Forcible eviction

Companies, investment bankers and their lawyers allege that the reverse book-building process, which gives investors a say in deciding their exit price, is too cumbersome and should be scrapped. They want the system changed. Now listen to what an investor has to say about how companies, especially MNCs, simply kick out small shareholders when they want to delist from the bourses. Investor S. Aiyer says that it is ‘‘an open secret’’ that many companies tend to declare huge dividend payouts (to themselves) once they have thrown out minority shareholders. Consequently, a tiny minority, such as himself, hang on to their shares despite all inducements. But companies have figured out a way of getting rid of these shareholder irritants using a dubious loophole. They convene a general body meeting, which is purportedly attended by ‘‘minority shareholders’’ where a proposal for the return and consequent reduction of the minority share capital, is ‘‘approved’’ through ‘‘special resolution’’. This is then ratified by the High Court. But in fact, the notice for the EGM selectively weeds out some minority shareholders. Finally, a one-page notice is sent to the shareholders and their shares are wiped out by corporate action. Two multinational companies are in the middle of purging out small shareholders right at this moment. Aiyer says that when he complained to SEBI, he was told that the matter was outside its jurisdiction. One Ashok Jatia has a similar complaint against Triveni Engineering, which he believes has used the negative consent route to deprive him of his shares. Here again, the shareholder says that he never received the notice purportedly sent by the company. Isn’t it ironical that companies (with lawyers acting as their mouthpiece) still manage to convey the impression that they are the aggrieved party and not the investors?

Recovery blues

UTI Mutual Fund, we learn, is on its way to recovering its dues from most of the steel sector defaulters before its ownership changes hands. If they haven’t already paid back all they owe, then most of these defaulters are at least paying up their instalments on schedule and UTI is confident of full recovery. Among the companies that it is particularly happy with are Uttam Galva steel, the Jindal group and most companies of the Essar Group — except for one company Essar Oil. UTI holds nearly Rs 150 crore of debentures issued by Essar Oil. The matter is before the Debt Recovery Tribunal (DRT) and a Scheme of Arrangement was worked out, whose terms were completely unacceptable to UTI. It challenged the scheme when it came up for approval by the Gujarat High Court. There was also a move to have the directors disqualified under the provisions of the Companies Act. According to UTI, it intends to fight all the way if it does not find Essar’s terms acceptable. However, the Scheme of Arrangement that was challenged has lapsed and the company has informed the Fund that a new Scheme is being prepared. UTI sources say that when the company is clearly on the road to recovery and has made enormous strides in the process of building its refinery and setting up over 100 petrol pumps, there is no reason why UTI’s investors should not get back what is their due.

Tailpiece

The ups and downs in the life of UTI Mutual fund, through its many avatars, are indeed ironical. After the debacle that followed the Scam of 2000, many felt that India’s largest mutual fund will never regain investors’ trust. Four short years later, a television channel adjudged it India’s ‘‘most preferred mutual fund brand’’, and exactly a week later the government made an announcement that will kill the brand after a takeover by India’s largest bank.

Auditing Sahara

The Reserve Bank of India’s (RBI) decision to order an independent audit by KPMG into Sahara India’s Residual Banking operations, has once again raised questions about the whereabouts of the group’s high profile chairman Subrata Roy. After a well staged print and television appearance a few weeks ago, the Sahara chairman seems to have gone underground again even as there are major changes afoot in the group structure. Sources close to the group, who helped with its media relations, had told journalists that Roy would meet other media professionals (those not in the favoured and trusted list) in a few weeks after his first appearance. Instead, Roy is again not to be seen. Sources say that the group is quietly valuing its airline and entertainment businesses and exploring the possibility of either outright sale or collaboration. Meanwhile, it is well known that the Congress-led union government has been taking a keen interest in the Sahara Group. We also learn that the KPMG report has been commissioned after the RBI’s own inquiry into Sahara’s operations has caused the central bank to worry about some aspects of its business and it is keen on precautionary measures this time.

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