The Holcim-Ambuja transaction will be a true test of the voice of the minority shareholder and a test case for the market watchdog, the Securities and Exchange Board of India (Sebi). For the first time since the revised Sebi guidelines on schemes of arrangement involving promoters were issued, a contentious issue will be decided solely by minority shareholders. For the first time in Indian capital market history, promoters won’t have any say in voting on the proposal.

With the eminent independent directors on the board of Ambuja Cements Ltd acting as Yes Men and the board unanimously endorsing the transaction, it is left to institutional investors to voice concerns and vote against the move. As of 30 June, institutional investors own 38.94% and non-institutional investors own 10.51% of Ambuja Cements.

Historically, Sebi had made several efforts to monitor schemes of arrangements undertaken by listed entities, including the introduction of Clauses 24(f), 24(g) and 24(i) in the listing agreement. However, it played a limited role in the approval of such schemes and was only involved at the time of granting exemption under Rule 19(2)(b) of the Securities Contracts (Regulation) Rules (SCRR) after high court approval of the scheme. Since Sebi was not involved in the initial stages, listed companies were making inadequate disclosures and undertaking schemes of arrangement that were to the detriment of minority shareholders. To address this concern, Sebi issued a circular on 4 February, requiring stringent compliance as listed in the circular, while undertaking a scheme of arrangement.

According to that and the subsequent change detailed in a 21 May circular, all schemes of arrangement involving promoters have to be put up for comments by Sebi and the stock exchanges.

Stock exchanges are required to forward their objection or no-objection letters on the draft schemes to Sebi. On the receipt of comments from the markets regulator, stock exchanges are required to issue an observation letter to the listed company after suitably incorporating the comments received from the regulator. Minority investors can write to Sebi and the stock exchanges if they oppose this transaction. Minority shareholders will have to hope that Sebi will provide adverse comments on the scheme based on their feedback.

The company will also have to submit a complaints report detailing all the complaints received by it and the resolutions, if any. The company will have to attach the complaints report along with the postal ballot notice sent to shareholders for voting on the proposal.

Only after receipt of observation letter from the stock exchanges can the company apply to the court for sanctioning the scheme. But there is still no clarity on whether Sebi can force the company to revise the scheme of arrangement once the high court has approved it.

Sebi has also made it mandatory for companies to put the scheme of arrangement for shareholder approval to a postal ballot with e-voting. In the postal ballot, the majority of minority shareholders will have to vote in favour of the scheme for it to pass. So, it will need at least 51% support among minority shareholders.

The e-voting mechanism is truly democratic, with one share getting one vote. The archaic system of voting by show of hands has been done away with. Although court-convened meetings in the past used to hold ballots, the need for physical presence was a deterrent to wider investor participation.

The e-voting mechanism ensures participation by investors from all parts of the world. Additionally, the cost of e-voting is negligible for the investor.

Holcim, as a promoter, won’t get to vote. The promoter will need to actively court the minority shareholder to muster support and win the vote. Obviously, they will put their weight behind the institutional investors. The domestic institutional investors must be objective and act on their free will without heeding any pulls or pressures. Retail shareholders must actively participate since they can vote from the comfort of their homes.

For the first time in the Indian capital market, the minority investor will be powerful.

Shriram Subramanian is founder and managing director of proxy advisory and corporate governance research firm InGovern Research Services.

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