InGovern’s Red-Flags on TD Power Systems’ Resolutions in 2023
Concerns about corporate governance problems at TD Power Systems (TDPSL) have been raised by the proxy advice firm InGovern Research Services, which has urged shareholders to reject a proposal to re-appoint Mohib N Khericha as a director. Additionally, it urged shareholders to demand an investigation into the acts of the engineering services company.
The recommendation comes before the company’s AGM, which starts on August 9. According to InGovern, Khericha’s reappointment letter omits to include a lawsuit that has been brought against him and a temporary court order that limits the transferability of some shares. Additionally, the complaint brought by Vijay R. Kirloskar, who accused Khericha of deceit and breach of trust, must be included in the company’s director’s report.
Based on a plea submitted by Vijay R. Kirloskar, the Karnataka high court issued an ad-interim order on July 12, 2023, prohibiting Khericha and Nikhil Kumar (the MD of TDPSL and Kirloskar’s nephew) from dealing in 2.51 billion shares of TDPSL.
The chairman of Bengaluru-based Kirloskar Electric Company, Vijay Kirloskar, had already filed a court petition asserting claims to the shares.
Khericha and Kumar were among the people who had received ad-interim orders from the court prohibiting them from trading TDPSL shares.
To undertake a forensic audit of the company’s activities, including an investigation and verification of all records, books of accounts, and other documents, shareholders should request the appointment of an impartial and reputable external body. In particular, when a resolution is being considered for his reappointment, the behaviour of the company’s board, including that of Khericha, should be included in the audit, InGovern stated in a note.
If Khericha is deemed “fit and proper” to be considered for reappointment as a director by the firm and its board, the shareholders should also inquire about that.
Additionally, InGovern has requested that shareholders ask TDPS for justifications for the promoters’ shareholding sale and disclosures about the dispute with Kirloskar, in which the firm is also a party.
The Rs 4,000 crore firm is based in Bengaluru and produces generators and motors for the power industry. The promoters and promoter group of TDPSL, which included Nikhil Kumar, Mohib Khericha, Chartered Capital, Saphire Finman Services, and Hitoshi Matsuo, sold 3.78 crore shares earlier on June 30, 2023, accounting for 24.21% of the company’s stock. Institutional investors bought these shares, including Societe Generale, Aditya Birla Sun Life MF, BNP Paribas, HDFC MF, ICICI Prudential MF, Goldman Sachs LIC MF, Mahindra MF, Mirae MF, Oxbow Master Fund, Quant MF.
The transaction caused the promoters’ stake to drop from 58.45% to 34.30% in one quarter.
The year 2023 has brought significant development to TD Power Systems, a renowned Indian manufacturer of AC generators. The shareholder advisory firm InGovern Research Services red-flagged specific resolutions proposed by the power equipment producer, sparking a considerable debate in the industry. This article delves into the particular solutions in question, the reasoning of InGovern for red-flagging them, and the potential implications for TD Power Systems and its stakeholders.
InGovern, one of India’s leading independent corporate governance analysis firms, raised concerns over several resolutions put forth by TD Power Systems in 2023. It did so based on its mandate to protect minority shareholders’ interests and to foster a culture of good corporate governance within the Indian corporate landscape.
The critical resolutions red-flagged by InGovern involved:
- Changes in managerial remuneration.
- An alteration in the company’s Memorandum of Association.
- An issue of preferential shares.
InGovern criticized these proposals for lack of adequate transparency, possible breach of corporate governance norms, and the potential to dilute existing shareholders’ rights.
InGovern was critical of the sharp increase in managerial remuneration, which it felt was unjustified considering the company’s recent performance. It questioned the need for a clear correlation between the pay increase and the company’s performance metrics.
InGovern highlighted that the proposed changes could allow the company’s management to engage in activities that may not align with the company’s core business or the best interests of the shareholders.
The proposed preferential share issue was red-flagged due to concerns over potential dilution of existing shareholders’ rights. InGovern argued that this resolution needed more clarity on who the preferential allottees would be, thus creating potential risks for existing shareholders.
The red-flagging of these resolutions by InGovern has several potential implications for TD Power Systems. These implications may range from immediate effects, such as a drop in stock price due to reduced investor confidence, to more long-term consequences, including potential difficulties in future fund-raising efforts.
The company’s stock price could be affected in the short term if investors perceive the red-flagged resolutions as signs of weak corporate governance. Investors often value transparency and accountability in a company’s decision-making processes, and any potential deviation from these values can affect investor sentiment negatively.
In the long term, if TD Power Systems adequately addresses InGovern’s concerns, it may avoid difficulties in attracting new investors or raising capital. Given the importance of trust in financial markets, repeated corporate governance issues can deter investors and make money more expensive.
Moreover, these developments may lead to increased scrutiny from regulatory authorities, potentially leading to sanctions if non-compliance with corporate governance norms is found.
InGovern’s red-flagging of TD Power Systems’ resolutions represents a critical moment for corporate governance in India. It underscores the essential role of independent advisory firms in maintaining checks and balances within corporations, protecting the interests of minority shareholders, and fostering good governance practices.
While the outcome will depend on the company’s response and subsequent decisions, the incident offers valuable insights for other corporations on the importance of transparency, accountability, and shareholder value protection. Strong corporate governance is a crucial pillar for sustainable growth and value creation, serving the interests of all stakeholders in a corporation.
