MUMBAI: A new battlefront has opened for Malvinder and Shivinder Singh involving their listed financial services company Religare Enterprises. Institutional investor India Horizon Fund, supported by IDBI Trusteeship and representing a total shareholding of 11%, moved the Delhi bench of National Company Law Tribunal seeking ouster of the company board on grounds of mismanagement and oppression of minority shareholders.
Mauritius-based India Horizon Fund, which holds 5.59% of Religare Enterprises, has named the company, Religare Capital Markets, the Singh brothers and the Religare board among respondents to the suit. IDBI Trusteeship has a 5.53% stake.
The plaintiff has sought immediate dissolution of the board and the management. It has asked for appointment of an administrator until a new board can be set up, a forensic audit and reversal of alleged fraudulent transactions while saying the respondents were liable for losses that stemmed from this.
The petition, which ET has seen, cited “irrational and fraudulent management of funds of the company by the promoters and the board of directors and frequent and unexplained writeoffs by the company and its subsidiaries.”
India Horizon Fund also wants a stay on a recent shareholder resolution passed by Religare Enterprises to give Rs 500 crore to Religare Capital to repay a loan by Axis Bank that’s falling due. India Horizon has filed the suit under Sections 213, 241, 242 and 244 of the Companies Act, 2013, which empower minority shareholders to question management and promoters in case the company is acting against their interests.
“The acts of oppression of the minority shareholders, and mismanagement of the affairs of the company by the contesting respondents, acting in collusion with, and at the behest of, the majority shareholders is continuing in nature and is evident from a recent decision of the company to invest Rs 500 crore in Religare Capital Markets Limited (RCML), a subsidiary of respondent No.1, by way of capital infusion,” said the suit.
The promoter shareholding in the company has been steadily dropping. Since June 30, when the company made its last shareholding pattern disclosure, it has fallen to below 34% from 51%. This has largely been on the back of shareholding pledges that were invoked. India Horizon Fund cited examples of mismanagement in the company as part of the suit.
In its annual audit report of its arm Religare Finvest for March 2017, the company published an opinion from PricewaterhouseCoopers that it could not ascertain the impact on financials that may arise from punitive measures from the Reserve Bank of India over loans given in FY15. Finvest also reported it was the victim of a fraud of Rs 520 crore, which it wrote off after lending to Strategic Credit Capital Pvt. Ltd (SCCPL). It also wrote off another Rs 273 crore given to this entity, all of which was accounted for in FY17. PwC questioned the writeoffs and the matter was still sub judice, said the filing on Wednesday.
“It seems like the promoters have given up on the company, but with over 49% in the hands of public shareholders there is a lot of money hanging in the balance,” said a person close to the development.
Keen on revival
Lenders are keen to see a revival of Religare Enterprises, since a significant portion of promoter shares in the company are pledged. IDBI Trusteeship had also invoked a pledge and was litigating in the Bombay High Court to get voting rights against the shares invoked to have its say on the resolution passed by the company on September 11.
In an order on Wednesday, the high court said the entity that pledged the stock, SGGD Projects Development, did not have voting rights. IDBI Trusteeship sought to get those voting rights to stall payment of the Rs 500 crore to Religare Capital Markets, to which exposure had been capped from Religare Enterprises.
“It is submitted that the conspicuous omission of the aforesaid facts in the explanatory statement smacks of malafide on the part of the board of directors… acting on behalf of respondents No. 4 and 5 (the Singh brothers),” the suit reads.
“Not only did the board of directors actively conceal the aforesaid material information in the explanatory statement to defraud the shareholders of the company, the board of directors also made a false statement in the said explanatory statement, fully knowing that it is untrue, by representing that none of the directors or key managerial personnel of the company are, in any way, concerned or interested, financially or otherwise, in the proposed resolution except to the extent of their respective shareholding in the company.” Religare Enterprises is shortly expected to close the sale of its health insurance business for about Rs 1,100 crore.
From this, it proposes to pay Rs 500 crore to Religare Capital Markets, which in turn will pass it on to Religare Capital Markets International Mauritius, its foreign subsidiary and the arm that borrowed from Axis. Religare Enterprises then proposes to write that amount off as Religare Capital Markets is a loss-making entity.
Singh brothers said they had relinquished management control on April 6, 2010, by stepping down from the board, entrusting oversight in addition to management to a professional team, said the FY17 annual report of Religare Enterprises. This was done to allow Religare to become what was envisioned as a “professionally managed, professionally supervised” company. They had to return six years later after complaints of mismanagement.
“When Shivinder and I returned to the board of directors on July 29, 2016, owing to concerns we had about the performance of the company, we noted that the concerns and disappointment were similarly echoed across the board of directors. In this backdrop, I would have preferred a better set of circumstances to report on Religare’s performance,”
Religare Enterprises chairman Malvinder Singh wrote in the FY17 annual report.
Spokesperson of RHC Holdings, one of the Religare promoter holding companies, declined to comment.