Ahmed violated sections of the regulator’s takeover code by speaking publicly against the open offer, the Burmans wrote to the Securities and Exchange Board of India (Sebi). Mint has seen a copy of the letter.
The Burman entities cited various statements made by Ahmed in an interview to The Economic Times on 29 November. These are: “Yes, board has rejected the open offer. The offer price is below the share price”; “The merits of the open offer are not very good. They want to replace the board and the management”; and “The company has come out of heritage problems. At such a time, the offer looks a bit fishy”.
These statements make Ahmed “biased” and “not independent”, the Burmans alleged in an 8 December letter, adding that they also violate Sebi’s Substantial Acquisition of Shares and Takeovers (SAST) Regulations, 2011. Terming them “careless”, the letter said these are “pejorative views being disseminated without any reasoning” and violate guidelines as they were not published to the stock exchanges.
The Burmans’ open offer was initially welcomed by the Religare board, before it began pushing back. The Burmans have accused Religare chairperson Rashmi Saluja of insider trading and asked the regulator to investigate the issue of stock options to her. Religare and Saluja have rejected all charges.
It is unclear if Sebi sought clarifications from Religare or Ahmed. Religare, the Burmans and Sebi did not respond to requests for comment. Ahmed declined to comment, directing questions to the Religare company secretary. “I will abstain from any comments, as media reports are unnecessarily creating confusions. We will let the whole process culminate at the Regulators end,” Ahmed said over a WhatsApp message.
“Mr Ahmed has made a categorical statement that the board has rejected the offer. The board has no power to approve or reject the offer. The board only has power to issue a reasoned recommendation pursuant to Regulation 26 of the SAST Regulations,” the Burman letter said.
The Burmans also sought an investigation under Sebi’s Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities Market for what it called the board’s “deliberate strategy” to mislead public shareholders.
Ahmed’s statements violated the “basic structure of the duty of the board under the general law and SAST Regulations to comply with reasoned recommendations,” the letter said.
Sebi’s takeover code says a company in receipt of an open offer must form a panel of independent directors to provide “reasoned recommendations,” which has to be published to exchanges.
“The committee is formed immediately upon receipt of detailed public statement (the Burman open offer) and then has to publish its recommendations at least two working days before the commencement of the bidding period,” said Manendra Singh, partner, Economic Laws Practice.
Singh said the takeover regulations do not ask directors to approve or reject an offer, “barring the specific recommendations of committee of independent directors, which are not in the form of approval/rejection.”
“Company law and Sebi legislations do give independent directors wider roles to ensure that minority shareholders interests are protected. In fact, this is one of their mandates under Companies Act and LODR Regulations in their code. However, if specific requirements such as those under takeover code are not followed, they can be open to scrutiny,” Singh added.
According to Jidesh Kumar, managing partner, King Stubb & Kasiva, a corporate law firm, guidelines under the takeover code ask for confidentiality and require the committee set up to send their recommendations to the stock exchanges.
“The independent director of a listed company, upon joining the committee of independent directors under Sebi SAST Regulations, is obliged to maintain confidentiality. This committee is empowered to provide written, reasoned recommendations to the target company’s shareholders, disclosing the board meeting’s voting pattern. These recommendations must be a) sent to the board of the target company, b) sent to the stock exchanges c) sent to the manager/s of the open offer d) published in the same newspaper as the public announcement of the open offer,” Kumar said.
The responsibility for filing these disclosures rests with the company secretary and compliance officer, and not with independent board members, Kumar added.
A lawyer speaking on the condition of anonymity said Ahmed and the Religare board could argue that they were acting in the interests of minority shareholders and that it was the company’s duty to file relevant statements to the board, not the independent directors.
“The board and Ahmed can take a stance that since they didn’t publish the statements as mandated under the takeover code, they are not in breach,” the lawyer said. Ahmed could argue that the views were not made through “official route” such as a disclosure to the stock exchanges, because the takeover code mandates a particular manner and timelines.
Burman’s open offer plan was announced on 25 September, and it is awaiting the Competition Commission of India’s approval. It will also require approvals from the Insurance Regulatory and Development Authority (because of Religare’s health insurance subsidiary Care Health Insurance), the Reserve Bank of India as well as Sebi. As a result, there is still time for the independent board directors to make a formal statement to the exchanges.
However, the Burmans said Ahmed is in violation precisely because the company has not clarified media statements to the stock exchanges.
“Mr Ahmed has made bald statements on the merits of the offer and used pejorative terms to describe the open offer. Being an independent director, his statements may be viewed by public shareholders as having been made with due care and enquiry. This is his duty as an independent director. Mr Ahmed has not made available the basis of his statements and the conclusions or any reasoning behind the same. He has cast wild aspersions. This violates the basic structure of the duty of the board under general law and SAST Regulations to comply with reasoned recommendations,” the letter stated.