Companies & Sectors
Economy & Nation Exclusive
Escorts' promoters taking trust route to increase voting control

The Nanda family, promoter of Escorts, are planning to increase their voting control to 41.1% by transferring its and its associate companies' voting rights to a trust owned by them. But this will reduce voting rights of other shareholders

In yet another example of poor corporate governance, the Nanda family promoted Escorts Ltd, is planning to increase its voting control to 41.1% through a Court convened meeting on 20th May, says a report from Institutional Investor Advisory Services Ltd (IiAS).

During the meeting, a special resolution for amalgamation between Escotrac Finance & Investments Pvt Ltd (ESCOTRAC), Escorts Finance Investments & Leasing Pvt Ltd (EFILL) and Escorts Construction Equipment Ltd (ECEL) with Escorts would be discussed. IiAS has suggested that investors vote against the resolution as it is not in their interest.

According to a filing by Escorts to the Bombay Stock Exchange (BSE), EFILL and ESCOTRAC are part of promoter group and not persons acting in concert. Escorts hold 49.81% each in both EFILL and ESCOTRAC, thus making both the entities its associate companies. Both EFILL and ESCOTRAC hold 6.5% and 12.83% stake in Escorts, which when clubbed together with the stake of Nanda family (12.43%), takes the promoter and promoter group shareholding and thus voting rights of 31.76% in Escorts. How the Nandas, promoter family of Escorts, holds a 31.7% control of voting with only 12.43% of shareholding in the company, asks IiAS.

According to Company Law Section 42, subsidiaries cannot hold voting rights in parent. However, by keeping their stake in both EFILL and ESCOTRAC below the 50% threshold, Escorts and the Nanda family, allowed these units to have voting rights in the parent.  

ECEL, on the other hand is 100% owned by Escorts. In case Escorts decides to merge all three EFILL, ESCOTRAC and ECEL with itself, the promoters, the Nanda family would be at risk as their stake in these companies would get extinguished.

To avoid the risk, the Nanda family is planning to transfer 19.3% voting rights of EFILL and ESCOTRAC in Escorts to Escorts Benefit and Welfare Trust. The trust would receive EFILL's 6.8 million shares, ESCOTRAC's 13.5 million shares and ECEL's 16.9 million shares. Therefore post merger, the trust would end up with 37.3 million shares out of 122.5 million shares in Escorts. While this will make the promoter's stake to decline to 10.7%, they would end up with more voting control (about 41.1%) through the trust they control.
According to IiAS, adding shares of associate companies to promoter family holding is a misleading disclosure, to create an impression of a larger than actual shareholding by the promoter family. In addition, the Nanda family, recently bought 4% shares of Escorts from Reliance Mutual Fund by way of creeping acquisition.

"Investors should note that the list of public shareholders with more than 1% in Escorts includes OK Balraj (Trustee of Escorts ESOS) holding 3.1%, and Rajan Nanda (Trustee of Escorts Trust) holding 1.3%. Taking this into consideration, the effective promoter control is higher by 4.4%," the IiAS added.




5 years ago

One would rathere be inclined to think that the Indian Trusts Act and the Indian Income Tax Act (whatever is left of it, I mean) should be alert enough along with the MCA to take notice and act! Wasn't it the same group which was mired in a serious ├žornering of shares'controversy earlier too-in the late seventies?



In Reply to Aban 5 years ago

But is it not a commonly practised "business model"for decades in India? What are the NGOs/Foundations patronised/created by the huge business groups or influential persons (including "healers"even) doing?


5 years ago

Corporate governance,come on,you are expecting too much from Nanda.Mr Swaraj paul cried for that some 2/3 decades back.See it is very easy here for old timers,where not to invest in certain groups like JK/MODI/NANDA/RELIANCE they are answerable to their ancestors.

Economy & Nation Exclusive
Excise duty on gold jewellery rolled back

Gold jewellers and traders were on 22 days strike from 17th March, demanding roll back in the excise duty.

After much deliberation the finance ministry has rolled back excise duty imposed branded and unbranded gold jewellery announced in the union budget. The decision has gone down well with the jewellers association who were on indefinite strike post the announcement.

In a statement, the Confederation of All India Traders (CAIT) and The Delhi Bullion & Jewellers Association have welcomed the move. "The step taken by the finance minister is a step forward to mitigate genuine problems of the lakhs of traders of jewellery in the country and also crores of other people who are dependent upon jewellery trade for their livelihood," says Praveen Khandelwal, CAIT secretary general and Vimal Goel, president, DBJA.

Pranab Mukherjee in his budget proposals on 16 March 2012 announced 1% levy on unbranded jewellery and doubling of import duty to 4% on gold. Today, while discussing Finance Bill 2012 in the Parliament, he announced that, "the Government has decided to withdraw the levy on all precious metal jewellery, branded or unbranded, with effect from 17th March, 2012."

Gold jewellers and traders were on 22 days strike from 17th March, demanding roll back in the excise duty. Traders estimated to have lost Rs20,000 crore due to the strike which began on 17th March after presentation of the Budget on the previous day. According to the traders, such announcement would subject to the harassment of excise department. Further, they said that already trade number taxes such Custom Duty, VAT, and few other indirect taxes.

The strike was called backed on April 06 after bullion traders and jewellers after they met united Progressive Alliance (UPA) Chairperson Sonia Gandhi and Finance Minister Pranab Mukherjee who assured them that their demand for rollback of excise duty on unbranded jewellery would be considered.

"With Goods and Service Tax (GST) round the corner, the Government is under obligation to simplify and rationalise the taxation system to best possible extent in order to ensure smooth transformation from VAT, Excise, and Service Tax to GST regime," CAIT said in a statement.


Regional offices to clear IPO proposals of Rs500 crore: SEBI

Regional offices can clear proposals for IPO of up to Rs500 crore and would also be delegated powers with respect to mutual funds, inspection

Chennai : Market regulator Securities and Exchange Board of India (SEBI) on Monday said its regional offices would be delegated powers to clear public offer proposals of companies planning to raise up to Rs500 crore, reports PTI.

"Regional offices can clear proposals of initial public offering (IPO) of up to Rs500 crore. Regional offices will be delegated powers with respect to mutual funds, inspection..", Securities and Exchange Board of India Chairman UK Sinha told reporters after inaugurating the southern regional office.

In a statement issued recently, SEBI said it was decided that the draft offer documents in respect of issues of size up to Rs500 crore shall be filed with the concerned regional office of the Board under the jurisdiction of which the registered office of the issuer company falls.

Noting that SEBI has planned to open 10 new regional offices, Mr Sinha said, "one should look at markets on a long term basis. There will be periods when markets will do well, sometimes, they may not. People should not get carried away by short term developments".

Former SEBI Chairman GV Ramakrishna, SEBI whole-time member Rajeev Agarwal were also present.


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