No threat to Maruti’s plans since Section 188 not in place

Mar 15 2014, 01:24 IST
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Section 188 of the Companies Act says no company shall enter into any contract or arrangement...PTI Section 188 of the Companies Act says no company shall enter into any contract or arrangement...PTI
SummarySection 188 of the Companies Act says no company shall enter into any contract or arrangement.

Had Section 188 of the Companies Act, 2013, which deals with related-party transactions, been notified, minority shareholders in Maruti Suzuki India (MSIL) might have felt less helpless than they do now. However, experts point out that in the interests of corporate governance MSIL should nevertheless run the proposal to house the new plant in Gujarat in Suzuki Motor Corporations’ (SMC) wholly-owned subsidiary rather than in MSIL past small shareholders. While the Companies Act, 2013, is in place, so far less than 100 sections — 98 to be precise — have been notified. Maruti’s board meets on Saturday and shareholders are hoping the management will respond to clarifications sought by the four independent directors.

Said Sai Venkateshwaran, partner and head, accounting advisory services, KPMG, “Sebi’s (Securities and Exchange Board of India) recent amendment to Clause 49 of the listing agreement requiring all material related-party transactions to be approved by a special resolution of minority shareholders will be effective only from October this year. Moreover, the related provisions in Section 188 of the Companies Act, 2013, requiring approval of related-party transactions that are not in the ordinary course of business or not at arm’s length by a special resolution of minority shareholders are likely to be notified shortly. As such, companies that seek to uphold the highest levels of corporate governance should go by the spirit of these legislations and seek minority shareholder approval and protect their interests.”

Diljeet Titus, managing partner of the law firm Titus & Co, believes MSIL is supposed to follow the letter as well as the spirit of the law. “The move to ratify the proposal, without putting it through a special resolution, is not compliant with good corporate governance practice and if challenged in a court of law, the proposal can be struck down,” Titus observed.

He feels independent directors should abstain from voting on it and should insist the matter be examined by an external, independent body. “Since Suzuki has derived so much benefit out of the Indian market, it owes this much to the country,” Titus added.

Institutional shareholders have been agitated ever since MSIL’s announcement in late January since they believe such a move would be be detrimental to the latter’s financial prospects given there’s not enough clarity how much of a ‘mark up’ SMC’s subsidiary would retain before selling the vehicles to Maruti. They also apprehend that, over time, MSIL might be turned into a marketing

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