Irate shareholders approach SEBI over Maruti-Suzuki deal

The tussle between Maruti Suzuki India Ltd (MSIL) and its institutional investors has reached the Securities and Exchange Board of India, with the investors asking the market regulator to look after minority shareholders' interests.

The institutions, which together hold around 21 per cent in MSIL, are protesting against the planned transfer of the company's Gujarat project to its Japanese parent, Suzuki Motor Corp.

Ever since this plan first surfaced, institutional investors like ICICI Prudential MF, Reliance MF, L&T MF, UTI MF, SBI Mutual Fund, SBI Life Insurance and Reliance Life Insurance have been demanding that the MSIL board prevent the transaction, as it would reduce Maruti Suzuki to a shell company.

The plan is for Maruti to buy the cars made at the Gujarat plant from Suzuki for sale to customers. The minority shareholders feel this would seriously erode the value of their shares.

A confirmation could not be obtained from SEBI on the shareholders' approach, although reports said that representatives of 16 institutions submitted a memorandum addressed to SEBI chairman U K Sinha.

A new law will come into effect in October this year under which similar transactions will need approval from public shareholders become they can be implemented.

Reports say SEBI may probe Maruti Suzuki India's decision to transfer a Gujarat project to its Japanese parent Suzuki under Clause 11 of the SEBI Act.

The approach to SEBI came days after the investors wrote to Maruti Suzuki chairman R C Bhargava and other board members seeking quashing of the ''oppressive transaction'' to save the company from becoming a ''shell'' entity (See: Maruti's minority shareholders continue to oppose Suzuki plant)

Under Clause 11, SEBI can issue orders to protect the interests of investors who may be adversely affected by a company's decisions on securities or assets or because of lack of disclosures.

However, officials at the department of company affairs said the Companies Act was the right forum to seek remedy in such matters.

With clauses on related party transactions and protection of minority shareholders yet to be notified in the new companies act, financial institutions are banking on SEBI to shield them against any board decision that could erode their share value.

The investors said the deal might not be an arm's length transaction between related parties but one where the parent company gains financially at the expense of the Indian arm. An arm's length transaction ensures that both parties in a deal are acting in their own self-interest and are not subject to any pressure from the other party.

The institutions have also raised concerns over plans that the Gujarat plant may be merged with Maruti Suzuki India at the end of 15 years. This would increase Suzuki's stake in Maruti beyond the 56.21 per cent it currently holds, effectively reducing the value of stakes held by minority shareholders.

Maruti has argued the deal saves it the expenses and risks associated with the setting up of a new production line.