Although investments at the Gujarat plant will be funded by SMC via a wholly-owned subsidiary, they will now be done through depreciation and the equity brought in by parent without 'mark-up' on cost of production.
Also, in case of termination of the contract manufacturing agreement between them, the facilities of the Gujarat subsidiary would be transferred to Maruti Suzuki India Ltd (MSIL) at book value and not at fair value as was envisaged before.
The decision was taken at a board meeting held here, which was also attended by SMC Chairman Osamu Suzuki.
Fund houses, which have been opposing the proposal, said the decisions taken by the board appeared to be in the interest of the company and the investors.
Explaining the decision take by the company's board, MSIL Chairman R C Bhargava said: "We are not required by law to seek minority shareholders' approval but the board decided to do so as a measure of corporate governance."
Speaking to reporters here after the meeting, he said the decision was taken in the context of the views and opinions expressed by institutional investors and 3/4th of the minority shareholders, who hold 44 per cent stake in the company, would have to approve the proposal through a special resolution.
Expressing confidence that the proposal would be approved by the minority shareholders, he said: "We are hopeful. It's such a good deal that there is no reason why minority shareholders should oppose it. The apprehension which were expressed have been absolutely made crystal clear."
On the financing of the Gujarat plant, Bhargava said the entire capex of the Gujarat subsidiary will be funded by depreciation and equity brought by parent SMC without mark-up as was earlier proposed.
"Funding remains the same except there is no mark up now," he said.
Also, in the event of termination of the contract manufacturing agreement, the facilities of Gujarat subsidiary would be transferred to MSIL at book value.
Earlier, it was proposed that the assets of the Gujarat subsidiary would be transferred to MSIL at a fair value to be determined by independent valuation.
When asked as to how long would it take to get nod from the minority shareholders, he said: "The decision has been taken, so give us a little time to decide how to go about doing it. Final agreement will be after all processes have been completed, like legal process needs to be completed. There is minority shareholders before we sign the agreement." An official of MSIL said it could take a couple of months to work out the schedule to seek minority shareholders' approval through postal ballot.
MSIL also said the Gujarat arm would function on the basis that it would neither generate surpluses nor make loses.
Reacting to the development, an official of one of the fund houses, which have been opposing MSIL's earlier proposal, said: "Today's decision to seek minority shareholders' approval is a welcome move. We will convey our official stand after studying the fine-print and discussing the same among all 16 investors."
MSIL's independent directors, who are reported to have expressed concerns over the proposals of the Gujarat project, supported the company's move.
"This is an attractive proposal so we thought we should accept it. We could have invested directly, we could always do that but we thought it is a better option," said Independent Director Amal Ganguli.
Insisting that Independent Directors don't "sit quietly and accept what is given to us", he said: "We try and advice on the proposals all the time in all situations, that's our job, maybe we don't have a platform to go and say that I said this he said that that's not the way."
When asked if the independent directors protested in the last board meeting, Ganguli said that "no one protested about anything, we tried to refine and improvise. I don't think anybody protested".
On the timline for starting work on the Gujarat plant, Bhargava said: "Target of completion that Suzuki has set is early 2017. So they'll start sometime this year."
Praising SMC Chairman Osamu Suzuki for agreeing to address minority shareholders' concerns, Bhargava said that in Japan there is "nothing like minority protection law and they don't have have this understanding of minority shareholder protection, voting by shareholders.
"...and so in those conditions for Mr Suzuki to accept to do this here not knowing what really it is all about is actually the creditable thing..."
In January, SMC announced that it would invest USD 488 million (about Rs 3,050 crore) on the Gujarat plant, which was originally proposed to be set up by subsidiary MSIL.
SMC proposed to invest in the plant through wholly-owned unit Suzuki Motor Gujarat (SMGPL). The plant, which will be the first fully-owned factory of SMC in India, will have an initial capacity of 1,00,000 units a year, all of which will be supplied to MSIL.
Maruti had originally proposed to set up the plant near Mehsana and had in 2012 bought land before SMC decided to takeover it to allow the Indian arm to focus on product development and marketing.
Opposing the move, MSIL's institutional investors approached Sebi, seeking its intervention to safeguard minority shareholders' interests. Private sector mutual funds and insurance companies, which own almost 7 per cent of the company, led the opposition.
Separately, state-run Life Insurance Corporation of India (LIC) had also sought clarifications from MSIL about the Gujarat project.