Proxy advisory firm Institutional Investor Advisory Services India Ltd (IiAS) has welcomed Maruti’s decision to seek minority shareholders approval on Gujarat plant issue as that it would give shareholders a chance to have their say and “break the current regulatory ambiguity and proactively mitigate the need for regulatory intervention.”

As decided in its meeting held on Saturday, Maruti Suzuki India Ltd’s board has decided that the company would seek the approval of minority shareholders as stipulated in Section 188 of the Companies Act 2013.

“The initial announcement that Suzuki will manufacture cars and supply to Maruti Suzuki, changed the DNA of the company from primarily a manufacturer to a distributor, and minority investors should always have had their say in this decision,” said IiAS in a press statement.

Section 188 of the Companies Act 2013 requires minority shareholders to approve related party transactions by a special resolution where no related party is permitted to vote. The proxy advisory firm believed that since section 188 has not yet been notified and as regulations in this regard are ambiguous, it was not clear earlier whether Maruti was expected to comply with this.

Suzuki owns over 56 per cent of Maruti’s shares while 43.79 per cent of the equity is owned by its minority shareholders. In order for the Gujarat plant deal to be passed by a three-fourth majority, 32.8 per cent (or three-fourth of 43.79 per cent) of the shareholders have to approve this resolution.

As on December 31, 2013, institutions (including mutual funds, banks) owned 35.45 per cent of Maruti’s equity, of which 21.4 per cent was held by Foreign Institutional Investors (FIIs) and 13.98 per cent by Domestic Institutional Investors (DII), making their vote critical to whether the deal is approved or not. Less than nine per cent of the equity is with retail investors and others.

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