In the Igarashi Motors’ AGM, 74% of non-promoter shareholders voted against a resolution for related-party transactions. However, promoters of Igarashi Motors chose to elbow them out, says IiAS
Proxy advisory firm Institutional Investor Advisory Services India Ltd (IiAS) has raised concerns over promoters of Igarashi Motors voting on a resolution for related party transactions during the company's annual general meeting (AGM).
In an advisory report, IiAS said, "...the cumulative value of the proposed transactions, over a period of two years, will amount to Rs1,100 crore, a multiple of the annual turnover of Rs400 crore. In addition, the explanatory statement was opaque and did not provide granular details on the specific nature and type of contract each related party will be involved in."
Promoters of Igarashi Motors voted on the related party transaction (RPT) resolution presented at the company's 2015 AGM, which pertained to transactions with entities of the Igarashi Group (currently classified as a public shareholder). Had the promoters not voted, the resolution would have been defeated, IiAS said.
Shareholders heeded IiAS' advice - 74% of non-promoter shareholders voted against the resolution. Yet, promoters chose to elbow out the minority investors by voting their shares.
IiAS raised the issue of promoters voting on the resolution with the company - the company claims the promoters are not directly interested in the resolution and hence they are compliant with the law. This is only partially correct: promoters can vote on this resolution under the Companies Act 2013, but are not allowed to vote on this resolution under the Listing Agreement, IiAS said.
In its stated goal of easing of doing business, the Ministry of Corporate Affairs (MCA) has steadily diluted its stance on related party transactions. As per the new rules under Companies Act 2013, only interested parties are not permitted to vote on resolutions. Other related parties, who do not have any material or pecuniary interest in the particular transactions, may vote on their shares. However, in order to protect minority investor rights, SEBI has held all along that related parties (and not just interested parties) cannot vote on transactions. It is this higher standard that should hold.
Shareholders have done their bit in voting on the resolution. It is now up to the exchanges and regulators to act quickly to resolve this issue - more so, given that the company seems to consider the resolution to have been passed, the proxy advisory firm concluded.