Some EGMs, the last resort for scam-hit shareholders

A value investor leads the shareholders' struggle in Ricoh India to get a board representation

Kalpraj Damji Dharamshi is not a name associated with shareholder activism. Known more for his value investing philosophy and quick-at-feet trading, Dharamshi, who runs Dharamshi Securities in Mumbai's Prabhadevi, finds himself in the forefront of the shareholders' fight against irregularities in Ricoh India.

Dharamshi, along with family members, owns about 275,000 Ricoh shares, and 259 shareholders have called for an extraordinary general meeting (EGM) on August 5. They cited the 75 per cent fall in market value of the stock following non-declaration of results in several quarters. The EGM notice also cited notes to the last declared results in September 2015, which referred to fraudulent practices by some of the key managerial personnel.

A three-decade stock market veteran, Dharamshi told Business Standard that the main objective of the move was to get a representative of minority shareholders appointed to the board. "We also want to remove the directors who have failed in their fiduciary duties towards minority shareholders. Why should they continue?"

The shareholders want to remove U P Mathur, R K Pandey, Ashish Garg and Hiroyasu Kitada - all four members of the audit committee from the board, for failing to conduct a fair and accurate review of the company's financial statements.

This EGM has been requisitioned by shareholders under Section 100(2) of Companies Act, 2013 and has a very detailed agenda. Such an EGM requires the requisitioning shareholders to have a minimum combined holding of 10 per cent in the company.

The EGM move comes at a time when the Japanese parent has agreed to recapitalise Ricoh India to the extent of its unaudited estimated losses, without placing any liability on minority shareholders, nor change the current shareholding of the promoters in Ricoh India.

"The present regrettable situation at Ricoh India is an isolated incident in the history of Ricoh Group. The petition from the promoters to NCLT for recapitalising Ricoh India will give a significant impetus to our efforts to effect a correction of the present situation and provide funds for business operations and future business growth. The recapitalisation will also offer relief for minority shareholders." A T Rajan, managing director and CEO of Ricoh India, had said in a statement.

Dharamshi welcomed the efforts taken by the management. "When we filed this (EGM notice) one-and-a-half months ago, the company had expressed their inability to share information citing selective disclosure norms. This EGM would provide them a platform to answer the questions of irate shareholders."

While the shareholders may succeed in appointing their representative, Ricoh Japan, the parent entity, seems to have faith in the audit committee.

Proxy advisory firm Institutional Investor Advisory Services has supported the move, saying it was " a strong signal that Corporate India's governance failures will increasingly be met with a muscular response".

Following the notice, Tetsuya Takano stepped down as chairman in the run-up to the meeting.

The EGM route has been attempted by minority shareholders at least twice in the past. In the case of Sanghi Industries, the meeting scheduled in November 2012 got postponed indefinitely. In a more recent case, in April 2015, shareholders of S Kumars Nationwide witnessed much drama.

The group of retail shareholders that requisitioned the EGM conveniently withdrew the resolutions that called for the removal of the entire board. The ability of the shareholders to pull off the agenda would be closely watched. A success for shareholders of Ricoh India EGM could pave the way for more activist shareholders taking this route in the wake of serious frauds/irregularities, feel corporate governance experts.

Dharamshi added that the regulatory requirement of 10 per cent shareholding or 100 shareholders for organising such EGM is onerous. "To gather information about other shareholders and communicate with them becomes difficult in the absence of a central database. Sebi should dilute these requirements." According to him, the suspension of the scrip by the exchanges has not helped the investors' cause in any way.

FIGHT TO PROTECT VALUE

• Kalpraj Dharamshi, a veteran value investor, leads shareholders' efforts in Ricoh India
   
• Dharamshi and 259 minority shareholders seek appointment of representative on the board
   
• They seek removal of audit committee which failed in its fiduciary duty
  

 

Such EGMs require request by persons with minimum holding of 10% or 100 shareholders
 

Sebi should ease this provision as it is onerous, says Dharamshi