The independent directors of Religare Enterprises Ltd (REL) have written to authorities such as the RBI, Sebi, and the insurance watchdog, alleging fraud and other violations against the Burmans, who made an open offer to purchase control of the firm in September. This sets the setting for a possibly protracted takeover war for a company with coveted licenses to lend, offer insurance, and act as a stock market intermediary.
"We are surprised and disappointed by these allegations," a Burman family spokeswoman stated in a statement. "These allegations are false, frivolous and defamatory." According to the source, the claims are intended to divert attention away from transactions made by an anonymous REL executive.
In an October 18 letter, the Securities and Exchange Board of India (Sebi) asked REL for evidence and documentation to support the claims. Sebi has also requested a response from JM Financial, the open offer's manager, on the allegations raised in the letter. JM Financial, for its part, has disputed the charges of conspiracy and misconduct.
By August, the affluent Burman family, promoters of FMCG behemoth Dabur, had amassed a 21.5% stake in REL through various organizations. It purchased another 5.27% share in September, triggering an obligatory open offer to purchase an additional 26% ownership from the public. This is subject to Sebi approval.
In their letter, the independent directors attempted to broaden the issue by highlighting REL's ownership of companies operating in regulated businesses and arguing that the party seeking to acquire the business should be scrutinized for the "fit and proper" criteria that apply to license holders in these segments.
Four Companies
REL is the owner of four major enterprises. Religare Finvest provides small company loans, Care Health Insurance provides health insurance, Religare Housing Development Finance Corp provides house loans, and Religare Broking provides retail stock brokerage.
The Burmans, according to REL's independent directors, are in substantial breach of regulatory requirements that may hurt the company. Five of the board's six members are independent. Malay Kumar Sinha, Hamid Ahmed, Praveen Kumar Tripathi, Ranjan Dwivedi, and Preeti Madan are the members. Rashmi Saluja, the executive chairperson, leads the board.
The governor of the Reserve Bank of India, as well as the head of the Insurance Regulatory and Development Authority of India were addressed with respect to the letter sent to the Sebi chairperson.
"Because it (REL) is an NBFC (non-banking finance company), it requires RBI approval," said a source familiar with the situation. "Because it has an insurance arm, IRDAI approval is also required." Before approving the open offer, Sebi would consider the perspectives of all parties.
The allegations in the letter, a copy of which ET has reviewed, include allegations of collusion with the former owners, the Singh brothers; a pending fraud case against Dabur India chairman Mohit Burman; questions about the source of funds to be used for the acquisition; and market manipulation, among other things.
The Burman Group, according to the letter, is involved in several "frauds and financial improprieties," which are being examined by various statutory authorities. "The company is being presented with such extraordinary adverse facts and allegations against the acquirers, making it important... to review its original objective and neutral position," the board of directors wrote in the letter.
Red-flagged trades
According to the family spokesperson, the charges are in retaliation to the Burmans raising attention to some trades by an undisclosed official.
"At this point, we are afraid that some of these claims are being staged as lies by interested REL personnel... According to the Burman family statement, "some of these allegations are being made because we drew the attention of the company by our letter dated October 26, 2023, to the board of REL, to certain share trades by a certain senior executive at REL immediately prior to the launch of our open offer." "We are concerned that instead of dealing with the legitimate queries raised in our letter of October 26, 2023, the attention of regulatory authorities/board/public shareholders is being deflected to such falsehoods."
According to the spokesperson, the Burmans run a sizable family investment business with substantially more assets than are required for the planned acquisition.
"The Burman family and its members satisfy all norms of fit and proper criteria mandated by financial services regulators and this allegation is baseless and devoid of any merit," the statement went on to say. "We acquired all of our REL shares through transparent market purchases and preferential allotments in prior fund-raising exercises approved by REL's board of directors." There is absolutely no market manipulation."
Emails addressed to the RBI, Sebi, IRDAI, and REL received no response.
The independent directors claimed that JM Financial, the open offer's manager, is in collaboration with the Burman group because the financial services firm is interested in the open offer through one of its firms, which contradicts the purpose of Sebi's takeover code.
The Function of JM Financial
"According to the detailed public statement (DPS) issued by the Burmans, the primary source of cash is in the form of debt financing to the tune of Rs 700 crore, which has been extended by JM Financial to the acquirers," according to the letter sent by the independent regulators to REL. "Regulation 12 of the Takeover Regulations stipulates that the manager to the offer should not be an associate of the acquirers."
They further claimed that JM Financial is acting in "multiple conflicting roles," such as a lender in the open offer transaction and a professional advisor in the M&A transaction. JM Financial stated that the charges were false.
"There is no conflict of interest whatsoever in the professional duties being discharged by each of our group entities... our association with acquirers is strictly that of a client where we are providing professional financial advisory services and acting as manager to the proposed open offer," a spokesperson for the business stated. "The amount of Rs 700 crore is an additional financing for the purpose of the open offer which the acquirers may avail to have flexibility to use alternate means of funding, in addition to the investments and cash and bank balances aggregating up to Rs 28,989 crore already available with the acquirers."
The open offer is expected to cost the Burmans Rs 2,116 crore if accepted in full.
