Controversies refuse to die down at Religare Enterprises Ltd (REL), which more than four years ago, was on the brink of collapse and had faced regulatory scrutiny for the governance lapses in its lending NBFC arm, Religare Finvest Ltd.
The near collapse led to its founders, Singh Brothers (Malvinder Singh and Shivinder Singh) of Ranbaxy fame, getting discredited, arrested for fraud and embezzlement of funds.
Lenders then invoked the pledges and a new Board was put in place in year 2018 with Rashmi Saluja, who initially was non-executive director, taking on the role of Executive Chairperson.
The REL share price moved from a low of ₹17 in 2020 to witness a high of ₹280 in September 2023. Market capitalisation of REL grew to about ₹7,415 crore in September 2023, when the Burman family made the open offer announcement.
However, after staging a financial turnaround over the last four years under a new management led by Saluja, the Religare Group has now got itself embroiled in a new controversy. Saluja is now facing allegations of insider trading and the Board led by her is resisting the open offer launched by the Burman Family (Promoters of FMCG company, Dabur) to take control of REL.
The Burman Family and the Rashmi Saluja-led Board of REL are now fighting a bitter battle with both parties trading charges as part of the ongoing takeover tussle. The slugfest is now being watched closely by those in corporate and political circles.
Mohit Burman, member of the Burman Family and Chairman of Dabur India, recently told businessline that the open offer price was “fair” and indicated that there was no intent to revise this upwards. He had also highlighted that the open offer price of ₹235 was higher than the SEBI formula of ₹221.
Sudden volte face?
The intriguing aspect of the latest REL saga is what could have been the trigger for the tussle between the Burman family and the Saluja-led REL Board? It brings to the fore the fault lines between the two. Especially when soon after the Burman family made its open offer announcement on September 25, the REL Board on the same day had issued a press release backing the offer.
The press release went on to say as to how the acquirers (Burman group) were existing significant shareholders of the company and had an impeccable reputation and exemplary standing in the industry over years!
So what went wrong? JN Gupta, Managing Director, Shareholders Empowerment Services, says the plausible explanation behind the sudden tussle for control of REL is fear among the Saluja-led Board of Directors that some of them may lose out on their earnings if control were to pass over to the Burman family. Most of them are directors only in this company, he pointed out.
So what could be a likely solution to this tussle? “The likely solution is very simple. There is nothing that should stop the Burmans from taking over unless any of the accusations that Burmans are involved in the Mahadev App issue is found true. Even if there is a FIR on the Mahadev App it will be written in as a risk factor,” Gupta adds.
SEBI has to ignore the noise around the tussle and do its job based on what is provided in law, he adds. “All the cacophony can continue. SEBI’s hands are strengthened after the SC recently (in the Adani- Hindenburg matter) said that market regulator cannot investigate based on newspaper reports” Gupta explains.
Proxy Advisory firm, InGovern Research’s Founder & Managing Director, Shriram Subramanian, noted that the trigger for Saluja and her team’s pushback on the Burmans seems to be the remuneration issue including the sizeable ESOPs in her possession. The fear seems to be that if the open offer goes through, then the Board will be reconstituted and she may lose control of day to day management, he adds.
The story so far
The Burman family, which is now the single largest shareholder with about 21 per cent in REL, has over the years been supporting the turnaround with doses of capital infusion in the private placement rounds. Since 2017, the Burmans have been steadily raising stake in REL in small doses and the latest in September 2023 being the over four per cent stake buy in the secondary market, triggering an open offer of an additional 26 per cent that will take the family’s overall holding to 51 per cent if the offer goes through.
The REL Board comprises six members, including Saluja and five independent directors. The five independent directors are Hamid Ahmed, Malay Kumar Sinha, Praveen Kumar Tripathy, Ranjan Dwivedi and Preeti Madan.
REL is a unique case as it has no shareholder directors on the Board and even the largest shareholder, the Burman family with a 21 per cent stake does not have any representation or nominee on the Board. One of the reasons why the Burmans moved for an open offer to take control of REL is the resistance shown by the Saluja-led Board in giving a Board seat to the Burmans in tune with their shareholding, sources said.
The tussle deepened when REL independent directors (post open offer announcement) have written to SEBI, RBI and IRDAI levelling allegations of fraud and other breaches against the Burmans. They also wanted the acquirers (Burman family-controlled entities) to be scrutinised for the “fit and proper” criteria that apply to licence holders in the four business segments (lending, housing finance, broking and health insurance).
What also muddied the waters was the recently-filed FIR that named Mohit and Gaurav Burman (brothers) in the Mahadev app case. This app facilitated online betting on different types of games including cricket, football, tennis. Recently, the Central Government blocked 22 illegal betting apps in the country including the popular Mahadev app. This app had also reportedly facilitated betting on card games including poker and also virtual sporting games.
On their part, the Burman Family is alleging that Saluja has violated SEBI’s insider trading norms and benefited from insider information about the family’s intention to launch on open offer.
While the Burmans continue to assert that its representative had on September 20 conveyed to Saluja (as a Chairperson of REL), at a meeting in a hotel in the capital, about the family’s intent to launch an open offer and take control of REL, Saluja categorically denies the sharing of any such information on that day. However, the Burmans have conveyed to SEBI that Saluja had on September 21 and September 22 sold REL shares worth ₹34 crore and that these trades must be probed from the lens of violation of insider trading regulations. The ball is clearly in the SEBI’s court on this issue.
ESOP issue
The second charge levelled against Saluja is that she has been drawing excessive remuneration and got ESOPs (to the tune of about ₹480 crore from REL and its subsidiary, CARE Health Insurance, over the last few years). The allegations — which have been denied by REL— is that the ESOPs allotted to her by CARE (about ₹250 crore) did not get REL shareholders approval, did not conform to IRDAI norms nor was it disclosed in the annual report of REL.
REL, however, clarified that the 2.27 crore CARE ESOPs allotted to Saluja was in her capacity as an REL employee (there was a small quota for REL employees) and not as non-executive Chairperson of CARE Health Insurance.
This was significant as IRDAI had in the year 2022 raised objections that the value of annual compensation had exceeded the ₹10 lakh limit that the regulator had set for non-executive directors on the Boards of insurance companies.
Looking at the entire ESOPs issuance programme and after studying the corporate governance practices on this front, proxy advisory firm InGovern had recently called for a probe by SEBI on this front.
On REL’s part, the company has described the allegation that the REL Executive Chairperson draws a remuneration of more than ₹150 crore per annum as “completely false and erroneous”. As per the annual report for FY’22-23 of REL, the remuneration of the Chairperson was ₹8.22 crore and even after including the perquisites value of ESOPs it reached a figure of ₹ 42.06 crore, according to REL management’s defence to the high remuneration argument.
The bottomline is that the last word is yet to be written on the Religare takeover saga. Some corporate observers even feel that the long-drawn takeover battle may soon reach the Courts if SEBI dithers on a decision.
The open offer is subject to other regulatory permissions — CCI, RBI and IRDAl — before SEBI gives its verdict! The jury is out on how Indian regulators will see this takeover tussle. For minority shareholders of REL, hopefully this takeover drama doesn’t result in a situation of operation successful, but patient dead!