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Shareholder activism at Alembic Pharma: Issue unlikely to die in a hurry

Alembic's board rejected the request by Unifi Capital to appoint Murali Rajagopalachari as director

Sohini Das & Aneesh Phadnis  |  Ahmedabad | Mumbai 

Shareholder activism at Alembic unlikely to die soon

Alembic’s board on Friday rejected the request by to appoint Murali Rajagopalachari as a director for small but experts said it might write to the Securities and Exchange Board of India (Sebi) on the issue. 

Some experts said the group of small might move the National Company Law Tribunal (NCLT) as a last resort. 

said it was studying its options in response to Alembic's decision to reject its proposal. 

Sarath Reddy, managing director, Unifi Capital, said, "We spent nearly a year in discussions with the company and offered specific suggestions with supporting rationale. They did not respond positively. We had no option but to use the regulatory provisions available to us. The measures we took to propose Murali Rajagopalachari as a director for small are entirely in keeping with the provisions of law and are also bereft of any 'conflict of interest' as suggested by Alembic’s directors." 

Such shareholder activism by a portfolio fund manager is unprecedented in India and might trigger similar developments in other listed

The law provides for 1,000 small to come together and agree on one individual to represent their concerns on a company’s board. "The fact that this provision has never been tested shows how daunting it is for 1,000 people to agree on something," Reddy added.

Shriram Subramanian, managing director of proxy advisory and corporate governance firm InGovern Research Services, said there was no valid reason given by Alembic's board for turning down the proposal of the small "While they have said things like conflict of interest and close nexus, there is actually no legal reason to stall the process of voting. The small may approach Sebi, which is supposed to uphold corporate governance guidelines," he said.

might ask to put the matter to vote through postal ballot, he added. 

Shareholder activism at Alembic Pharma: Issue unlikely to die in a hurry

Another proxy advisory firm, Institutional Investor Advisory Services (IIAS) said the board had not provided meaningful grounds for rejecting the request of the small "But in doing so they, and particularly the independent directors, have taken on the onus of balancing the demands of small with those of the controlling shareholder. Their role and the decisions they take will now be subject to greater scrutiny," it said. 

Legal experts in Vadodara who track said the possibility of vested interests could not be ruled out because and its group were linked to larger of "Nowhere does the Act, 2013, mention where these 1,000 have to come from, what kind of association they will have, or under which banner they will mobilise. What these have asked for under Section 151 of the Act is perfectly legal," said a person close to the development. He said the could approach the appropriate judicial forum, which in this case was the  

Subramanian added that somebody had to mobilise small and in this case, had done it. There was nothing illegal about it, he pointed out. 

admitted that such conflicts involved much time and resources and as a small company it had to think very hard before embarking on such an exercise. "It is much easier to simply look the other way and move on, but sometimes you feel compelled to fight for what is right; the benefits could accrue to all investors in India over the long term. Alembic’s board seems more intent on trying to discredit than in evaluating our suggestions with an open mind. They should have no reason to fear a small shareholders’ director on their board," Reddy said. 

In a filing to the stock exchanges, said it had rejected the proposal of appointing Rajagopalachari as a director for small because Rajagopalachari was a director in various Unifi group entities. Further, the 914 who proposed the candidature of Rajagopalachari are also clients of the Unifi group. thus felt that this was a clear case of conflict of interest. 

has also said of the 914 shareholders, 320 had become in five days prior to the making of the request. "It appears that has used these persons to ensure its nominee is put on the board by clearly misusing the provisions of Section 151," said.

A source close to the development said when was demerged in 2011 by spinning off its pharmaceuticals business into a separate entity, Pharma, the less profitable real estate business and the loss-making Pen-G business remained with "Since does not have any major projects under way, there is not much scope for its share value to increase. Whenever, Pharma pays out dividends, Alembic’s receive proportionate benefits. A move to unlock value in shares by capitalising on the pharmaceuticals company's shares might prove to be detrimental to the legitimate of the latter." he said. 

The pharmaceuticals business constituting formulations, generics and API along with manufacturing facilities at Baddi, Panelav and Karakhadi were transferred to Pharma.  retains its Vadodara manufacturing facility (Pen-G business) along with power infrastructure (16 MW used for internal consumption) and land in Vadodara (115 acres, including 45 acres used for the Pen-G facility).

of received Pharma shares in the ratio of 1:1. 

First Published: Sun, July 30 2017. 00:04 IST