Four of the country’s biggest funds chose to abstain from voting on Maruti Suzuki’s contentious related-party transaction with its Japanese parent in December 2015, voting disclosures by the fund houses show. Similarly, in the case of Vedanta-Cairn merger, four of the top five mutual fund firms voted for it despite concerns around the use of cash on Cairn’s books.

An analysis of the voting patterns of the top 10 funds show that despite being large institutional investors, funds still shy away from taking on powerful boards.

BusinessLine looked at the voting disclosures of the country’s top 10 mutual funds and found that they abstain from voting or choose to side with the management.

A case in point is the December 2015 resolution by Maruti Suzuki to let its Japanese parent Suzuki, and not the Indian subsidiary, set up a manufacturing plant, effectively acting as a contract manufacturer for the auto-maker. The proposal was widely panned by proxy advisors and independent experts at the time. However, the resolution sailed through with a near-90 per cent majority.

Against the 13 crore or so shares held by minority shareholders, only 6.58 crore votes were cast. Effectively, many investors, including informed institutional investors like the four biggest mutual funds, preferred to stay out of the voting process.

In its voting rationale, IDFC Mutual Fund said: “While there are obvious questions on Suzuki’s reasoning to do this agreement, Maruti shareholders are in no way negatively impacted by the agreement.” However, UTI and SBI mutual funds voted against the proposal, saying it was against the interests of minority shareholders.

Max Financial resolution

Fund houses were more outspoken in their opinions on the payment of the ₹850-crore non-compete fee to the promoter group shareholders of Max Financial Services.

The fee was one of the conditions for the three-way merger deal between Max Financial Services, Max India and HDFC Life Insurance.

However, in a report released ahead of the vote, proxy advisor IiAS had said the rationale for the payment was unclear. “After the merger, the promoters of Max Financial will continue to hold a 6.5 per cent stake in the merged entity. The large stake by itself should act as a deterrent for the promoters from starting a competing business in the life insurance industry.” The resolution passed with a 65:35 majority.

In its justification for the vote in favour of the resolution, Kotak Mahindra Mutual Fund said: “We view the proposed merger as long-term value accretive. Since the clearance of the non-compete agreement is a pre-requisite condition for the proposed merger to go through, we are supporting the resolution.’

“Not every vote against a resolution implies independence,” said JN Gupta, Co-Founder and MD, Stakeholders Empowerment Services. “It depends on how large the shareholding is and how long he wants to stay invested. One cannot make a value judgement based on voting alone.”

Navneet Munot, Chief Investment Officer, SBI Mutual Fund, said a voting decision can be quite complicated. “In the resolution to remove directors from the boards of Tata companies, for instance, we debated a lot internally. This was not a vote against the persons but it was for the management, which wanted to start over with a clean slate.

“We look at several aspects of a resolution before taking a decision, be it on the environmental impact, the social angle or on corporate governance,” Munot concluded.