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Wednesday, Dec 04, 2002

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SEBI has to dig up Grasim `say' in L&T

Rabindra Nath Sinha


EXAMINATION of certain key personnel of Larsen & Toubro will be one of the next steps of the Securities and Exchange Board of India in its bid to further substantiate its premise that Grasim is already controlling the engineering and cement major.

Falling in the category of key personnel will certainly be L&T's company secretary and SEBI's exercise, as part of its right to call for information in the interest of investors, may well start with that incumbent.

The aspects on which L&T's company secretary will be examined will surely include drawing up of agenda for board meetings, issue of notice thereof to directors, "effort," if any, to dictate the agenda, contribution by directors to the deliberations and as an extension of this, contribution by the Grasim nominees ever since they came on the L&T board and finalisation of minutes.

As for finalisation of minutes, which is the last leg of the exercise related to holding of board meetings, SEBI's intention obviously will be to determine whether at any stage there has been any effort in the last one year to "influence" the minutes.

In this context, it may be mentioned that under the Companies Act it is the prerogative of the chairman to finalise the minutes of a board meeting and the only incumbent who is involved with the task is a company's managing director. Only after the minutes have been finalised, the same is circulated to other directors and only at the following board meeting, the chairman asks other directors if they have any comments to offer. If a director offers any comment and if the chairman entertains that comment, it forms part of the minutes of that board meeting.

The point to emphasise is that there is no provision under which the other directors have to be consulted for drawing up the minutes. In the instant case, SEBI will try to find out whether an informal practice of consulting the Grasim nominees for the purpose of drawing up the minutes had gone into vogue during the last one year. If SEBI comes across evidence of prior consultation, it will use that evidence to establish that Grasim's intention, after acquiring the Reliance stake of 10.05 per cent, has been to control L&T.

There is strong reason to infer that SEBI is trying hard to make the Grasim-L&T episode a test case and that it is relying heavily on the definition of control in and regulation 12 of SEBI (Acquisition of Shares) Regulations, 1997.

According to the definition forming part of regulation 2 (1) (c), control "shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding, or management rights or shareholders' agreements or voting agreements or in any other manner." The portion reading "in any other manner" appears to be material to the case.

Regulation 12 reads: "Irrespective of whether or not there has been any acquisition of shares or voting rights in a company, no acquirer shall acquire control over the target company, unless such person makes a public announcement to acquire shares and acquires such shares in the accordance with the regulations."

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