Religare vs The Burman Group: The Corporate Battle Of 2 Giants

At its core, The Religare controversy centers around the takeover bid by the Burman family. Allegations of financial impropriety have been made and different regulatory bodies, ED, SEBI, and IRDAI are all inquiring about the situation.

As the show unfolds, it has highlighted issues on corporate governance, regulatory oversight, and complexities found in India’s financial services industry.

Background of the Conflict

Matters came to a head seriously with the Burman family – already holding an almost fair-sized stake in Religare- furthering their stake above 25% in September of 2023. This, under the Substantial Acquisition of Shares and Takeovers (SAST) Regulations, necessitated a mandatory open offer. Now, for the owners of the Dabur brand it was high time to take control of an important financial services player in India.

However, this takeover attempt was strongly opposed by the management and board of Religare headed by its Executive Chairperson Rashmi Saluja. The basis for this opposition was that the Burman family did not have the expertise to operate a financial services business. This led to a long and ugly corporate fight soon involving multiple regulatory agencies and bringing serious questions about governance practices.

One of the main bones of contention in this controversy has been the allotment of Employee Stock Ownership Plan (ESOP) shares between Rashmi Saluja and other executives. The Burman family had strongly objected to the actual allotment by raising questions about the process adopted and the quantum of shares distributed. Saluja’s shares were stated to be alone worth an estimated value of Rs 630-740 crore, and that very fact made the said process more contentious.

The Enforcement Directorate (ED) has shown much interest in the ESOP allocations. In a major crackdown, the agency has froze Rs 179.54 crore worth of ESOP shares of Saluja and other officials. It alleges that these officials have accrued unlawful gain by appropriating the funds of Religare towards subscribing rights issues of Care Health Insurance, a subsidiary of Religare.

Moreover, the ED is also looking into other ESOPs that were acquired at highly depressed prices by Saluja and the other officials concerned. It believes that these deals were made with the motive of producing illicit windfall gains and thus forms another aspect of the already challenging conflict scenario.

As the situation got overheated, various regulatory bodies entered the scene and started dealing with the controversy at different levels:

SEBI’s Role

The Securities and Exchange Board of India (SEBI) has led the regulation in this case. In June 2024, SEBI put out an interim order and show-cause notice noticing that Religare and its management were not cooperating with the Burman family in seeking necessary regulatory clearances for taking over. SEBI directed the company and senior management to take all measures to enable the fulfillment of obligations under the SAST Regulations by acquirers.

While SEBI’s intervention on this count has gone far beyond the takeover process, the regulator has reportedly sent a show-cause notice to Rashmi Saluja on alleged insider trading complaints filed by the Burmans. The regulator is purportedly investigating trades made by Saluja on September 21 and 22, 2023, which are less than a week before the open offer of the Burmans. These trades of 1.29 million shares worth Rs 34.71 crore have drawn public attention, based on complaints lodged by investment firms associated with the Burman family.

IRDAI’s Action

The Insurance Regulatory and Development Authority of India (IRDAI) also had a great deal in hand with this scandal. In July 2024, IRDAI imposed a fine of Rs 1 crore on Care Health Insurance, which is a subsidiary company of Religare. Besides, the regulator had sought for the buying back of the ESOPs issued to Saluja as regulations clearly mention that neither non-executive directors nor key management persons can accept any remuneration other than sitting fees without permission from the regulatory authority.

According to reports, it is temporarily stayed by the SAT in August pending final judgment. The interim order by SAT asked Care to deposit half of the amount imposed as penalty. In addition, Saluja was restrained from further issuance of the ESOPs. Saluja was also restrained from trading in shares of the insurance company and from exercising options under the ESOP scheme.

Investigation by ED

The case has assumed a criminal dimension with the intervention of the Enforcement Directorate. In September, the ED slapped charges of cheating and conspiracy against Saluja and two other board members. The agency claims these three tried to prevent the Burman family from acquiring Religare by engineering false cases against the Burman brothers.

According to the ED, an Religare shareholder named Vaibhav Gawali claimed he was instructed by Saluja and two others to file a complaint accusing the Burman brothers of financial irregularities. Gawali allegedly said that he had been paid money by them for buying Religare shares and for filing the complaint to which he did not have any documents to back.

Corporate Governance Concerns

The Religare scandal has drawn much attention to the problems of corporate governance. A proxy advisory firm, InGovern, has been asking for Saluja’s resignation along with other key management personnel, holding that the governance practices of the company were in doubt. Some of the major controversies had been the delays in holding the Religate annual general meeting (AGM) without clear explanations.

Such could also be a ploy at delaying the inevitable- rejection by shareholders of Saluja’s reappointment, given the shoddy management that has characterized the corporation. This serious question marks the state of governance and accountability through its management at Religare.

Current Scenario 

At this point in time, the situation remains fluid and highly contentious. The Burman family continues to agitate for its takeover of REL, whereas the company management, led by Saluja, carries on their opposition to the acquisition. Regulatory inquiries and related legal processes continue unabated with potential developments in the months ahead.

The latest reports indicate the involvement of Rashmi Saluja, who has reportedly written to the Ministry of Finance and the Prime Minister’s Office, interceding in the case. This is amid allegations by SEBI and the Enforcement Directorate suggesting Saluja might be seeking high-level government intervention against one imposed by the regulators.

This appeal to the higher levels of government underscores the gravity of the situation and far-reaching implications this corporate battle entails. It also questions the appropriate role of government intervention in corporate disputes and regulatory investigations.

The Religare controversy has very wide-ranging implications for India’s corporate and financial sectors:

Corporate Governance – This case does specifically underscore the need for sound corporate governance practices in Indian enterprises. Corporates, especially financial services, now raise serious issues about governance structure effectiveness because of imputed malpractices related to ESOP allocations and reported attempts to thwart valid takeover bids.

It shows a lot of involvement by various regulatory agencies, SEBI, IRDAI, ED, which means that there is a process that is thorny to efficiently streamline regulation in India’s financial market. Even the debate calls for coordinating the effort of regulators so that corporate malpractices can be stopped.

Investor Protection – is a lesson for protecting minority interest in these corporate battles. Allocations of trading based on inside information and imbalances in the distribution of shares can further erode investor confidence if established.

Financial Services Industry Stability – As Religare is one of the dominant players in India’s financial services industry, this verdict can have broader consequences for the stability and reputation of the industry.

Legal and Regulatory Framework-This judgment can bring a re-evaluation of existing regulations regulating takeover, ESOPs, and corporate governance of financial services enterprises.

 All eyes are following the regulatory bodies and their findings as the situation keeps changing. The precedential value arising from this case would also signify immense changes in corporate governance and regulatory oversight regarding India’s financial sector.

Since Saluja has also reached out to the PMO, we will also be waiting to see how the government reacts to this entire fiasco and whether it will have a bearing on the regulatory investigations that are currently ongoing.