NSE has to share the valuation report with Sebi and the company. Within two weeks of receiving the valuation report, Linde should place it before the audit committee and board of directors, the regulator said in an interim order.
The regulator received complaints raising concerns on various transactions Linde India had entered into with Praxair India and Linde South Asia Services Pvt Ltd (LSASPL), which are related parties of the company.
The company has also been directed to disclose on the stock exchanges a summary of the key observations in the valuation report along with management comments on the same.
Sebi said Linde India should test the materiality of future related party transactions(RPT) on the basis of the aggregate value of the transactions entered into with any related party in a financial year, irrespective of the number of transactions or contracts involved. Also, in the event, the aggregate value of the RPTs exceeds the materiality threshold it should obtain shareholders approvals. In 2018, there was a global merger between Linde AG and Praxair Inc, resulting in the formation of Linde Plc. Following the merger, Linde Plc had two subsidiaries operating in India – Linde India, which is a listed entity wherein it held 75% and Praxair India, which is a 100% step-down subsidiary.
Linde India and Praxair India, subsequently, entered into a joint venture and shareholders agreement , where both the companies would hold a 50% stake in LSALPL, which is engaged in providing administrative and support services to both of them.
The main allegations were on the business allocation between Linde India and Praxair India, which was not in interest of the public shareholders of Linde India.
It was alleged that Linde India failed to obtain shareholder approvals for material RPTs undertaken with Praxair India and irregularities in business agreement, where certain products and geographic areas were allocated between the companies.
As per Sebi rules, material RPTs have to be approved by the shareholders, while non- material RPTs only require audit committee approval.
The regulator observed that Linde India did not obtain shareholders approval prior to undertaking RPT transactions.
The company in its response to Sebi said, these transactions were executed with the approval of the audit committee and did not require shareholder approval as they were not considered material RPTs.
“.. no valuation was made available to the board of Linde India when the decision to award future businesses to a related party was being made. In this context, I note that relinquishing the rights to carry on a future business and the consequent opportunities of growth and earnings and cash flows associated with those business rights /opportunities, can be considered equivalent /synonymous to the transfer of business / resources /assets,” Sebi whole time member Ashwani Bhatia said in his order.
“The existing shareholders of Linde India do have a reason to be aggrieved and feel shortchanged by the decision of their board.”