Ingovern Flags Challenges For Stakeholders Of Religare Enterprises

Governance advisory firm Ingovern Research Services has flagged off challenges and opportunities that stakeholders of financial advisory company Religare Enterprises Ltd. must be aware of so that they can make informed decisions in the face of uncertainty.

Religare is dealing with ongoing disputes, coupled with SEBI’s regulatory scrutiny, reflecting the intense rivalry between the Burman family and the current management. The situation is evolving, with regulatory bodies actively investigating the allegations and their implications for both parties, Ingovern has said.

SEBI is investigating potential insider trading violations linked to Rashmi Saluja, the executive chairperson of Religare. Furthermore, in 2022, the Ministry of Corporate Affairs ordered an investigation into the affairs of Religare Enterprises Ltd. and Religare Finvest Ltd., which brought to the forefront certain financial transactions that could adversely affect the ongoing investigations.

Recently, the Delhi High Court sought responses from the Registrar of Companies (RoC) and Religare regarding an appeal by Burman group entities challenging a three-month extension granted to Religare for holding its 40th AGM.

In addition, the soon to be appointed auditor, Nangia & Co LLP, has withdrawn its consent for being considered for appointment as statutory auditors.

Religare has deferred its Annual General Meeting (AGM) by three months, moving it from September 2024 to December 2024. This decision has left shareholders frustrated, as the company has not provided a valid reason for the delay, especially since the financial accounts were already filed with the exchanges.

Ingovern has pointed out that the postponement is particularly significant because Rashmi Saluja was due for re-appointment as she was slated to retire by rotation at the originally scheduled AGM in September. As the only non-independent director, her position requires re-appointment at each AGM, making the timing of this delay critical.

The lack of a clear explanation for the delay has left shareholders feeling uneasy, prompting discussions about potential actions they may take in response.

Though the last AGM of Religare took place on Sept 26, 2023, and as per statutory requirements, the company has 15 months to convene the next one, Religare has not breached the statutory time limit as of now.

However, if it fails to comply with the statutory requirements, the National Company Law Tribunal can intervene to enforce compliance.

Ingovern has highlighted potential actions that SEBI may take to ensure compliance and protect shareholder interests.

The regulator may examine the decision-making processes that led to the delay, as well as the company's actions regarding share allotments and Employee Stock Ownership Plans (ESOPs). This scrutiny will aim to uncover any potential corporate governance issues or regulatory violations, Ingovern states.

Further, If SEBI finds that Religare has breached any regulations, it can impose significant penalties on the company or its executives. These penalties may include hefty fines or even restrictions on future share issuances until the company demonstrates full compliance.

To restore investor confidence, SEBI may require Religare to enhance transparency in its operations and decision-making processes. This could involve implementing more stringent disclosure requirements related to executive compensation and shareholder communications.

It has been underscored that Burman family's increased stake has given them veto rights over special resolutions, which adds to the complexities surrounding the company's governance and shareholder dynamics.

If a significant fraction of shareholders mobilize against Saluja, she could encounter a challenging re-appointment vote. The dynamics of shareholder sentiment will play a pivotal role in determining her fate. If allegations against Saluja are substantiated, regulatory bodies like SEBI could impose sanctions, further complicating her position and eroding shareholder confidence.

In short, the research services firm has said that the voting outcome will not only determine Saluja’s fate but also shape the future direction of the company. Shareholders must remain vigilant, as the unfolding events could have lasting implications for corporate governance and investor relations at Religare Enterprises, it said.

Further, the SEBI’s show-cause notice to Saluja regarding alleged insider trading marks a pivotal moment for the company. The SCN signals that SEBI is actively investigating potential violations of securities laws. This increased oversight may prompt deeper inquiries into Religare's corporate practices, potentially uncovering further discrepancies that could lead to additional regulatory actions.

Allegations of insider trading can severely tarnish a company's reputation, and depending on the investigation's outcome, Religare could face substantial financial penalties or sanctions from SEBI.

Ingovern has said that the ongoing investigation is likely to induce volatility in Religare's stock price.