Minority shareholders of Maharashtra Scooters still caught in a limbo

As the deadlock between the two majority stakeholders WMDC and Bajaj Holdings over the sale of the government’s stake in the shell company continues, anxious minority shareholders could be left high and dry

The saga surrounding the stake-sale row in Maharashtra Scooters Limited (MSL), the now inoperative geared scooter manufacturer, may soon reach boiling point. With the court case involving majority stakeholders Bajaj Holdings and Western Maharashtra Development Corporation still subjudice, minority shareholders of the company are hoping for a favourable outcome.

However, the protracted battle has much at stake for all parties concerned; no party is willing to concede an inch to the other. Vested interests, political arm-twisting and sheer connivance have all played their part in creating a soap opera around this issue. At the centre of all the controversy is a portfolio worth more than Rs1,100 crore - the estimated value of MSL's investments in Bajaj group companies. Caught in the crossfire are the anxious minority shareholders, who are keen to get their rightful share of the pie, but which has eluded them thus far.

Much muck has been thrown around in this tussle, with shareholders accusing Bajaj group of using its muscle power to snatch WMDC's stake in MSL at a throwaway price and usurp its valuable portfolio in the process. Shareholders also accuse the entity of intentionally withholding price sensitive information about the recent Bombay High Court ruling in favour of WMDC. This enabled them to corner shares from the market at the expense of ordinary shareholders and needs to be investigated fully, say shareholders.

Bajaj Holdings on its part is desperate to keep MSL from selling these valuable holdings in its group companies. Minority shareholders, however, are not amused. They have made representations to the government to allow WMDC to sell these liquid investments and pocket the gains, which could then be offered to MSL shareholders as a one-time special interim dividend. The legality of such an action while the case is still subjudice remains to be established and is under consideration. A WMDC spokesperson told Moneylife that since the matter is subjudice, the company would not be in a position to comment on the matter.

Moneylife asked Bajaj Holdings its view on the submission by minority shareholders. The company responded, "BHIL recognises the democratic right of any shareholder of MSL to do what he pleases and which is legal and accordingly, has no comments. However, it is to be noted that major shareholders amongst the so-called minority shareholders, who have made such representations, have acquired shares of MSL in the year 2004, i.e., after the commencement of the dispute over valuation of shares between BHIL and WMDC."

BHIL also pointed out that developments in the last seven years have in no way adversely affected MSL shareholders, old or new. "MSL has a track record of consistent dividend payment since 2003 i.e., the year in which the dispute regarding valuation of shares started. Market value of quoted investments and share price of MSL have appreciated over the last 7 years except for during 2007-09, when the stock market was affected by the global crisis. However, dividend of Rs5.50 per share was maintained during this crisis period."

MSL's share price has witnessed a whopping 553% spike since April 2003, when WMDC first announced its intention to sell its stake in the company. It is currently trading at around Rs410, purely driven by the value of MSL's holdings in companies like Bajaj Auto, Bajaj Holdings, Bajaj Finserv etc. At current prices, this portfolio is worth more than Rs1,100 crore. Shareholders argue that this investment puts the intrinsic value of MSL's share at around Rs1,000, much higher than what it is fetching in the market now. Add to this the value of MSL's property holdings, machinery and equipment, which if sold could add handsome gains to the stock price. 

Asked why they sought to stall the sale of investments and distribution of special dividend by MSL, BHIL replied, "Due to the dispute between BHIL and WMDC being subjudice and the since the appeal is pending for hearing, the Board of MSL has not taken any step in a hurry. The Board of MSL did not need to consider such an issue as they are well aware that investments made by MSL would continue to provide the cash flow by way of dividends. The decisions in the Board Meeting of MSL have always been unanimous."

