MUMBAI: The Burman family has threatened legal action against the board of Care Health Insurance if it does not stop chairperson Rashmi Sarja from cashing in employee stock options (ESOPs).
MUMBAI: The Burman family has threatened legal action against the board of Care Health Insurance if it does not stop chairperson Rashmi Sarja from cashing in employee stock options (ESOPs).
The well-funded Care Health is the largest subsidiary of Religare, for which Burmese has announced a takeover bid in 2023. Sarja is the non-executive chairman of Care Health and executive chairman of parent company Religare Enterprises Limited (REL). Religare's board initially welcomed the Burmese takeover bid but then rejected it, giving rise to a range of allegations and counterclaims.
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The well-funded Care Health is the largest subsidiary of Religare, for which Burmese has announced a takeover bid in 2023. Sarja is the non-executive chairman of Care Health and executive chairman of parent company Religare Enterprises Limited (REL). Religare's board initially welcomed the Burmese takeover bid but then rejected it, giving rise to a range of allegations and counterclaims.
In a letter to Care Health's board on May 13, four of the Burman family investment firms wrote that the board had granted Sarja stock options for 22.7 million shares despite the Insurance Regulatory and Development Authority of India (Irdai) rejecting the offer. Mint has seen a copy of the letter.
The Burman family, which owns FMCG major Dabur Ltd and a host of other companies, also holds more than 25% stake in Religare through four associated companies — MB Finmart Pvt Ltd, Puran Associates Pvt. Ltd, VIC Enterprises Pvt. Ltd and Milky Investment & Trading Co.
In response to Mint's queries, a Religare spokesperson said Care Health has already submitted a comprehensive response, complete with supporting documents, to Irdai regarding the allotment of stock options to Sarja.
Bermans' letter alleges that Salja “continues to exercise these unlawful CARE options and to sell the resulting CARE shares to third parties, in the process seeking to profit from his fraudulently obtained CARE options.”
Bermans has asked Care Health's board not to issue any further shares resulting from the conversion of the more than 22.71 million Care Health stock options granted to Saluja, and not to permit the transfer of shares previously issued upon the exercise of Care Health options.
The letter also asked CARE's board of directors to publicly advise Salja not to trade in any of its CARE shares and to freeze the payment of “all dividends and voting rights attached to the shares arising from the conversion of the CARE options.”
The families have warned that if these procedures are not followed, they will take legal action against the executives “including, but not limited to, seeking reimbursement from the executives directly through the recovery of financial claims, or indirectly through claims against their personal assets.”
“Rashmi Sarja has received a total value of over Rs 4,000 crore from the REL Group, but REL has not made sufficient profits,” a Burman family spokesman said.
“The shareholders have raised these concerns with the CARE board and IRDAI and are actively exploring legal avenues to recover the loss in value. The CARE board's decision to award compensation of Rs 250 crore to the non-executive directors despite IRDAI's refusal to allot these options defies business logic,” the Burmese spokesman added.
A Religare spokesman said: “We wish to make it clear that these attempts by the Burmese are nothing but a malicious and sustained attack on Dr Rashmi Sarja's reputation, with their sole aim to remove her from Religare and seize control by any means necessary.”
“The acquirer (Burmese) has repeatedly raised the same concerns through a motivated smear campaign which will subject it to strict and appropriate legal action given its adverse impact on stock market integrity and impact on shareholder value, as well as regulatory action for leaking confidential documents and communications between regulatory agencies,” a Religare spokesman said.
Questions sent to Irdai went unanswered.
A question of choice
“The Acquirer fails to understand how exorbitant compensation to REL employees, particularly those in CARE's non-executive roles, contributes to shareholder value creation. In fact, value appears to be created primarily for REL employees at the expense of CARE shareholders,” the Berman family investment firm argued in a May 13 letter.
Meanwhile, a Religare spokesperson said the Care Health board has denied all allegations and assertions made by the Burmese as baseless and “categorically stated that the grant of ESOP to Dr Rashmi was in full compliance with all legal requirements as well as all standards of propriety.”
“The CHIL board reserves the right to take appropriate legal action against the acquirers in this regard,” the spokesperson said.
Care Health's share price at its last rights issue in 2022 was Rs 110 per share, meaning it is valued at at least Rs 1 trillion.
On December 31, 2021, CareHealth shareholders sought approval from the Insurance Regulatory and Development Authority of India (Irdai) to grant 27.76 million stock options to Sarja, but the regulator rejected the request in May 2022. Subsequently, in June 2022, CareHealth's board granted Sarja stock options for 22.71 million shares, which are now valued at at least Rs 250 crore.
While granting stock options to Saluja and other employees of Religare, Care Health had said the board was “conscious of motivating REL's employees and has designed the vesting schedule of the ESOPs to be consistent with shareholder value creation.”
background
On September 25, 2023, the Burman family announced plans to acquire Religare Enterprises through a tender offer, but is currently awaiting approval from market regulator SEBI. Currently, the Burman family has an indirect stake in Care as they hold shares in Religare, the insurance company's parent company. After the tender offer, the Burman family will effectively become the owners of Care Health. The Burman family recently received approval from the Competition Commission to acquire REL.
The controversy over the stock options erupted after Burmese announced its intention to acquire Religare on September 25, 2023. After Religare's board of directors, led by Sarja, opposed the acquisition proposal, Burmese alleged that Sarja had received an unusually large amount of stock options from Care Health.
Religare's board had argued that the price of Rs 235 per share offered by Burmans was too low. Currently, REL shares are trading at Rs 214.55 per share (Friday).
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