Sebi directs NSE to review transactions between Linde India and Praxair India amid shareholder complaints

The Securities and Exchange Board of India (Sebi) has directed the National Stock Exchange (NSE) to evaluate related party transactions (RPTs) between Linde India Ltd (LIL) and Praxair India Pvt Ltd (PIPL), as per an order passed on Wednesday.

This move, underscoring increased scrutiny over corporate transactions, follows shareholder complaints alleging that these transactions, including the allocation of the hydrogen carbon oxidation business to PIPL, were conducted without proper approval and could harm LIL's public shareholders.

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Linde India, formerly under the UK-based BOC Group, became part of Linde AG after its acquisition in 2006 and subsequent merger with Praxair Inc. in 2018, forming Linde Plc. The NASDAQ-listed company, with LIL and PIPL as its Indian subsidiaries, entered a joint venture with a 50% stake each in Linde South Asia Services Pvt Ltd (LSASPL), an administrative services provider.

Shareholder concerns

Shareholders are concerned that allocating the hydrogen carbon oxidation business to PIPL could undermine LIL’s market position and profitability. Both Indian subsidiaries manufacture and sell industrial, medical, and special gases.

Sebi passed an interim order on 29 April instructing NSE to evaluate the RPTs. However, the Securities Appellate Tribunal overturned this order following an appeal by LIL, directing Sebi to hold a hearing with LIL before making any further decisions.

Subsequently, the regulator summoned Linde India for a personal hearing and sought a response. In its defence, LIL submitted legal opinions from former Supreme Court judge B.N. Srikrishna, senior advocate Abhishek Manu Singhvi, and Sandeep Parekh. According to the views expressed, only transactions executed under a common contract should be considered material. LIL also referenced a resolution from its 85th annual general meeting (AGM) that sought omnibus approval for the transactions.

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Sebi findings

However, Sebi whole-time member Ashwani Bhatia criticized LIL’s reliance on these opinions. Bhatia noted that a substantial portion of LIL’s sales and profits derived from the business segment in question, which had been proposed for restricted allocation. Bhatia warned that this arbitrary reallocation could jeopardize LIL’s future growth prospects and may not align with shareholder interests.

Bhatia added that the attempt to circumvent shareholder decisions through selective legal opinions was contrary to regulatory intent and misleading. He emphasized that the resolution at the AGM was explicitly for shareholder approval of transactions deemed material under Listing Obligations and Disclosure Requirements, not merely as precautionary measures against potential breaches.

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To ensure transparency and fairness, Sebi has mandated that LIL test the materiality of these RPTs, with the NSE overseeing the valuation process. LIL must bear the costs of this evaluation and disclose the valuation report, including key findings, to the stock exchanges.

Linde India responded to Mint's queries saying, "The company is assessing the order and examining the next steps to be taken on the same."