Drama in Alembic Board room as minority shareholders rise

Sources say of the 1,000 odd small shareholders, 440 were appointed in the last 3 days

As drama unfolds in the Board room of the country's oldest pharmaceutical entity Alembic, with small shareholders pushing for a Board seat in Alembic Ltd to ensure better investor returns, shares of both Alembic Ltd and Alembic Pharma rallied in the bourses on Monday. 

However, sources in the investor community say that most of these minority shareholers (around 440 of the total 1000) were 'created' in the last three days. 

Share prices of Alembic Ltd ended day's trade up 7.75 per cent at Rs 43.25 a share during the day thanks to shareholder activism. Shares were up 11 per cent in the morning session. Alembic Pharma shares too were up marginally. 

Small shareholders have a legal right to appoint a director in the board of a company, through the provisions of Section 151 of Companies Act, 2013. Small shareholders (under the banner of Unifi) are trying to get their nominated director appointed in the company Board through Section 151 of the Companies Act 2013, which allows a small shareholder director to be elected through a postal ballot by only those shareholders with nominal value of less than Rs 20,000. 

But, can the company stall the process - legally, using the Companies Act?

The company could take recourse to technical grounds for refusal to appoint such a director. "These could be that the director proposed by the small shareholders does not meet the requirement and eligibility of an independent director under law. Further, if that person suffers from some disqualifications given under Section 164 of the Companies Act, 2013," notes Lalit Kumar, partner, J Sagar Associates.

Shriram Subramanian, managing director of proxy advisory and corporate governance firm InGovern Research Services feels that the shareholders at all times have the right to raise their voice if they feel that value can be unlocked. "Such things happen quite often in the US; this is something new for India," he said. 

Small shareholders have moved a resolution to appoint a director (Murali Rajagopalachari, vice president of Unifi Capital) on the Board of Alembic Ltd on their behalf at the company's annual general meeting (AGM) on July 28. However, the same has now been dropped off the list of resolutions to be put to vote in the AGM. This would now happen through postal ballot.

Unifi Capital did not answer e-mails sent to them. They have around 3 per cent stake in Alembic Ltd. However, this could not be verified.

Alembic de-merged Alembic Pharma in 2011 with the intention of pursuing growth in formulations and export business. The holding company Alembic Ltd has interests in real estate (it has unused land assets). It also has a market capitalisation of Rs 1,190 crore, but it holds 30 per cent in Alembic Pharmaceuticals which has a market capitalisation of over Rs 10,304 crore. 

Subramanian says shareholders thus feel that the share is undervalued and there is potential to be unlocked. 

Sources in the investor community said that as many as 440 of these minority shareholders (around 1,000 of them) were created in the last three days, and many of the remaining became shareholders in the past four months or so. "Unifi is trying to misuse a provision in the Companies Act as it wants mirror shareholding in Alembic Pharma for Alembic Ltd shareholders. This would be unfair for Alembic Pharma shareholders," said a source on grounds of anonymity. 

Legal experts feel that since this is a precedent setting move, Alembic would have to scout all legal possibilities in case it does not feel such a move is beneficial for its larger shareholders and the company as such.