| Suzuki's move to run Gujarat plant faces a storm |
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New Delhi, 28 January Maruti Suzuki, the country's largest car maker, on Tuesday took the market and shareholders by surprise when it announced its proposed passenger car facility in Gujarat would not be operated by it but its parent, Japan's Suzuki Motor Corporation ( SMC). A new firm, Suzuki Motor Gujarat Pvt Ltd, to be registered by April, will exclusively contract- manufacture and sell vehicles to Maruti Suzuki India Ltd ( MSIL), which will only market those vehicles in India and abroad. Many analysts, including research & analysis firm InGovern, raised questions on " corporate governance" issues and said minority shareholders should challenge the deal, as their interests would be adversely affected. The equity market panned the proposed move, pulling down the Maruti Suzuki stock. On BSE, the scrip tumbled 8.12 per cent, the most since November last year. This was despite the company reporting robust earnings during the December quarter. Maruti Suzuki's profit rose 36 per cent in the quarter to ₹ 681 crore, mainly on cost reduction, higher localisation and favourable foreign- exchange movement due to a weak Japanese yen. Elaborating on the new company, SMC Chairman Osamu Suzuki said: "The company will have a starting capital of ₹ 100 crore and will not be listed on the stock exchange." He clarified SMC did not want to increase its stake in Maruti Suzuki from the current 56.2 per cent. Suzuki added the manufacturing capacity of the proposed Gujarat facility — like the Maruti units in Gurgaon and Manesar — will be increased to 750,000 units a year in three phases. Turn to Page 11 > New subsidiary to supply cars to Maruti Suzuki Suzuki Motor Chairman Osamu Suzuki ( right) and Maruti Suzuki Chairman R C Bhargava COMPANIES 2 > >MSIL Q3 profit up 36% even as sales tumble >' Shareholders must stop pactwith Suzuki arm' THE SMART INVESTOR II, 1 > >COMPASS: Expansion headaches PHOTO: DALIP KUMAR The markets did not seem impressed with the Suzuki proposal; the MSIL scrip fell 8% on BSE |
| Shareholders must stop pact with Suzuki arm |
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The positives stated by the company, that MSIL benefits from the interest expense of not investing, is not tenable as MSIL is a net cash flow- positive company. Incremental cash generated would be better utilised for capital investment for this expansion. There is no compelling business logic for such an arrangement, when MSIL had the necessary capital to make investments. It looks like the SMC subsidiary will enjoy the benefit of no business risk with assured vehicle offtake by MSIL and assured return on investments, while MSIL will bear the business risk of cyclical vehicle sales, competitive pressures, pricing and cost pressures. Minority shareholders should oppose this move, and register a complaint with the Securities and Exchange Board of India. They will have to be given a chance to vote on the contractual arrangements with the 100 per cent subsidiary, as these are related- party transactions. Suzuki, as the promoter, should not get to vote on these. Shareholders should oppose and vote against such contracts. The author is founder and managing director, InGovern Research Services, a corporate governance research and analysis firm
EXPERT TAKE SHRIRAM SUBRAMANIAN |
| Sahara India told to show refund source |
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New Delhi, 28 January The Supreme Court on Tuesday directed Sahara India, the nodal partnership firm that controls businesses of the Sahara group, to give bank statements and ledger records to show the source of the ₹ 20,000 crore of refunds to the group's investors. A bench of judges K S Radhakrishnan and JS Khehar refused to grant relief to group chief Subrata Roy till the source of these funds was established. This follows a hearing on a contempt petition filed by the Securities and Exchange Board of India ( Sebi) against two Sahara group firms — Sahara India Real Estate Corp Ltd ( SIRECL) and Sahara Housing Investment Corp (SHICL) — for allegedly not complying with the court's orders. On August 31, 2012, the court had ordered the two companies to pay ₹ 24,029 crore to Sebi; the amount was to be refunded to 29.6 million investors of the group. The firms have paid Sebi only ₹ 5,120 crore. They claim the rest of the amount has been refunded to investors directly, resulting in the contempt petition. The matter was adjourned to February 11. After securing title deeds and property documents claimed to be worth ₹ 20,000 crore, the court had directed the Sahara firms to explain the source of these funds. Following this, the Sahara group sent three truckloads of documents to Sebi earlier this month. Sebi counsel Arvind Datar said, " The most important ( piece of) information is not there." He added the companies had provided documents showing they had sold assets worth thousands of crores to other group entities and had directed payments be made to Sahara India. " Did these companies actually pay to Sahara India? There is no evidence," he said. For full reports, visit www. business- standard. com MISSING MONEY |Supreme Court has directed Sahara India, the nodal partnership firm that controls the groups businesses, to give bank statements and ledger records to show the source of refunds of ₹ 20,000 crore made to the groups investors |The apex court had earlier ordered Sahara India Real Estate and Sahara Housing Investment to pay ₹ 24,029 crore to the Securities and Exchange Board of India ( Sebi), to be refunded to 29.6 million investors |The two firms have paid Sebi only ₹ 5,120 crore, claiming the rest had been refunded directly |
| SC okays revocation clause in land acquisition law |
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New Delhi, 28 January A Supreme Court order on the new land acquisition law will have a long- term effect on those whose land has been acquired but who have not accepted compensation and gone to court, and where the matter is still pending. The order relates to compensation under Clause 24 or the ' retrospective' clause for land acquired by private parties or the government. The new law -- the formal name is Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 -- says if for five years after acquisition the owners of the land refused to accept compensation, the acquisition could be set aside. In pursuance of this, 18 appeals were filed before the SC, invoking application of the clause. In all of these, five or more years had passed since the acquisition award under section 11 of the Land Acquisition Act, 1894, and the applicants/ petitioners had refused to accept the compensation. Given the new rights in the legislation, allowing pending litigation to be reviewed and retrospectively annulled, these parties approached the SC. In this litigation, the acquiring authority ( Pune Municipal Corporation) argued it had deposited the amount in the state government treasury, in fulfilment of its obligations on compensation. This has been the standard procedure in acquiring land when the owners refuse to part with it. Last Friday, the SC ordered that in accordance with the new law, compensation would only be deemed to have been paid if it had been deposited with a court dealing with the matter and after having been offered to the individual concerned. In this case, the compensation had only been deposited in the treasury. As a result, compensation could not be deemed to have been paid and the acquisition was considered to have lapsed, the order said. It made no comment on the fairness or otherwise of the amount of compensation; only, that the process to acquire land had not been followed. It merely said the compensation was inadequate because it did not include interest that had accrued while the compensation was lodged in the government treasury. For full report, visit www. business- standard. com Ruling upholds cancellation where acquisition amount not accepted for 5years or more, if the dispute was in court all along, with a rider |The new law says if for five years after acquisition, the owners of the land don't accept compensation, the acquisition could be set aside |18 appeals were filed before the SC, invoking application of the Clause 24, or the 'retrospective' clause, for land acquired by private parties or the govt |The acquiring authority (Pune Municipal Corporation) said it had deposited the amount in the state government treasury, in fulfilment of its obligations on compensation |The order said since the compensation was deposited in the treasury and not a court concerned, it would not be deemed to have been paid and the acquisition was considered to have lapsed |The order made no comment on the fairness or of the amount of compensation; only, that the process to acquire land had not been followed |The compensation was inadequate because it did not include interest that had accrued while it was lodged in the treasury LAW OF THE LAND |
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