Religare is delaying the completion of the open offer: Burman Group

Mohit Burman(left), chairman, Dabur and Rashmi Saluja, who is the executive chairperson of Religare Enterprises Image: Burman: Amit Verma

On Monday, Religare Enterprises notified stock exchanges that the Reserve Bank of India (RBI) has rejected the Burman family’s open offer proposal for acquiring majority stake in the Mumbai-based financial services company.

In its notification to the exchanges, Religare added: “With reference to application dated November 30, 2023, submitted through counsel TT&A, it is to convey that the request cannot be acceded to as application for prior permission for acquiring control and/or change in management has to be submitted by the NBFC in which change in management and control is taking place.”

The central bank guided the Burman family to refer to para 42 of Master Direction–Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023.

In response to Forbes India’s query on the reason for the rejection of the open offer, a Burman family spokesperson says, “The banking regulator has taken note of the non-cooperation by Religare and has in turn directed Religare to make the necessary applications to the banking regulator. This situation once again highlights the partisan approach the board of Religare has taken which has resulted in delay of the completion of the open offer at the cost of public shareholders. Hopefully with these directions, the board of Religare will retain its independence and fulfil its fiduciary duty of applying to the RBI.”

This is a developing story. This is the first time in recent years that the professional management of a company is trying to stall an open offer proposal from its largest shareholder without a competitive counter-offer. Corporate governance experts have frowned upon the conduct of the board of Religare, led by executive chairperson Rashmi Saluja, who has been accused of major lapses in governance.

The story so far

The Burman family, promoters of FMCG company Dabur and the single largest shareholders of Religare, and Religare’s board of directors are fighting a bitter battle for control. When the Burman family announced its plan to launch an open offer to raise their holding in the company to around 52 percent, it very quickly escalated into a mud-slinging contest with serious accusations and counter accusations of misgovernance and financial irregularities.

In a statement on September 25, Religare had applauded Burman’s takeover bid as a “positive step reflective of the strong business platform on which the company stands”. However, in a quick U-turn, its board vehemently opposed the move. It reportedly wrote to the RBI, Sebi (Securities and Exchange Board of India), and the Insurance Regulatory and Development Authority of India (IRDA), pressing charges of fraud and market manipulation against the Burman family. Saluja and the independent directors also alleged that the Burmans were colluding with the Singh brothers, the former promoters of Religare, and questioned the Burmans’ source of funds for acquisition of the controlling stake, alluding that they do not meet the fit-and-proper criteria of the banking regulator.

Also read: A murky boardroom battle shakes Religare, again

The Burmans fought back. They accused Saluja of wrongdoing and poor governance. They complained to Sebi and the stock exchanges that Saluja was guilty of insider trading because she partly sold ESOPs soon after she was informed about the open offer in a meeting. In a statement dated November 20, Religare’s board members said: “This process of liquidation of ESOPs… was set in motion several days before the said meeting that happened on September 20.”

But proxy firms are wary of regulatory breaches and non-disclosures on part of the Religare board relating to Saluja’s ‘excessive remuneration’ and the issue of ESOPs, for example. “[This] can be seen as a clear mechanism to reward herself [Saluja] by flouting regulations and keeping shareholders of Religare Enterprises in the dark,” Shriram Subramanian, founder and managing director of proxy advisory firm InGovern, notes.

In a scathing report, InGovern estimates that Saluja owned ESOPs of Religare Enterprises and its subsidiary Care Health Insurance worth over Rs480 crore over and above her compensation. The proxy firm states that Saluja was issued ESOPs of Care Health Insurance even though IRDA rejected the proposal as it exceeded the regulatory limit of Rs10 lakh that non-executive directors of private insurance companies are eligible to receive and would not be in line with the remuneration of other non-executive directors of Care Health Insurance.

Furthermore, there is no disclosure of the same in the annual report, and this is in disregard of mandatory disclosure norms stipulated by Sebi. Also, shareholders’ approval was not taken for ESOPs granted to Saluja (2.5 percent of Care Health Insurance’s total share capital) who was reclassified as an executive director. "Once the regulator has said no, should Saluja be eligible for the same amount of ESOPs in the insurance business by wearing a different hat? I expect we will be hearing on this from the regulator," Amit Tandon, founder and managing director, Institutional Investor Advisory Services, observes.