Will Maruti gain from delaying vote on Gujarat plant?

Maruti Suzuki India’s move to defer minority voting on the proposed transfer of its upcoming Gujarat plant to the parent company until a more conducive Company Law regime takes effect may not bear fruit for the car-maker.

This is because Maruti Suzuki— as a listed company — would still need to conform to the current SEBI requirement of a “special resolution” for related party transactions (RPTs), say corporate governance experts.

The country’s largest carmaker wants to transfer its proposed car plant in Gujarat to Suzuki Motor Corporation, the parent company that has 56.21 per cent holding in the Indian entity.

By waiting for a more conducive Company Law regime for RPTs, Maruti hopes that it will be able to push through this plan, which faced opposition from minority shareholders, including mutual funds, earlier this year.

To improve the ‘ease of doing business’ in India, the Narendra Modi-led Government this month brought amendments to the existing Company Law, specifying that an ordinary resolution (over 50 per cent of approval votes from minority shareholders) would suffice for an RPT to go through.

While the Lok Sabha has given its nod for the amendments, the Bill is yet to be passed by the Rajya Sabha.

JN Gupta, founder and Managing Director of Stakeholders Empowerment Services, a proxy advisory services firm, said listed companies have no option but to adhere to market regulator Securities and Exchange Board of Indian (SEBI) guidelines even if the Company Law gets changed for RPTs.

“Unless there is any further change in SEBI guidelines, three-fourths of the minority shareholders would have to approve for an RPT to go through in the case of a listed company,” Gupta said.

He, however, clarified that his firm had nothing against the Maruti Suzuki proposal and had in fact favoured it.

He saw the latest Government move to amend the RPT provision as a “dilution” and felt that minority shareholders should have bigger say in such transactions.

“The original provision on RPT requiring special resolution was intended to protect the interest of minority shareholders. Now with that being diluted to ordinary resolution, the crucial issue is whether minority shareholders’ interest are being protected or not under the new regime?” Gupta told BusinessLine .

The Corporate Affairs Ministry should once again go back to a regime where RPTs need “special resolution” to go through, he said.

SN Ananthasubramanian, a practising company secretary and governance professional, said it will be interesting to see if SEBI sticks to its professed philosophy that the stricter of the two regulations will prevail for listed companies, or rolls back its requirement for special resolution based on the country's needs.

SEBI’s stricter stipulation of a special resolution for RPTs vis-à-vis ordinary resolution as per proposed change to Companies Act is “unexceptionable on merits of shareholder governance”, he said.

In the current context of the government making a strong pitch for the ‘ease of doing business’ in India as part of its global invitation to 'Make In India', the Ministry’s stipulation is “logical and stands to reason”, he said.

It also needs to be seen if Maruti Suzuki, a listed company (also defined in the Companies Act) prefers to follow the Ministry norms and goes ahead with the meeting for approval of shareholders, or waits till SEBI makes its stand clear.

In fact, regulatory governance would be enhanced if these parallel stipulations converge sooner than later, which would, by itself, facilitate the ‘ease of doing business’ in India as it would remove arbitrary restrictions, said Ananthasubramanian.

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