Explained: Why Religare Enterprises' largest shareholder is in a battle with its Chairperson and Board

The Burman Group has raised objection to the allotment of shares of REL's subsidiaries to the Chairperson Rashmi Saluja

The board of Religare Enterprises Ltd (REL), a leading financial services company, and its largest shareholder are locked in a public, few-holds-barred battle for control.
Amid this, the capital markets regulator, the Securities and Exchange Board of India (Sebi), reportedly issued a show-cause notice to REL Chairperson Rashmi Saluja over insider trading allegations. This was in the last week of August, a little more than a month after the regulator issued directions to the company and its Board to facilitate an open offer made by the Burman group/family.
Meanwhile, the Enforcement Directorate (ED) has launched its own investigation into conspiracy and cheating charges against Saluja and two directors of the company. An order issued by the insurance regulator, stopping the transfer of shares of an REL subsidiary to Saluja, was stayed by the Securities Appellate Tribunal (SAT) till the final hearing.
Saluja has sought the intervention of the Prime Minister's Office (PMO) and the Finance Ministry and has explained her side in an interview with Moneycontrol.

Here is a quick reckoner on the corporate battle so far.

What is the dispute about?

The row revolves around the Burman family's bid to take over Religare Enterprises (REL) and the allotment of shares of REL's subsidiaries to REL's Chairperson Rashmi Saluja through the Employee Stock Ownership Plan (ESOP). The Burman Group has a more than 100-year-old history and owns brands such as Dabur. The takeover bid was opposed by REL's management and Board saying that the Burman family were not fit to run a financial services business while the allotment of shares was opposed by the Burman family for the process followed and the quantum allotted. The shares allotted to Saluja have been valued at Rs 630-Rs 740 crore; this includes Rs 150-250 crore for Religare Finvest's (RFL's) shares and, according to proxy advisory InGovern, Rs 480 crore for Care Health Insurance's shares.

The Burman family, the largest shareholder of REL, bought 5.27 percent of the company's share capital on September 25, 2023, in addition to the 21.24 percent they already owned. This took their shareholding to above 25 percent and therefore they were required to make an open offer under the Substantial Acquisition of Shares and Takeovers (SAST) Regulations, which they did.

The day after their open offer was made, which was September 26, Saluja and other executives sold their shares of REL; the Burman family has asked Sebi to investigate this sale. The family alleged that entities were trying to block their takeover of REL.

Following the Burman's takeover bid, REL and its committee of independent directors made representations to Sebi through meetings and letters (over October 2023 and June 2024) against this takeover bid, objecting on the ground that the Burmans were not fit and proper persons to acquire REL.

Meanwhile, the Burman family wrote to Sebi saying that REL was hindering the family's acquisition by not sharing the information needed to get the regulatory approval and complete the open-offer process.

What action has Sebi taken?

Sebi asked REL to facilitate the open offer by submitting applications to the Reserve Bank of India (RBI), the Insurance Regulatory and Development Authority of India (IRDAI) and Sebi for statutory approvals. These approvals were needed because REL is an NBFC its subsidiary CHL falls under the purview of IRDAI and its subsidiaries Religare Broking and RFL come under Sebi.

On June 19, 2024, the capital markets regulator issued an interim order cum show-cause notice, after observing that REL and its management were refusing to cooperate with the acquirers (Burman family) in getting the necessary regulatory clearances. The Sebi order asked the company and its senior management to give an undertaking that it would apply to all regulatory authorities and take all steps to help the acquirers fulfil their obligations under the SAST Regulations.

On REL and its management's contention that the acquirers were not fit to run the company, Sebi's order said that this would be considered by the respective regulators (RBI, IRDAI and Sebi) when the applications are being considered. The SAST Regulations do not consider fit-and-proper criteria except if the acquirers are wilful defaulters or economic offenders.

Later media reports said that the market regulator has issued a show-cause notice to Saluja following insider-trading allegations raised by the Burmans. The reports said that the regulator was probing trades done by Saluja on September 21 and 22, 2023, which was just a few days before the open offer made by the Burmans. According to complaints made by four investment firms linked to the Burman family, she had sold 1.29 million shares worth Rs 34.71 crore.

What action did IRDAI take?

The insurance regulator in July this year penalised Care Health Insurance Rs 1 crore and asked the company to buy back the ESOPs allotted to Saluja because no remuneration, other than sitting fee, is allowed to be paid to a non-executive director without the regulator's approval. In August, the Securities Appellate Tribunal (SAT) stayed this regulatory order till the final decision is taken, asked Care to deposit half of the penalty and not to issue any more ESOPs to Saluja, and restrained Saluja from trading in shares of the insurance company and from further exercising options under the ESOP.

What action has ED taken and why?

In September, the ED filed a cheating and conspiracy charge against Saluja and two other board members for trying to block the acquisition of Religare by getting a person to file false charges against the Burman brothers. According to ED, an REL shareholder Vaibhav Gawali said that he filed a complaint against the Burman brothers, accusing them of financial irregularities along with Shivinder and Malvinder Mohan Singh, after being told to do that by Saluja and two others. According to ED, Gawali now claims that he was given money to buy shares of REL and file this complaint, and that he had no documents to back such a complaint.

Meanwhile, proxy advisory firm InGovern asked for Saluja to step down... Why?

The advisory firm has said that Saluja and key management personnel (KMP) of the company should step down. It said that the delay in holding the annual general meeting (AGM) without giving a clear explanation puts the company's governance practices under question. In its report, the proxy advisory firm said that it is "fait accompli" (a foregone conclusion) that the shareholders won't approve Saluja's reappointment and therefore, according to InGovern, they were delaying the AGM.