Billionaires Taken to Task by Rise of Indian Small Investors

Earlier, individual investors were more likely to use shareholder meetings to sing praises. Not anymore.

Billionaires Taken to Task by Rise of Indian Small Investors
Anil Ambani, chairman of Reliance Capital Ltd., leaves in a car after the company’s annual shareholders meeting in Mumbai, India. (Photographer: Abhijit Bhatlekar/Bloomberg News)

(Bloomberg) -- With Anil Ambani’s telecom unit battling insolvency proceedings, the Indian billionaire found a target to blame for some of its woes at a recent shareholder meeting: Shailesh Mehta, a 71-year-old investor who holds just 10 shares in the indebted company.

Addressing the hall, Ambani said Mehta had cost banks and other shareholders by challenging, in the Bombay High Court, Reliance Communications Ltd.’s attempt to merge with another telecom operator, Sistema Shyam Teleservices.

Ambani’s frustration with the activist is understandable. Until recently, minority shareholders in India rarely clashed with management and individual investors were more likely to use meetings to recite poetry and sing the praises of the nation’s industrialist families.

But Mehta’s ilk is growing as retail investors channel more savings into the stock market, especially via mutual funds, or through insurance and pension providers, which are being forced by regulators to take a more active role in corporate governance.

“Earlier, the only option an investor had was to sell if they have a difference in opinion with the management,” said Amit Tandon, founder of proxy advisory firm Institutional Investor Advisory Services. “Now, investors have an option of voicing their concerns too. Companies are now disclosing far more details in anticipation of minority shareholder demands.”

Discount Apartments

In June, small shareholders of garments manufacturer Raymond Ltd. voted down a plan to sell at a substantial discount apartments developed on the company’s property to entities related to the founder’s group and Chairman Gautam Singhania. A month later, fund manager Unifi Capital Pvt. tried to get a seat on the board of drugmaker Alembic Ltd. to represent small shareholders, using a provision in the Companies Act. for the first time, according to a BloombergQuint report. The attempt failed but highlighted a right small shareholders haven’t before exercised.

Last month, India Horizon Fund filed a plea with a company tribunal seeking to dissolve the board of Religare Enterprises Ltd. Companies including Kumar Mangalam Birla’s Grasim Industries Ltd. and Maruti Suzuki India Ltd. have also come under fire from some small investors.

At the RCom meeting in September, Mehta said he had to force his way in and struggled to get to speak at the podium. When he started talking, Ambani told him he was not welcome and read out extracts from the high court judgement in October 2016, which had dismissed Mehta’s objections, calling some of them frivolous.

‘No Accountability’

“I don’t invest in shares anymore because I have lost faith, as companies don’t work in the interest of shareholders,” Mehta said by phone from Mumbai. “There may be regulations but there is no effective mechanism to implement the regulations and there is no accountability with the financial institutions and the companies."

RCom spokesman declined to comment and shared instead a part of the court judgement.

Institutional shareholders have become more engaged since 2014, when the Securities and Exchange Board of India made it compulsory for mutual funds to explain their voting decisions on proposals linked to mergers and appointment of directors. The regulator tightened the rules further in August 2016, asking decision be vetted by a “scrutinizer.”

Billionaires Taken to Task by Rise of Indian Small Investors

The changes have helped to lift India in the World Bank’s ranking of protections offered to minority investors. It is now in 13th place, ahead of nations including France and the U.S. While the nation’s company laws and markets rules are one of the world’s most advanced, there’s room to get better, said Santiago Croci Downes, program manager at the Doing Business unit of the Washington-based lender.

“India could improve on the director liability index,” Downes said by email. The gauge measures the likelihood that a small shareholder will succeed in a claim to hold board members liable for their decisions, he said.

India has also introduced rules allowing class action suits and rights to approach a tribunal if small stockholders’ interests are trampled on, and curbed the powers owners used to enjoy on proposals that involve related entities.

Billionaires Taken to Task by Rise of Indian Small Investors

More changes are afoot.

A Sebi panel last week recommended a series of changes to rules governing boards, such as ensuring the independence of 50 percent of directors, including one woman; doubling the minimum number of directors required; and splitting the roles of chairperson and managing director or chief executive where the public holds more than 40 percent in a company.

Starting this quarter, the Insurance Regulatory and Development Authority has asked the industry to adopt a stewardship code, where insurers vote on portfolio company resolutions. The Pension Fund Regulatory and Development Authority has also mandated pension-fund managers vote, IiAS’s Tandon said.

Domestic and foreign investors held about a third of India’s equities at the end of March, up from 26 percent in March 2001, according to IiAS. Mutual and pension funds abstained in 11 percent of votes in the year ended March 2017, down from 24 percent in 2015, data from IiAS show.

The gush of money into funds has swollen the industry’s assets to a record 21.5 trillion rupees, while the country’s Employees’ Provident Fund Organisation had a portfolio of about 8.7 trillion rupees at the end of March.

“Increased communication and stakeholder engagement is essential for fostering a sense of fairness and trustworthiness,” said Shriram Subramanian, founder of InGovern Research Services, one of a growing number of proxy advisory firms that have sprung up in past few years. “Shareholder activism makes companies more efficient.”

--With assistance from Bhuma Shrivastava Candice Zachariahs and Siddharth Philip

To contact the reporters on this story: Saket Sundria in Mumbai at, P R Sanjai in Mumbai at

To contact the editors responsible for this story: Ramsey Al-Rikabi at, Adam Majendie, Ravil Shirodkar