Indian corporates in general consider shareholders approvals to be a mere formality.
With their direct and indirect control over the ownership and the consequent control over the voting, many try to get away with questionable resolutions suiting promoters’ own interests.
However, with increasing shareholders’ awareness and activism, it’s becoming increasingly difficult for many of them.
Britannia is the latest to join the list.
Shareholders in last week’s AGM rejected it’s request to make investments and give loans and guarantees up to Rs 5,000 crore.
- About 70% of the institutional investors and 71% of the non-institutional public investors voted against the proposal.
- The amount of Rs 5,000 crore is twice the Net Worth of the Company as at March 31, 2022 (Rs 2,558 crore)
- As per the Companies Act, a company is authorised to make investments in the securities of other corporates, give loans and provide guarantees and security in connection with any loan, to any other corporate or person, to the extent of 60% of its paid-up share capital and free reserves, or 100% of its free reserves, whichever is higher, with the approval of the board of directors.
- For a higher amount, shareholders’ prior approval is required by way of a special resolution.
- The rejection came as it was request for a broader approval without any specifics of what the Company intended to use the amount for. Britannia is neither an investment Company nor a NBFC and hence request for blanket approval doesn’t seem right.
- The Company can always go back to the shareholders for any specific approval as and when needed.
Promoters of Britannia i.e., Wadias have varied business interests including real estate and airlines that are considered risky and require significant capital.
Shareholders concerns are well founded and I am happy that the proposal got rejected.