Companies & Sectors
IiAS asks shareholders to vote against Raymond's proposal to sell premium property at throwaway price to Singhania family
Opposing Raymond Ltd's decision to sell its premium property at a throwaway price to its own promoters and their extended family, proxy advisory firm Institutional Investor Advisory Services India Ltd (IiAS) has advised shareholders to vote against the proposal.
 
Raymond in its forthcoming annual general meeting (AGM) on 5 June 2017 has proposed to sell its four duplex apartments in JK House, near Breach Candy in Mumbai. 
 
"Should this transaction go through, we estimate that it will result in an opportunity loss of over Rs650 crore for the company and its shareholders. In our opinion, the board has failed to protect the interests of the minority shareholders. The company and its directors must prepare themselves for shareholders seeking recompense," IiAS says in its advisory.
 
 
JK House is a recently rebuilt building located at Breach Candy, one of the most expensive real-estate locations in Mumbai. According to IiAS, Raymond’s own valuation report states that the residential property is valued at Rs1.17 lakh per square foot (built up), putting the value of the entire transaction at Rs710 crore. "Raymond, however, proposes to sell the property to the Singhania family factions for Rs9,200 per square foot of carpet area – an over 90% discount to market rates," it added.
 
 
IiAS estimates the opportunity loss at over Rs650 crore, which is large in the context of Raymond’s own limited size, which aggregates to over Rs100 per share. 
 
According to the proxy advisory firm, Raymond has spent Rs270 crore – not including the cost of land - in rebuilding JK House. It says, "The sale price of Rs9,200 per square foot is lower than JK House's average cost of construction, estimated at over Rs11,000 per square foot. If the company were to sell the residential properties at market value, it would more than recover its cost of development."
 
"The transaction lends credence to an investor’s allegation that the promoters are using the company to support their own lavish lifestyle. Not only is the price of the transaction nefariously low, the structure itself is inefficient. Only 36% of the total area is being utilised for commercial and residential purposes - the remaining 64% of the total area constructed is attributable to ‘other saleable amenities and service space’. The company can use, for its own purposes, only the commercial property, which is just 8% of the total structure by square feet," IiAS says.
 
 
According to the proxy advisory firm, transactions relating to JK House with promoters in the past too have been below prevailing market price and, therefore, prejudicial to the interests of Raymond’s minority shareholders. 
 
"Previous agreements required the family to pay rent to the company at a flat rate of Rs7,500 per month per duplex flat, which we estimate is at less than Rs2 per square foot per month. Management asserts that to incentivise the promoter families to vacate the old premises, which had become structurally weak and therefore needed to be rebuilt and surrender their tenancy rights, the agreement to give them an option to purchase property at Rs9,200 per square foot was signed in 2007." 
 
"This is a fallacious argument. The promoter family was living in the premises under a nine-year rent agreement signed with the company. At the end of the agreement – which would have been in 2012 – the family would have had to vacate the property. Given that the property was structurally weak, making it dangerous living conditions for the tenants themselves, Raymond should have had a stronger negotiating platform, unless the company was given to understand that the promoter family would purposefully violate the rent agreement and not vacate. It seems unconscionable that the company cowed down to a sale transaction at such low prices," the proxy advisory firm says.
 
Terming disclosures made by Raymond as “inadequate or misleading”, IiAS says, "During 2006-2008, when the board approved the tripartite agreements and these were signed by the company, annual reports were silent on the transaction. It is only in the 2013-14 annual report that the company first specifically mentions the capital-work-in-progress towards JK House, in the fixed asset schedule. By 31 March 2014, the company had already spent Rs150 crore on the redevelopment. Even then, the company did not disclose that it proposed to sell the residential piece of the property to the promoters at Rs9,200 per square foot of carpet area." 
 
Raymond's management asserts that there was no regulatory requirement for such disclosure. "While this may well be true, we believe good corporate governance transcends compliance requirements. The company should have considered this material information for shareholders and made the disclosure."
 
