Tata Stand On VSNL Payout Gets India Incs Support

Mumbai, May 30: | Updated: May 31 2002, 05:30am hrs
Twin images are flashing among the collective industry psyche, as reactions to the Videsh Sanchar Nigam Ltd (VSNL)-Tata Teleservices Ltd (TTL) deal, with a majority of the reflexes supporting the business deal undertaken by the Tata Group. According to an official from a multinational consumer products company, the decision of the VSNL board of directors was absolutely correct. "Having taken over VSNL, it is the board of directors who must decide what investments the company makes. As long as the shareholders agreement is not violated, it is their prerogative to decide what will benefit the company and its shareholders. That is how private business is conducted." The official also stated that the Tata decision to publicly announce this investment three months into their ownership of VSNL showed their lack of mal-intent. "This decision has been taken with the larger interests of VSNL in mind. If they (Tatas) had kept mum for a few more months and done this investment quietly, which was an option open to them, that would have signalled bad intent," the official said. According to an official from a chartered accountant firm, the move is perfectly within the laws of the Companys Act. On as to whether the company needs to take shareholders approval through a special resolution by convening an extra-ordinary general meeting (EGM), an official said that in case the investment is within the limit allowed as per the Article of Association with the board of directors, then an EGM need not be convened.

"The directors on the board have been voted to power by the shareholders, and they need to have faith in the board on the business decisions taken. In case, a shareholder feels that the decision is wrong, they may vote against the directors concerned at the annual general meetings," said a legal expert, terming the Tata-TTL deal as "democratic" and "a prerogative of the board". According to a head of a consulting firm, however, while the deal has been undertaken well within the rules, it makes the issue of corporate governance much more complicated. "Corporate governance is a complicated issue in itself, and when it comes to differences of opinion among shareholders, it further complicates the issue," the consulting firm head added.

Concurred a senior non-executive director: "It may not have been done in a transparent manner, so to speak, as the fellow shareholder (the government) does not seem to have been taken into confidence before putting up such a proposal to the board." He added that since the open offer had just been concluded, the company should have kept shareholders in the know of what could be expected as business decisions/plans in the near future.

Telecom industry observers point out that there has been no detail on the valuation of TTL.

This company provides basic telephony services in the Andhra Pradesh circle and will commence services in four other circles shortly.

"Fundamentally, there has been nothing wrong about the investment and it is really a normal investment decision," these observers said. The real issue, they explained, is the rationale to put it in a company which is unlikely to register any profit for the next three years at least. "With the impending launch in the new circles, this period can only can get extended," they added.