A seven-page letter written by seven mutual funds, including ICICI Prudential MF, Reliance MF and UTI MF, to Maruti Suzuki India Chairman R C Bhargava highlights investor concerns arising from the deal.
State-run LIC has also sought certain clarifications on this matter.
LIC holds 6.93 per cent stake in Maruti Suzuki India, while seven fund houses together hold 3.93 per cent stake.
There are expectations that a meeting can be held between Maruti Suzuki India and fund houses in a day or two, sources said.
Marker regulator Sebi's intervention would be sought in case of unsatisfactory response from the company, they added.
Japan-based Suzuki Motor Corporation last month had decided to take over the setting up of a plant in Gujarat, proposed by subsidiary Maruti Suzuki India.
The parent company would invest in the plant through wholly-owned unit Suzuki Motor Gujarat Pvt Ltd, which will manufacture vehicles exclusively for Maruti Suzuki India.
Mutual funds are opposing Suzuki's move to make the proposed Gujarat unit its wholly-owned subsidiary as the deal would transform Maruti Suzuki India into a distribution company from a manufacturing one.
The fund houses in the letter asked Maruti Suzuki India to think again over the decision as the same is clearly "neither fair nor in the interest of shareholders".
Investors are concerned about turning this critical and highly profitable project into a 100 per cent subsidiary of Suzuki instead of Maruti Suzuki India, the letter said.
It is not in the interest of Maruti Suzuki India and its shareholders. This will lead to significant erosion of value for the company its shareholders, it added.
The announcement of the deal lead to a sharp fall in the stock price of Maruti Suzuki India, leading to a huge loss of Rs 5,000 crore to shareholders, the letter said.
Mutual fund houses asked Maruti Suzuki India to do everything possible to ensure that shareholders' trust is restored and maintained for ever.
The fund managers also raised concerns over the royalty paid by Maruti to its Japanese parent. Besides, they also sought explanation of certain terms like incremental capex with respect to the deal.
They said that Maruti Suzuki India has been facing declining returns on equity and the Gujarat plant will be the right opportunity to deploy cash profitability.
Fund houses said the parent firm already has Rs 7,000 crore as royalty, 5.7 per cent of sales. In the next four years, they say another royalty payment worth Rs 8,500 crore would be made.
"It is not fair to levy royalty on the total sale value of the car. Ideally, royalty should be levied on the value of a car, net of the bought-out components," investors said.
According to them, with this pace and assuming a 15 per cent growth in annual sales over the next 20 years, Maruti Suzuki India would be paying a royalty of Rs 41,900 crore.
However, JN Gupta, Founder and Managing Director of proxy advisory firm, Stakeholders Empowerment Services, said: "Whatever Maruti Suzuki India has declared in its release, if that is implemented, then minority shareholders will not be affected."
Earlier, the proxy advisory firm had said in a report that there is no negative issue for minority shareholders of Maruti Suzuki India if the statements made by the company are taken at face value.
It, however, had also said that certain safeguards like no dividend from subsidiary to Suzuki's and repatriation from subsidiary as per the parent firm's contribution among others should be taken for protecting interests of minority shareholders.
Maruti Suzuki India (MSI) said that the deal is beneficial for the shareholders and replies would be provided in "due course" to the fund houses and LIC on matter raised by them.
An MSI spokesperson said that the "decision to establish a 100 per cent SMC subsidiary in Gujarat, and use it for contract manufacturing for Maruti Suzuki India Ltd would be beneficial to MSIL share holders because the vehicles from the Gujarat subsidiary would be made available to Maruti Suzuki at a lower price than what would have been possible if the production was done by a Maruti Suzuki subsidiary."
The letter (from fund houses) is under consideration and a reply would be sent in due course, the spokesperson added.
"A letter seeking certain clarifications was also received from the LIC and those clarifications would be submitted to the LIC," the spokesperson said.