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Minority shareholders of United Spirits Ltd (USL), India's largest liquor manufacturer, asserted their strength on Friday by defeating a majority of special resolutions moved by the company at its extraordinary general meeting (EGM) in Bengaluru.
Nine of the 12 resolutions were defeated at a ballot conducted during the EGM. Most of these pertained to agreements with entities connected to USL chairman and the erstwhile promoter, Vijay Mallya, inked a month before the company's acquisition by British liquor giant Diageo two years ago. These had to be put for shareholders' approval with new regulations on related-party transactions kicking in.
The company said in a filing to the exchanges that nine of the 12 resolutions had not been approved by members with the requisite majority. Separately, it also informed that the licensing proposal for manufacture and distribution of Diageo's products in India, on which it had sought approval through a postal ballot, had also failed to sail through. This could delay the process of integration of USL's sales channels with Diageo's global brands by at least a couple of months, company executives said.
"We are surprised that the resolutions were defeated. We will try to understand why shareholders voted against the resolutions. We will go back to them very soon to seek their approval again," a spokesperson for USL said. How soon the company would go back to shareholders would be known in due course, the spokesperson added.
That only 127 shareholders attended the EGM and participated in polling suggested institutional shareholders were instrumental in ensuring the defeat of the resolutions. As of September, schemes of several top mutual funds - State Bank of India Mutual Fund, Reliance Mutual Fund, Birla Sun Life Mutual Fund, DSP BlackRock and UTI Mutual Fund - held USL shares. Foreign institutions like Morgan Stanley, CLSA and Carmignac Gestion together held a 23.68 per cent stake in the firm.
In a report last week, Stakeholders' Empowerment Services had said: "The date October 11, 2012, is material, as Diageo announced its agreement to take over USL on November 9, 2012. SES raises the question as to what was the reason for the sudden barrage of transactions. SES would like shareholders to approach the securities market regulator, the Securities & Exchange Board of India, to investigate the motive and ensure these transactions were not entered into to deprive non-promoter shareholders of fair treatment."
Business Standard had last week reported that institutions and proxy advisory firms had several concerns over the resolutions.
This is seen as the first big victory for minority investors after new corporate-governance norms, under Clause 49 of listing agreement, came into force on October 1. Under these norms, related parties are required to abstain from the shareholder resolutions that they are interested in.
USL's special resolutions were defeated as those failed to garner the required 75 per cent votes from non-promoter shareholders. Only three resolutions secured the required number votes. These were the existing sales promotion services agreement between Diageo and USL, the existing trademark licence agreement between United Breweries (Holdings) Ltd and USL for use of the Pegasus trademark. The USL shareholders also voted to approve the resolution considering an erosion in the company's net worth, according to Section 23 of the Sick Industrial Companies (Special Provisions) Act.
"However, the USL shareholders voted not to approve the other existing transactions tabled at the EGM. USL is carefully considering the implications of these existing transactions not being approved and what actions it will need to take, if any," the USL spokesperson said.
Curiously, five promoter representatives cast their votes at the EGM, despite the regulations expressly requiring them to abstain.
These votes were rejected by the scrutiniser. All the promoters of the company - Relay B V (holding 54.78 per cent of the company's share capital), UBHL, Kingfisher Finvest India Ltd (KFIL) and others (holding in aggregate 4.09 per cent) of the share capital of the company) - had to abstain from voting on the resolutions numbered two to 12 in the notice.
However, five of the promoters of the company, UBHL, KFIL, Devi Investments Private Limited, Rossi and Associates Private Limited and Vittal Investments Private Limited, exercised their votes in favour of the resolutions No. 2 and No. 11. Subsequently, the scrutiniser invalidated their votes.
"The company will make enquiries, as appropriate, to further examine the validity of the votes exercised by them. In any event, even if the votes cast by them were to be considered as valid, the voting results in respect of these two resolutions will remain unchanged," the company secretary, V S Venkatarman, said in the announcement to exchanges.
Expressing happiness over the result of the EGM, a shareholder said: "The mood at the EGM was against the management. I am not surprised to know that a majority of the resolutions was defeated."