The 2016-17 annual report, despite a disclosure regarding the tripartite agreement, does not mention the price of the transaction. The company continues to maintain that “All transactions entered with Related Parties for the year under review were on arm’s length basis and in the ordinary course of business and that the provisions of Section 188 of the Companies Act, 2013 and the Rules made thereunder are not attracted.” 
 
"While the company may have its technical and legal arguments for these disclosures or lack of disclosures," IiAS says it believes that from the perspective of transparency and good governance, the board has failed in discharging its fiduciary responsibilities towards shareholders.
 
IiAS contends that the details of this transaction have come to light only on account of regulatory changes that mandate shareholder approval for transactions with related parties, which are not at arm’s length pricing. Without this regulation, the transactions could have well been undertaken without shareholders’ knowledge.
 
It is unclear whether the audit committee has approved the transaction: the AGM notice seems to suggest that, based on legal advice, the audit committee and the board have “deferred the matter to shareholders”. The exercise of the option to purchase will come under the ambit of related party transactions under the Companies Act 2013, and needs shareholder approval because the transaction is not at arm’s length. 
 
 
However, regulations require the audit committee to first approve the transaction before it is brought to shareholders. "While there may be several legal considerations given the timelines of the transaction, the on-going legal battles, and changes to regulation for this approach, we believe the audit committee and the board should provide guidance to shareholders. In deferring the decision to shareholders – and thereby suggesting that the audit committee and the board do not want to articulate a decision – the board has abdicated its responsibilities and prioritised its own (legal) protection over the interests of the company and its shareholders," the proxy advisory firm contended.
 
According to IiAS, the quality of board oversight at Raymond is of concern if the board is unable to separate the interests of the company and its promoters. It says, "The audit committee is entrusted with the review and approval of related party transactions. But, at the time the tripartite agreements were approved and signed, and even now, Raymond Limited’s audit committee was conflicted – its members included Vijaypat Singhania, a direct beneficiary of the transaction."
 
IiAS recommends that shareholders vote against resolution #10 carried in the company’s 2017 AGM notice. Because this is a related party transaction, the promoter group will not be allowed to vote on the transaction.
 
"Raymond’s shareholders must engage with the company and seek the removal of promoters from the audit committee and the nomination and remuneration committee, and ask for both committees to be comprised only of independent directors. These measures will ensure that the committees are devoid of any potential conflict. They must also seek to separate the role of Chairperson and Managing Director, and push for a non-family Chairperson who can provide stronger oversight over the Singhania family, and one that can separate the interests of the company and its promoters," the proxy advisory firm concluded.
 

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COMMENTS

anil garg

1 month ago

Not only this selling of assets to directors at throw away price the directors have spent crores of rupees for their personal use out of co funds.This should also be brought out and informed to shareholders.

Ramesh Poapt

1 month ago

-raymonds-the INcomplete 'man' ?

Ramesh Bajaj

1 month ago

The ROC must be able to protect shareholder interest against strong directors , even in family held and controlled companies.

VILAS GALA

1 month ago

In our country the Roc and Department of company affairs are weak organizations which have failed to protect the interest of minority shareholders.

VILAS GALA

1 month ago

In our country the Roc and Department of company affairs are weak organizations which have failed to protect the interest of minority shareholders.

VILAS GALA

1 month ago

In our country the Roc and Department of company affairs are weak organizations which have failed to protect the interest of minority shareholders.

VILAS GALA

1 month ago

In our country the Roc and Department of company affairs are weak organizations which have failed to protect the interest of minority shareholders.

Online retailers must stop selling fakes, introduce voluntary product recall and pay compensation to buyers
An online petition by Pritee Shah, consumer activist and director of Ahmedabad-based Consumer Education and Research Centre (CERC), one of India’s largest consumer organisations, has turned the spotlight on fake products being allowed to be sold by large multinational companies such as Amazon. The petition points out how they fail to observe international norms of recall and compensation when dealing with complaints in India.
 
