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SKS Trust Advisors, the largest single shareholder in SKS Microfinance, is looking at legal options after the microfinance company on Tuesday said its shareholders did not have the right to nominate directors on the board.
After raising its stake to 13 per cent and becoming the largest shareholder, the trust had on Sunday demanded a commensurate position on the SKS Microfinance board and nominated Vikram Akula, the former CEO who had been pushed out of the microfinancier two years ago, as its representative. Akula, too, had welcomed his nomination, saying he would love to again play a leadership role.
But SKS on Tuesday said in a statement: "Under the company's articles of association, no shareholder has any right to nominate a director. All requests for appointment as director are required to be made in accordance with the Companies Act and the articles of association of the company and will be processed in accordance with law."
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Biksham Gujja, who heads the trust, said: "The SKS trust will evaluate all legal and regulatory remedies available in case the company declines to recognise our legitimate rights as the largest shareholder. However, we are optimistic the SKS board will react positively to our request."
The trust had also wanted Akula's appointment to be regularised at the annual general meeting (AGM) but the company recently obtained permission from the corporate affairs ministry to postpone its AGM, slated for September-end, by three months, since it plans to shift its registered office from Hyderabad to Maharashtra.
SKS comprises five mutual benefit trusts whose beneficiaries are self-help groups of borrowers of SKS Microfinance. SKS Trust Advisors is the sole trustee of these trusts.
It says Akula had started these trusts and his unique understanding of the microfinance sector would help the company achieve its goal of promoting financial inclusion and enhance long-term shareholder value.
In 2011, Akula had to step down as chairman of SKS Microfinance after conflict between him and other board members over how to run the company. People familiar with the recent developments said it was unlikely the SKS board would be keen to induct him again. "The board composition has not changed since Akula was forced to step down. The shareholding pattern is also more or less the same. The current management has been able to turn around the company. So, there is no reason why the board will be willing to reappoint Akula," said a person, requesting anonymity.
The trust, according to those in the know, is looking at various options. One is to call an extraordinary general meeting (EGM), in which the appointment would be part of the agenda. Under Section 169 of the Companies Act, 1956, shareholders holding not less than a tenth of the paid-up capital can apply for holding an EGM. The directors, upon receiving such a requisition, have to do so. The agenda could include issues such as corporate governance, shifting of registered office, current affairs of the company and appointment of an additional director on the board.
The trust could also file objections to the shifting of the registered office before the Company Law Board (CLB). And, as a minority shareholder, approach the CLB under Sections 397 and 398 of the Act. Under Section 397, shareholders can appeal against 'oppression' of their interests. Under 398, they can complain against mismanagement. At least 100 shareholders or those with a combined holding of at least 10 per cent, whichever is less, are required for filing of a case of this sort.
The Act confers on the central government and CLB the power to investigate the affairs of a company, on their own accord or on petition from members of a company. This is allowed in the case of a company having share capital, where an application has been received from not less than 200 members or from those holding not less than a tenth of the total voting power therein.
