Promoter and public shareholder: The art of being in two places at once

Numerous companies have the promoter also classified as a public shareholder

The Securities and Exchange Board of India (Sebi), in a board meeting on Tuesday, had brought clarity on promoter re-classification.

However, there are companies whose shareholders have the unique distinction of being classified as promoters as well as public shareholders.

There have been instances of this in every quarter since June 2009, shows an analysis of shareholding patterns. The number of such instances has varied from one to over a dozen during the quarters in question.

The sectors where such companies exist include technology, financials, and cement companies, among others.

Examples in 2018 include Anjali Gupta, who was classified as both promoter and public in the case of Motor & General Finance (in June).

Financial services company Alankit has a promoter entity Alankit Assignments, which is also classified as a public shareholder as of March 2018. This classification is not seen in the June quarter. None of the companies responded when asked to comment.

A similar instance is seen in the case of Kiran Mazumdar Shaw as of March 2018 where she appears as both promoter and public shareholder in the case of Biocon, the biopharmaceutical company she founded.

A company spokesperson clarified that this may be because she is the first signatory among the board of trustees of a few trusts which hold the company shares, and attributed variances to clerical errors.

“Her name should be at both the places for all the quarters, as specific disclosure is required for any shareholder holding greater than 1% of equity in the company. Looks like the specific breakup of ‘trust’ holding was erroneously omitted in between for a few quarters including in June 2017, September 2017 and December 2017 while it was correctly included in March 2017 and March 2018, quarters.To avoid confusion, we will explore the scope of including the ‘trust’ category under the ‘promoter’ section rather than the public shareholding section,” said Siddharth Mittal, chief financial officer, Biocon.

Trusts also seem to account for such classification in the case of VC Raghunath, who is classified as both promoter as well as public in the March 2018 shareholding pattern of heavy electrical equipment player Swelect Energy Systems. However, the company did not respond to a request for comment.

Two experts suggested that better systems at the regulatory level which flags such issues may help avoid erroneous submissions.

A person tracking the development said that it may not be due to clerical errors in all companies.

“Companies where this has happened multiple times may point to a situation where it is a deliberate attempt to mislead the market, and may require regulatory intervention,” said the person.

In fact, there have been multiple instances where the same shareholder is classified as a promoter in one quarter and as public in another. There were at least five instances in which such changes happened twice. There are some in which it has happened thrice.

Pavan Kumar Vijay, founder and managing director at legal and financial consulting firm Corporate Professionals India said that such changes would typically invite questions from the regulator and exchanges.

“Ever since the promulgation of Sebi listing regulations, it’s a well stated fact that if a person has been named a promoter, the same may be removed from another category,” he said.

Shriram Subramanian, founder and managing director of proxy advisor InGovern Research Services, pointed out the recent ministry of corporate affairs rules on identifying ultimate beneficial ownership, notified on June 13, 2018.

The move was to increase transparency on who ultimately controls companies, but instances where this is unclear in listed companies would seem contrary to this spirit.

“The same beneficial owners cannot be classified in two different categories,” he said.

Many faces

•  Same entity classified as both promoter and public
• Over a dozen instances in some quarters
• Some entities seen as promoter in one quarter and public shareholder in another
• Experts point to need for regulatory intervention