The war has escalated between Honda Motor Corporation (HMC) and the Siddharth Shriram-promoted Usha International Ltd (UIL), its 17-year-old joint venture partner. UIL has alleged serious corporate governance lapses and oppression of minority shareholders by the board in the joint venture, Honda Siel Cars India (HSCI).
Shriram Industrial Enterprises Ltd (Siel), through UIL, holds five per cent stake in the joint venture, while the rest is held by Honda.
According to people in the know, UIL has alleged critical resolutions regarding buying out the company’s shares were passed without meaningful discussions and despite repeated requests for a board meeting by company chairman Siddharth Shriram. Instead, it said, Honda chose to send a resolution to Shriram on March 16. A day later, the HSCI board passed the resolution and filed it with the Registrar of Companies.
Shriram has alleged the resolution was passed without reference to the chairman.
Also, there was no dialogue on key issues with the operating chief executives of the company and no prior discussions on board resolutions with him. He said he had become a “rubber stamp” chairman, which is what Honda wanted him to be.
Siddharth Shriram declined to comment on the issue. HSCI, responding to a questionnaire, said, “We would not like to comment on any speculation. HSCI follows all applicable laws and corporate governance norms.”
The controversy erupted in October last year after UIL declined to participate in an equity capital-raising programme initiated by Honda Siel and made it clear it wanted to sell out. Honda wanted to raise Rs 3,200 crore through a rights issue to finance its plans for new cars and diesel variants.
|
COLLISION COURSE |
However, HMC’s appointment of Ernst & Young (E&Y) in November to undertake the valuation for sale of shares was objected to by UIL, which contended it could only be done after the rights issue was approved by the board.
UIL also objected to the fact that E&Y had valued the shares at Rs 57 apiece, a price 30 per cent lower than the Rs 81.25 apiece arrived at by Deloitte & Touche, appointed by the company a few months earlier. UIL said the valuation done by E&Y was lower despite the consultant having taken into consideration an additional equity infusion of an estimated Rs 3,200 crore in Honda Siel.
The JV agreement provided that valuation of shares for the investment would be done by a jointly appointed international firm of accountants. However, because of difficulties in selecting a common valuer and Honda insisting on appointing E&Y, it was agreed that each partner would appoint a valuer. Honda selected E&Y, to which UIL objected. UIL did not appoint a valuer of its own.
UIL had earlier objected to the resolution to increase share capital via a rights issue in a board meeting on October 29 last year, citing inadequate provision of details related to the project and specific returns on investment.
The company board has nine members, eight from Honda and one from UIL. With UIL being a minority shareholder, resolutions can be passed without being referred to Shriram.