The issue reared its head in April 2003 when WMDC had communicated to BHIL its proposal to divest its 27% stake in MSL to BHIL. While BHIL had confirmed its interest in buying the shares, it was not agreeable with the price at which the shares were offered by WMDC. To resolve this issue, in terms of the Protocol Agreement between the two parties, a joint reference of the matter regarding valuation was made by both for arbitration to Justice AV Sawant. The protocol agreement for the joint venture provides for mutual consent to retain 'absolute control' over the company by either partner in case one intended to exit. It also provides for arbitration to fix a rate for such purchases and gives the partners first option to purchase the other's share. The agreement, however, does not make it mandatory for the seller to accept the arbitrator's price recommendation. The price decided by the arbitrator was not acceptable to WMDC, who then challenged the arbitral award before the Bombay High Court.

The Bombay High Court, while confirming the ruling of the arbitrator on valuation and the methodology adopted for the valuation set aside the award of the arbitrator on the ground that the award goes contrary to the provisions of Section 111A of the Companies Act, 1956, which relates to free transferability of shares in a public limited company. BHIL however challenged the decision of the Single Bench before the Division Bench of the same High Court on various grounds. BHIL's appeal is now pending for hearing before the Division Bench of Bombay High Court. Shareholders will have to wait patiently to see which way the pendulum swings in this highly politicised drama.




7 years ago

Glad for the write up. Wish u intervene on behalf of the small share holders out of the mionority shareholder group.
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Pl note that the value of investments is RS 1650 crores not 1100cr. The Bajaj Auto shares now stand at 6774072 after the 1:1Bonus.
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I wish the following pionts are to be considered seriously.

1. This dispute between the two promotors is not mentioned at all in the Annual Reports. The court case the judgement, the appeals the progress there off. Nothing is known officially for the share holders of MScooters. Is not a responsibility for SEBI to plug this type of loophole for the sake of share holders under corporate governance.

2. What the Maharashtra Govt is doing all these years when it has forund that some of its officials have compromised the interests of WMDC in favour of Bajaj Auto. What action it has taken against them and what it proposes to take against Bajaj Auto who is the abbettor prima facie of this fraud.

Why can not a legislative action not taken to declare that one sided agreement declared null n void.

No person of ordinary prudence would have conceeded such one sided advantages to Bajaj Auto against WMDC n consequently the Govt itself.

The very purpose of Govt investment for economic activity is vitiated and simply Govt money is kept idle and more over it was used advantagiously by Bajaj group in its control over group companies.

3. Does not ethics make any meaning to our corporate India. Here the Bajaj holds 24% and WMDC 27% and 49% by other investors. They are holding the other investors ransom.

Presently it was a real tremondous opportunity for small investors to cash it. Bajaj group should not act like parasites. They have no right what so ever other than their 24 percent share.

The Honorouble Courts, I hope, come to the rescue of small investors and allow the liquidation of all investment shares and for the declaration of a special dividend. This is nothing to do with the disput of 27% share of WMDC

Wish Bajaj Group takes a lead in following ethical values.

Ahmedabad Commodity Exchange to go live on 26th October

New Delhi: Ahmedabad Commodity Exchange (ACE), the country's fifth national commodity bourse, will start trading operations on 26th October with five agricultural commodities, reports PTI quoting a top official of the exchange.

"We are ready with all the infrastructure. We will go live as a national commodity exchange on 26th October and trading in contracts will begin from 27th October," ACE chief executive officer Dilip Bhatia told PTI.

ACE is the first instance of a regional exchange being licensed to upgrade into a national multi commodity exchange.

Kotak Mahindra group is the anchor investor in it.

"Initially, we will begin trade in five agri-commodities - soyabean, soya oil, rapemustard seed, chana, castor seed," Mr Bhatia said.

A few more commodities like sugar, bullion and metals will be added later after the exchange gets the approval from the commodity market regulator Forward Markets Commission (FMC), he added.

The country has four national level commodity exchanges - National Multi-Commodity Exchange (NMCE), National Commodity and Derivatives Exchange (NCDEX), Multi-Commodity Exchange of India (MCX) and Indian Commodity Exchange Ltd.

The government has decided to cap the number of national commodity exchanges at eight to foster sustained growth of the commodity futures market.


Why the gold rush?

That's simply because there is no safe-haven currency left.

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