The company countered this by saying that Sebi was making "bald innuendos" to say that the company's interpretation of Regulation 23 was the same as Sebi's.
The company stated that the resolution on the transactions was proposed at the AGM was “only out of apprehension that such RPTs might breach the specified sub-limits given under the Companies Act, 2013 read with the Companies Rules or that the value of a single contract with Praxair might cross the Materiality Threshold at a later date owing to the pandemic”
This "contention" raised on behalf of the company, Sebi said, "can, at its charitable best, be termed as dishonest and misleading".
Background
The JV&SHA was entered into to set up Linde South Asia Services (LSASPL), in which both LIL and PIPL held 50 percent each. LSASPL was meant to provide administrative and support services to LIL and PIPL.
But, the agreement also contained a clause which allocated products and geographies to LIL and PIPL. It gave PIPL got exclusivity in HyCO, Hydrogen, Carbon Monoxide, Green Energy, gasification and CO2 including carbon capture businesses (“HyCO”).
LIL's shareholders raised issue with this, saying that the agreement essentially promised future business to PIPL at the expense of LIL.
LIL countered that business allocation did not mean exchange of services or assets to PIPL and therefore did not need to approval of LIL's shareholders.
But Sebi has held that transfer of business opportunities should be scrutinised.
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