INDIA Law and Practice Contributed by: C R Dua, Sanjeev Kaul, Abhinav Rastogi and Ashish Malkotia, Dua Associates
Taken together, these developments underscore the growing assertiveness of Indian shareholders in chal- lenging promoter-driven decisions and demanding greater accountability and transparency. In another matter, Religare Enterprises experienced a wave of shareholder activism when a minority shareholder filed a legal action to stop the Burman family’s open offer to acquire additional shares. Although the minority shareholder’s attempt was unsuccessful, it reflects a broader trend of shareholders increasingly resorting to litigation. 11.5 Most Active Shareholder Groups In India, institutional investors (including mutual funds, insurance companies and foreign portfolio investors) are more active than individual shareholders. 11.6 Proportion of Activist Demands Met While the proportion of activist demands being met in India has historically been lower compared to more mature markets such as the USA or Europe, the trend is gradually shifting and activist shareholders have been seen to play a vital role in achieving decent suc- cess. Pursuant to such activism, resolutions for cer- tain matters involving promoters have been rejected, such as enhanced remuneration proposals for pro- moter directors, altering articles proposing to give more management control and powers to the promot- ers, and related party transactions. In a few cases, institutional investors/large share- holders did not hesitate to initiate legal proceedings against the company/promoter directors/controlling shareholders when their demands/proposals were not accepted or the existing board did not resolve their issues. There have also been instances where the promoters have passed the resolutions despite the activist shareholders and opposition because of their large shareholding in the company concerned. 11.7 Company Prevention and Response to Activist Shareholders Strategies Employed to Respond to Activist Shareholders A company may consider following a three-fold strat- egy in responding to activist shareholders – before,
at and after the general meeting. Before any general meeting, the company may proactively approach such shareholders to understand their concerns and demonstrate a willingness to consider their views. A company may also consider and analyse the solution proposed by the activist shareholder and offer par- tial concessions or formulate a suitable strategy for resolving the issue. At the general meeting, the company may elaborate and explain the adoption of such a strategy to the activist shareholders, convincing them of why it is mutually beneficial for the company and its mem- bers. After the conclusion of the meeting, companies should ensure the implementation of the strategy and undertake a timely review of its impact, which is relayed to the shareholders. Minimising the Risk of Shareholder Activism Shareholder activism arises in companies with lax governance and inadequate protection of the rights of its shareholders. To minimise the risk of shareholder activism, a company or its board may take the follow- ing steps: • ensure that the company complies with the legal and regulatory requirements; • formulate a corporate strategy and policies that are beneficial to the growth of the company and its members; • avoid related party transactions that may be seen as promoter-driven or beneficial, or make full dis- closure and undertake such transactions at arm’s length; • create transparency by having periodic conversa- tions and dialogues with the institutional and other major public shareholders regarding the matters of concern to them, to avoid negative responses; • ensure timely and sufficient disclosure of those matters requiring disclosure under the applicable listing and disclosure laws; and • evaluate the company’s performance, its strategies and policies, and the conduct of its management.
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