According to Ms Shah, a consumer purchased Lakme Eyeconic Kajal (pack of two) from Amazon this March. A slight variation in the product she received, as against her previous experience, made her suspicious. On writing to Hindustan Unilever Ltd (HUL), the manufacturer of Lakme Eyeconic Kajal, she discovered the product delivered to her from Amazon was a counterfeit. When she asked for a replacement, Amazon obliged and pointed fingers at the outsourced delivery agent for the fake product delivered. The seller, Sublime , “also admitted that the product it has sold/ sent is fake”, she says.
 
Subline had sold 340 packs of Lakme Eyekonic Kajal through Amazon, of which in only seven cases customers had demanded product replacement. The other customers were evidently unaware of the substitute product delivered to them. 
 
“Isn’t Amazon responsible for the products being sold on their portal? It is also possible that the fakes could contain ingredients hazardous to health – after all, it is a cosmetic product. Even though the delivery of the goods and services is outsourced by the e-commerce portal, isn't it Amazon’s duty to safeguard their customers from such counterfeit products? Consumers enter into a purchase agreement with Amazon and not the outsourced third party. Shouldn’t the counterfeit products in circulation, which could have harmful effects on the customers, be recalled?” asks the petition.  
 
It further says, “On being questioned,  Amazon says that they are just an online portal providing a service of bringing buyers and customers, spread over a wide area, together. Neither do they buy the products sold on their site nor do they hold inventory. Moreover, they claim to have a well-placed system for the vetting process of these delivery agents. Clearly these systems are not working, as sellers continue to sell counterfeit or fake products with impunity through their portal, without any penalties or consequences.” 
 
On its website, Amazon clearly states that they recall harmful products sold through their websites and suspend the seller. Moreover, they also claim to reach out to any customers who have previously purchased such impacted goods to notify them of such recall. However, this is not what they practice in reality.
 
E-commerce portals must make sure that the delivery persons must be appointed only after a thorough background check, as the customers are not going to point fingers at them. Customers are entering into an agreement with Amazon and similar e-commerce portals and not the outsourced or third party. At the same time, customers must also research third party sellers and not get fooled by the unreal deals offered by them.
 
In this case, CERC  has asked other victims of fake products to go to email enr@cercindia.org and become part of a campaign to get fair treatment for consumers.
 
Ironically, this story about the fake product being sold by Amazon was played out in front of the Secretary and Joint Secretary of the Ministry of Consumer Affairs on 15 March 2017 at a panel discussion to celebrate World Consumer Rights Day.
 
The discussion was attended by consumer activists from around the country. One of Amazon’s senior officials made the same unacceptable defence at the discussion. Amazon has not responded to Moneylife’s email asking for its views on the episode in the past two months. (Read: Allowing Fakes and Other Issues: Amazon’s Different Standards for Indian Consumers)
 
CERC plans to campaign to ensure that online portals are stopped from selling fakes and getting away with it. It also wants Amazon to recall the 340 fake Lakme Kajal sold through its ‘dukaan’ (shop). CERC also wants the Ministry to issue guidelines to: Protect consumers of online shopping against cheating and fraud; ensure that fake products are not sold by online portals by putting in place a vetting mechanism for sellers and penalties imposed on sellers who cheat consumers. It also wants a voluntary product recall and compensation policy to be made mandatory for all e-commerce and online shopping portals.
 
It is a sad reflection on the state of consumer protection that ministry officials have not acted on this unilaterally and a petition needed to be filed to campaign for what should be a basic right. 
 
To sign the petition and join the fight, click here.

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Maharashtra CM Fadnavis unhurt as chopper crash-lands
Maharashtra Chief Minister Devendra Fadnavis and his team had a providential escape when their chopper crash-landed here at noon on Thursday.
 
Fadnavis himself tweeted on the crash, saying they were safe and there were no casualties.
 
 
Speaking to English news channel NDTV, Fadnavis said: "The chopper was six-seven years old. I will definitely probe the matter."
 
One person in his team received some minor injuries, the Chief Minister added.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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