Is Maruti-MFs tussle heading for court battle?

Experts say MFs should wait till new Companies Act comes into force

The recent tussle between India’s largest car maker Maruti Suzuki and large fund managers is likely to find its way to the courtroom, with fund houses open to seeking legal advice on the issue.

India’s top mutual funds have opposed Japan-based Suzuki Motors’ move to make Maruti Suzuki India’s proposed Gujarat unit its wholly-owned subsidiary. In a letter to Maruti Chairman R C Bhargava, managers of top fund houses said this was a forced transition of MSIL into a trading company. They claimed the deal’s announcement had already led to a loss of Rs 5,000 crore for shareholders. It was, they said, a way of siphoning off Maruti’s cash with a carefully worded, yet confusing, communication.

However, Bhargava said if “we do something illegal or in some way oppressive to minority shareholders, they (fund managers) can go to court,” the Wall Street Journal had reported.

“Is this the response? We raised our concerns and requested clarifications. He (Bhargava) is challenging us in court!” said a fund manager. The comment didn’t go down well with corporate governance pundits, too, who termed it a short-sighted view.

Senior mutual fund officials didn’t rule out the possibility of another meeting of stakeholders to consider a legal approach. However, as minority shareholders, they cannot have a stand on the matter, according to regulations.

“Maruti Suzuki India’s promoters have 56 per cent holding in the company. So, prima facie, we won’t stand in our assertions. We are asking for a clear picture in the interest of best practices of corporate governance so that one can take an informed decision while making investments in the company,” said an official.

J N Gupta, managing director of Stakeholders Empowerment Services and former executive director of the Securities and Exchange Board of India, said, “Maruti’s Gujarat deal is a related-party transaction (RPT) and present laws/regulations do not require shareholders’ approval for such transactions.” However the Companies Act, 2013, provided for approval of RPTs by most non-interested shareholders, he added.

An SES report on Maruti said, “It is desirable as a good governance practice, the company should seek shareholders’ approval for this RPT, current legal positions notwithstanding. If the company proceeds with the transaction without seeking shareholders’ approval, it might indicate the transaction has certain issues which the company or its promoter Suzuki Motor Corporation does not wish to bring to the notice of shareholders.”

Gupta, however, doesn’t find any adverse issue for Maruti Suzuki India’s minority shareholders, provided all statements made by the company announcing the transaction are correct and there are no hidden anti minority-investors issues.

The SES report said in case the company didn’t take approval for the RPT at this stage, there was a possibility shareholders might block the move later, when relevant provisions of the Companies Act, 2013, became applicable. It added if safeguards weren’t built to protect minority investors’ interests, it would be a case of enticing shareholders with high-sounding statements. “In such a case, investors should exercise all their powers to block the transaction,” it said.