Using corporate governance to settle personal scores?

Raymond offered the flats in JK House Gautam Singhania at throwaway prices of Rs 9,200 a sq ft

A few months earlier, various corporate governance issues were raised by warring parties in the battle between Ratan Tata and Cyrus Mistry. Allegations and counter-allegations flew thick and fast.

The way these issues were raised only after a certain action affected the particular person made people wonder if these are used as handy weapons to settle personal scores. Investors and regulators were reached out to by both sides. Months later, the Street seems to have moved on, though the core issue of succession of ownership is yet to be decided.

One of the prime causes of the Tatas' succession problem was that there were not enough sons in the family tree. For the Singhanias, however, the problem is the opposite. Every generation produced sons but they invariably ended up in courts.

The latest is the dispute over a couple of duplex flats in a newly constructed building on the upmarket Breach Candy road in South Mumbai. As reported by this newspaper last week, textile major Raymond has moved a resolution to offer these flats in JK House to its chairman, Gautam Singhania, father Vijaypat Singhania and cousins Akshaypat and Anant (with mother Veena Devi) at throwaway prices of Rs 9,200 a sq ft.

On the face of it, a typically one-sided, related-party transaction, that seeks to enrich the promoters at the cost of the company. It deserves to be defeated. But, there is a catch.

The move came weeks after Akshay and Anant, sons of Vijaypat's late brother, Ajaypat, moved arbitration petitions to seek possession of the property in line with a 2007 agreement by which they had surrendered tenancy rights to enable reconstruction of the 12-storey building into a 30-floor structure. Raymond spent Rs 270 crore on this project.

A simple defeat of the resolution would mean the claims of these two would get dented seriously. Is that enough to get the minority a fair deal? It is not clear what would be the status of floors being given to Gautam, who controls Raymond with around 40 per cent holding. If he continues to reside in these properties, should he not be paying market rent, instead of a few thousand rupees per month by the old agreement?

If this arrangement is allowed to be continued, it would give credence to recent allegations that the company is being used to bankroll a lavish lifestyle of the promoters. Raymond’s institutional shareholders such as LIC, GIC, Mirae and Reliance Capital would not like such allegations to linger.

Gautam earns remuneration for his services as the chairman and managing director, and dividends on his shareholding. The flamboyant entrepreneur, who likes his yachts and jets, can surely do without subsidised rent.

The fact that this arrangement with promoters is being brought to the shareholders much after it reached the court raises doubts in the minds of the shareholders on whether this provision is being abused to wriggle out of a family obligation.

Shareholders should use the forum of the annual general meeting to discuss the matter, clear all such doubts in detail and get commitments from the board and management that all future rentals or outright sale should be at market prices, irrespective of the beneficiary.

One hopes some of the minority shareholders would take the pain of going to Ratnagiri on Monday to ensure all this.